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INTRO Laid off, presented with a golden opportunity

Nov 8, 2019
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I was laid off and as I was making my clients aware, one suggested that I start my own company and he would work with me directly.

The engagement would be a 1-year fixed fee + expenses reimbursed engagement. The fees exceed my current salary by 2.5X and seems like a no brainer but before I commit to doing this, I want to "run the numbers".

Can you let me know what I need to consider? From limited research my understanding in how to get my "income" is its going to be

Fees
Less Expenses (technology, website, legal, business insurance, etc.)
Equals Net Income
Less Social Security, Medicare and Federal taxes on the Net Income

What are rough numbers that I should be considering for expenses (e.g. benefits, legal fees, business insurance, etc.)

Anything else I need to be considering?
 

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KAA

Contributor
Read Millionaire Fastlane
Aug 6, 2018
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I was laid off and as I was making my clients aware, one suggested that I start my own company and he would work with me directly.

The engagement would be a 1-year fixed fee + expenses reimbursed engagement. The fees exceed my current salary by 2.5X and seems like a no brainer but before I commit to doing this, I want to "run the numbers".

Can you let me know what I need to consider? From limited research my understanding in how to get my "income" is its going to be

Fees
Less Expenses (technology, website, legal, business insurance, etc.)
Equals Net Income
Less Social Security, Medicare and Federal taxes on the Net Income

What are rough numbers that I should be considering for expenses (e.g. benefits, legal fees, business insurance, etc.)

Anything else I need to be considering?
Two things I see missing are marketing and administrative expenses. If you are only doing work for one client, and they are the major source of your revenue, you are put in a vulnerable position. (I learned this lesson the hard way!) You should look at what you will do to reach out to prospects and acquire new customers, then build that into your expenses. As soon as you can, you should also look at hiring an administrative person/virtual assistant and a bookkeeper to take care of things you shouldn't have to focus on. You should aim to have someone else do all the tasks that you can pay someone else to do for less than what your $/hour value is. Also, DO NOT forget to file and pay all the new tax returns and payments you will be responsible for as a business owner. Even honest mistakes can cause penalties and frustration in getting back on track. Good luck!
 
OP
OP
S
Nov 8, 2019
9
0
1
Two things I see missing are marketing and administrative expenses. If you are only doing work for one client, and they are the major source of your revenue, you are put in a vulnerable position. (I learned this lesson the hard way!) You should look at what you will do to reach out to prospects and acquire new customers, then build that into your expenses. As soon as you can, you should also look at hiring an administrative person/virtual assistant and a bookkeeper to take care of things you shouldn't have to focus on. You should aim to have someone else do all the tasks that you can pay someone else to do for less than what your $/hour value is. Also, DO NOT forget to file and pay all the new tax returns and payments you will be responsible for as a business owner. Even honest mistakes can cause penalties and frustration in getting back on track. Good luck!
The type of service I'm providing is fairly minimal from an administrative purpose. All I need to do outside of the service is invoicing, which I already did myself for my past employers. I am not looking to do advertising expenses at the moment because if I go through with this, the fees are large enough where I believe I can make a decent profit. So with that said, here are the "expenses" I've come up with and their annual cost. Let me know if these amounts are within ballpark or I need to adjust

- Virtual Office - $3,600 (probably won't need this right away)
- Website + hosting - $144
- Zoom Conferencing - $192
- Medical Insurance (family of 3) - $30,000
- Professional Liability Insurance - $5,000
- Legal Consultation - $15,000 (would be used on limited basis to review NDA/contracts before signing)
- Software Developer - $10,000

In addition to the expenses above, I'm trying to learn a little more around taxes and the timing of when they need to be paid. This is important because I will want to structure my payment terms to account for this.

The way I understand it is that you have the following:

Business income
Less business expenses
Equals business net income

Your self-employment tax is based upon the business net income and you'll pay quarterly estimated taxes.

Lastly, what about State/Federal taxes? Let's take these rough numbers

Income: $500,000
Less Expenses: $70,000 (this includes the items listed above)
Net Income: $430,000

Self Employment Tax:
Social Security: $16,480
Medicare: $11,516

That would leave $402,004

Is my federal/state tax obligation based upon the $402,004 or however much I draw from that over the year? I'm trying to think if there is a draw amount that I can take and deductions to draw a decent amount but have to pay minimal taxes on it with the deductions.
 
Last edited:

Ernman

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Make sure you have a good CPA/tax person who understands small biz and self-employment. It's just too easy to mess this up - even when you're trying to do the right thing.
 
OP
OP
S
Nov 8, 2019
9
0
1
Make sure you have a good CPA/tax person who understands small biz and self-employment. It's just too easy to mess this up - even when you're trying to do the right thing.
Definitely going to a professional for final review and such, but just trying to learn myself so I am at least slightly educated before going to them.
 

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