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« Help a Reader: Discussing a Pre-Nup | Main | Star Money Articles and Carnivals for the Week of May 24 »

May 27, 2010

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I think this is a good guide, but cutting out almost all your entertainment expenses because you'll be working almost all the time sounds awful to someone like me. I'd suggest splurging on a karaoke night with friends once a month so you don't undergo complete burnout.

You need to have a SEPARATE business and personal credit card, along with separate business and personal checking accounts, not one card for both as stated. This is to account for business expenses at tax time mainly, but also for legal reasons to separate liability.

Tim is correct - it is better to establish a separate financial presence for your business even if it will be a sole proprietorship at first. Makes it easier come tax-time as well as for liability and expensing, etc. You then draw your 'salary' or compensation from that account.

Also, you should be looking at things differently in terms of 'profit' - many people say you can expense a lot of things - that is true, but you still have to have some type of income in order to pay for those expenses. The cash flow becomes important for the life of the business. Moreover, you want to establish frugal business habits early on as well. Different types of businesses have different types of expenses - I'm a consultant, so travel, computer, internet, phone and other office supplies are my expenses or overhead. There aren't many others, so the trick is to figure out what to charge on a consulting job to cover those expenses, my compensation and taxes. Plus for me in my personal account, I then look at health care, retirement, etc (although as a business owner, there are very generous opportunities for placing profits into tax-deferred vehicles for retirement).

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