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Maintaining Sound Financials as a Sole Proprietor

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Running a small business is the stuff of dreams for many a sole proprietor who would rather make it on their own than toil away for someone else. Operating as a sole proprietor is just one way to structure a small business. It has its advantages and disadvantages. It also has its challenges, including maintaining sound financials.

The thing about operating as a sole proprietor – or sole trader in the UK – is that the government does not recognise any distinct separation between personal and business assets. Every dime a sole proprietor earns in business income is also considered personal income. It is taxed accordingly. Sole proprietors are subject to fewer write-offs as well. To keep finances in order, sole proprietors have to be a lot more careful in managing their personal finances.

Key Differences for Sole Proprietors

By definition, a sole proprietor is someone who operates their business alone. There are no other employees, with one possible exception: immediate family members. A good example would be a baker who specialises in wedding cakes. They normally work by themself. When necessary, theybring in their spouse and one of their children to help get them through those especially busy times.

Here are some of the key differences for sole proprietors:

  • Legal Entity – A sole proprietor’s business is not a legally recognised entity in the same vein as an LLC, partnership, or corporation. This is definitely important at tax time. It could also prove important in the event of litigation.
  • Tax Structure – As previously mentioned, the government does not recognise separate income for sole proprietor and their business. It is all one and the same. That means sole proprietors pay both the employer and employee portions of Social Security and Medicare taxes.
  • Managing Assets – Assets are not considered business property for the sole proprietor unless they are used exclusively for business purposes. Rented space for the baker would be considered an exclusive business asset. Their kitchen at home would not be.

All of this matters to maintaining sound financials. Sole proprietors have to consider all of these things, and more, and weigh them against non-business financials like paying the mortgage and covering the groceries.

The Budget Is Key

Budgets are important for everyone. They are even more so for sole proprietors. Not only does the budget act as a spending guideline, but it also acts as a fire action sign for a business owner’s financials. In other words, a budget lays out exactly what’s coming in and going out. If expenditures are higher than income, a budget is a warning sign that demands action be taken.

The thing that gives sole proprietors the most trouble in terms of budgeting is planning for business expenses. Like household expenses, there are certain business expenses that are known in advance. But that’s not the case for every expense. Business expenses constantly fluctuate for sole proprietors.

A good way to address unknown business expenses is to take the total from the previous year and then multiply it by the current rate of growth. So, if you are 50 percent busier this year than you were at the same time last year, 50 percent is the rate of growth. You would take last year’s total expenses and multiply them by 1.50 to get an estimate of this year’s.

You would then take that number and multiply it by the rate of inflation to make up for higher prices on equipment and supplies. That final number is the number to use for budgeting purposes. It is a rough estimate of how much you need to set aside to cover equipment, supplies, etc.

Setting Aside for Taxes

The other thing that kills sole proprietors is tax liability. Again, sole proprietors pay both the employer and employee portions of Social Security and Medicare (FICA). That is on top of regular income tax. It is a smart idea to set aside a certain amount for every payment to go toward taxes.

Also bear in mind that sole proprietors have to file estimated quarterly taxes. Payments are made in April, June, September, and January. There are two ways to decide how much to pay:

  • Estimate – Sole proprietors can estimate their annual income and pay taxes accordingly. The federal income tax table indicates the business owner’s income tax while FICA taxes are assessed at a flat rate. Those numbers can be found on the SSA website.
  • Previous Year – Business owners that do not want to take a chance at estimating and getting it wrong can simply pay a total of the previous year’s tax liability. Even if quarterly payments are eventually not enough, there will be no penalty for underpayment the following April.

Sole proprietors required to collect and pay sales tax should be setting aside that portion of weekly receipts to pay the bill. It is very important that a separate sales tax account be set up rather than throwing everything into a general fund. It is just too easy to spend everything in the bank account and then not have enough money to pay sales tax when it comes due.

Planning and Saving

In a nutshell, keeping a sole proprietor’s finances on track is about planning and saving. The budget is a planning tool that acts as both a guideline and a fire sign. Savings enable a sole proprietor to make tax payments on time and, if there is a little leftover, earn some interest.

The one thing sole proprietors should not do is leave their finances to random chance. When business finances are not in order, it is too easy to pass off obligations to the next month, then the next, and so on. A lot of sole proprietors have gotten themselves into tax hell by not keeping their finances in order and then not being able to pay their taxes.

As a side note, transitioning from a sole proprietorship to a partnership or LLC, for the purposes of separating finances, isn’t a good idea unless you’re willing to pay an accountant to keep things straight for you. If you cannot manage your finances as a sole proprietor, you will not be able to manage them as chief officer of the LLC or partnership.

The idea of Bigtime Daily landed this engineer cum journalist from a multi-national company to the digital avenue. Matthew brought life to this idea and rendered all that was necessary to create an interactive and attractive platform for the readers. Apart from managing the platform, he also contributes his expertise in business niche.

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Business

Robert DeFalco Realty Leads the Way with Strategic Expansion and Philanthropy

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Robert DeFalco, the visionary founder and Owner/Operator of Robert DeFalco Realty, cemented his reputation as a huge force in the real estate industry. His firm, recognized as the #1 real estate company in Staten Island, embarked on a significant expansion this year, solidifying its status as a comprehensive hub for real estate services in New York and New Jersey.

Strategic Growth and New Partnerships

This growth involves not only a physical expansion, but also a strategic partnership with Think Mortgage, a prominent mortgage firm with a strong presence in Brooklyn and Staten Island. The collaboration aligns perfectly with DeFalco’s vision of providing seamless and integrated real estate transactions.

“We are creating a holistic experience,” stated DeFalco.

By partnering with Think Mortgage, Robert DeFalco Realty ensures clients can find their ideal home and secure the best possible mortgage rates, simplifying the process into a smooth journey from start to finish — all in one building.

Comprehensive Services Under One Roof

The firm moved to a new location in Brooklyn, occupying an entire corner block to house its operations. The expansion ensures that clients can access all necessary services under one roof, including real estate and mortgage services, in-house title services, legal expertise, and more. The move underscores DeFalco’s commitment to providing unparalleled convenience for clients.

“We are creating a synergy where all real estate needs are met promptly and professionally, right here,” added DeFalco.

A Legacy of Philanthropy

Beyond his professional achievements, DeFalco is renowned for his philanthropic efforts. He believes in the responsibility of businesses to give back to their communities. Under his leadership, Robert DeFalco Realty is a leading sponsor for the Making Strides Against Breast Cancer walk, raising substantial funds annually.

In 2019, the Emergency Children’s Help Organization honored DeFalco for his significant contributions, recognizing him with the Man of the Year Award. His dedication to philanthropy also earned him the Service and Dedication Award from the Juvenile Diabetes Research Foundation in 2022.

Community Engagement and Support

Robert DeFalco Realty’s commitment to philanthropy extends to various community events and local charities. The firm supports a wide range of organizations, including the American Cancer Society, City Harvest, Monmouth University, St. Peters High School, and many more. Their efforts make a substantial positive impact, with total donations surpassing $1,000,000.

Most recently, DeFalco attended and sponsored the ECHO Foundation, GRACE Foundation, and Tunnel to Towers events in various capacities.

Looking Forward

With its recent expansion and continued commitment to comprehensive real estate services, Robert DeFalco Realty reaffirms its position as the premier one-stop real estate shop in the northeastern region. The firm continues to uphold its foundational philosophy of treating people well, a mantra that has guided its operations since its inception in 1987 and continues to inspire its growth and innovation today.

About Robert DeFalco

Robert DeFalco Realty was founded in 1987 by Robert DeFalco, a real estate Broker/Owner who wanted to help families achieve their dream of homeownership. Through the philosophy ‘Treat People Well,’ Robert DeFalco has grown into a successful real estate agency led by a professional team of highly motivated real estate associates with experience in residential, commercial, and new real estate development. For more information, please visit https://www.defalcorealty.com/ 

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