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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

Outsourcing Front-End Development Services: Insider’s Guide

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Outsourcing front-end development services has become increasingly popular in recent years as companies look to access specialized skills and expertise, and save on labor costs. According to the Global Outsourcing Survey made by Deloitte, the top reasons for outsourcing front-end development are to access specialized skills (57%), cost savings (50%), and to free up internal resources (49%).

This article will cover some frequently asked questions (FAQs) in a Q&A way to help you make an informed decision when considering outsourcing front-end development services. We’ll address concerns such as how to find the right vendor, how to communicate effectively, and how to manage the project to ensure success. By the end of this article, you’ll have a better understanding of the considerations and best practices for outsourcing front-end development services.

What is front-end development?

Front-end development, or client-side development, refers to designing and implementing a website’s or application’s user interface (UI). It involves creating the layout, visual design, and interactive features that users interact with when they visit a website or use an app.

Front-end developers use a variety of programming languages and technologies to build the UI, including HTML, CSS, and JavaScript. They also need to have a strong understanding of user experience (UX) design principles and be able to create visually appealing and intuitive interfaces that meet the needs of the target audience.

Front-end development plays a crucial role in the user experience of a website or application, and it’s an essential part of any digital product. The work of a front-end developer often intersects with that of a UX designer and a back-end developer.

Why should I consider outsourcing front-end development services?

As mentioned in the intro, there are several reasons why outsourcing front-end development services may be an excellent option for your company. One of the main reasons is cost savings. Outsourcing is often more cost-effective than hiring in-house developers, especially if you only need front-end development services for a specific project. 

Also, a company can benefit from a vendor’s specialized skills and experience and the ability to scale its development resources as needed. This can be especially useful for companies with fluctuating project demands or in need to quickly ramp up or down their development efforts.  

In addition, outsourcing front-end development can allow a company to focus on its core competencies and improve the overall quality of the product, as well as save time by delegating the development work to a vendor. 

How do I find the right front-end development company to work with?

Finding the right front-end development company to work with is crucial for a successful project. Start by defining your project goals, timelines, and budget, and research potential vendors with experience in the technologies and frameworks relevant to your project. 

Review the company’s portfolio and case studies to get a sense of their past work and the types of projects they have experience with. Glassdoor, Trustpilot, LinkedIn, GoodFirms or Clutch are some platforms to do this. Consider the company’s culture and values. You can also request references and speak with past clients to get an idea of the company’s track record and how well they handle challenges like yours. 

What should I consider when choosing a front-end development company?

There are several factors to consider when choosing a front-end development company. Technical skills and experience are crucial, as the company will be responsible for building and implementing the UI of your website or application. Check if the company has experience with the technologies and frameworks you need for your project.

Effective communication and collaboration are also essential. Verify that the vendor has a track record of working well with clients and can effectively communicate and collaborate with your team. Cultural fit is also important, as you will be working closely with the vendor for the duration of the project. It’s a good idea to have a face-to-face or video call meeting to get a sense of the company’s culture and see if it aligns with your own.

Finally, consider the company’s pricing and business model. Make sure the company is transparent about its rates and fees and that they align with your budget. Also, consider whether the company offers flexible pricing options or packages that may be more suitable for your needs.

Once you’ve narrowed down your options, it’s a good idea to request proposals from a few different vendors. This will allow you to compare and contrast their approaches and determine the best fit for your project. 

Bringing it all together

In summary, outsourcing front-end development services can be an easy, cost-effective, and efficient way to access specialized skills and expertise. By carefully considering factors such as technical skills, communication and collaboration abilities, cultural fit, pricing, and business model, you can find the right vendor to meet your needs and achieve success with your project.

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