Starting a new business is an exciting time, but with so much to be done (and so little time to do it), it's easy to allow some of the most basic (and most heavily penalized) activities to fall through the proverbial cracks. If you intend to have employees, there are several federal and state requirements that will need to be satisfied in order to get your business started properly. That's where an experienced CPA can help.

Employer Identification Number (EIN) 

Obtaining an Employer Identification Number (also called a Federal Tax Identification Number) will be your first order of business, because most of the other processes require it. EINs are required for employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts, estates, government agencies, certain individuals, and other business entities for tax filing and reporting purposes. Use the IRS's Internet EIN site (, or fill out and mail (or fax) Form SS-4 to the IRS. Note: applying by fax or mail generally takes up to two weeks.

Withholding, Unemployment, and Sales Tax

Once you have your EIN, you will need to establish an account(s) - typically with the Department of Revenue or similar agency - with each state in which your employees live, in order to withhold and remit certain payroll liabilities, such as state income tax (if your state has an income tax), unemployment insurance, and sales tax collections (if applicable).

The IRS also has an online process called The Electronic Federal Tax Payment System® tax payment service - or EFTPS - with which you will enroll, receive credentials, and then use to report and remit federal income taxes, federal unemployment tax, and social security and medicare withholding (a.k.a., Federal Insurance Contributions Act, or FICA tax).

Payroll Record Keeping

In order to comply with the state and federal requirements for payroll withholding, reporting, and remittance, you'll want an accurate payroll reporting system in place - one that is also easy to use will also be helpful because payroll reporting and record keeping can be very time-consuming and costly, especially if it isn't handled correctly. Also keep in mind that almost all employers are required to transmit federal payroll tax deposits electronically through EFTPS. And personnel files should be kept for each employee, which should include the employee's employment application as well as:

Form W-4: completed by the employee and used to calculate their federal income tax withholding. This form also includes necessary information such as address and social security number.

Form I-9: must be completed by the employer to verify that employees are legally permitted to work in the U.S.

Form W-9: to be completed by subcontractors who perform labor or provide services to your company, depending on the type of entity s/he is. Because the regulations for 1099 reporting are getting tighter, and the penalties for failing to report non-employee compensation timely and accurately are getting stiffer, I advise everyone I work with to require that all of their vendors provide them with a completed Form W-9 before they issue them their first check for services. It might be overkill, since many (maybe even most) of your vendors will not require a 1099 in January, but it's better to have the form and not need it, than it is to need the form and not have it.

If you need help setting up or completing any paperwork needed for the formation of your proposed business, don't hesitate to call.

***This article is intended for information purposes only, and is not meant as tax advice. It is not intended to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed by any regulatory agency. 

The Business Improvement Cycle: Steps 1 and 2

As stated in the last post, NO business is perfect.   ALL businesses have room for improvement (even the one posting this article). That's why we're talking about the Business Improvement Cycle, a multi-step process that analyzes where a business is "at", where it's going, and how it's getting there. This week's post will cover the first two steps in the process:

  • RAW DATA: Step #1 starts with Raw Data.   Another way to think of Raw Data is by asking yourself, “What’s in my shoebox?”  Receipts, invoices, bank statements, cancelled checks, and all the transactional documentation that comes in on paper, or even digitized, contains the seeds of intelligence; however, when left unorganized and unanalyzed, they convey no meaning.

  • INFORMATION: Step #2 categorizes, organizes, and compiles the Raw Data into useable Information, and the dual-entry accounting method is the best process to do thisThe most common way of organizing information is by creating Financial Reports, specifically Income Statements and Balance Sheets.  These are the two foundational tools for fiscal management and improvement that your accountant or bookkeeper will create monthly, quarterly, and annually; unfortunately, many of them deliver financial reports and then think the job is done. But financial reports are not the End of fiscal management, they are just the Beginning.

Tune in next time for "Analyze", step number three in "the cycle"...

The Business Improvement Cycle - An Introduction

No business is perfect.   All businesses have room for improvement. The purpose and mission of management is to improve the business.  Improvement is measured in dollars and cents, but it is facilitated by the Business Improvement Cycle.   It is important to take the business through the Business Improvement cycle consistently, and frequently, to accelerate business improvement.  This should be done, ideally, on a monthly basis, or at least quarterly for smaller businesses. 

This brief is an overview of the Business Improvement Cycle, and will be followed by further expansion on the seven topics below in future posts.  For now, invest about thirty seconds reading the steps in the process known as the Business Improvement Cycle:

1.       RAW DATA: Receipts, invoices, bank statements, cancelled checks, etc., are all forms of raw data. 

2.       INFORMATION: Income Statements and Balance Sheets are the two main ways data is organized into information.

3.       ANALYSIS: Information needs to be analyzed, or broken down, studied, and decoded by a professional.

4.       CONTEXT: The results have to make sense to the owner(s) in order to have any meaning or value.

5.       DECISIONS: Once the results are understood, decisions can more effectively be made. 

6.       PLANNING: Once the decisions are made, creating action plans comes next.

7.       IMPLEMENTATION*: The final phase is to implement the action plan. 

*Every implementation creates new RAW DATA, so the Business Improvement Cycle starts all over again. The power of the Business Improvement Cycle manifests as it is consistently implemented and repeated – in other words, FREQUENCY ACCELERATES SUCCESS.  

Tune in for my next post during which I’ll cover steps one and two, above, in a little greater detail.  If you have any questions, or need any help in the meantime, don’t hesitate to contact me.