QUESTION ON How to Handle the Business Profits of a Home Business
How does the owner of a business see the business profits of his venture at home? For example, does the owner himself also receive a pay check, or is he allowed to simply remove money from the account of the business he owns? Thanks for your time.
– – Robert, FL
ANSWER by Nach Maravilla
How will you see the profits of your home business? It will depend on the setup of your business, and your overall management processes.
If you are running a business as an authorized representative of another company — e.g. independent sales agent — then your “profits” will come in the form of your commission checks that the company will send you. This is also true if you were running an online business and solely dependent on affiliate programs, where your earnings will come from the check or direct deposit issued to you by the affiliate marketer.
If you are operating as a Sole Proprietor, whether online or offline, you can basically do whatever you want with the money that you earn from your home business. You can decide to put back all your revenues into the business, especially during the start-up phase when you need more capital to grow. You can pay yourself a certain percentage or certain fixed amount each month as your “salary” as the business owner, with the rest of the money plowed back into the business. There are some home business entrepreneurs who do not collect salaries for the first two years of their business, while many others collect their paychecks within the first six months of business.
We recommend to new business owners to keep the bank accounts for business and personal use separate. This will allow for an better bookkeeping system, making it easier for the business owner to keep track of the ins and outs of business funds. It is also easier to see whether you are making any money (or not). Same is true with business and personal credit cards. Another benefit of this strategy is that it allows for an easier tax preparation come April 15.
Just remember that any amount that you take from the business and transferred to your personal account is taxable income and you have to declare all that in your income tax returns. We suggest that you check out the IRS site and become familiar with the tax laws affecting income generated by a business. Check out http://www.irs.gov/businesses/small/article/0,,id=98966,00.html
Hope this helps.
Recommended Books on How to Handle Business Profits:
- Manage for Profit, Not for Market Share: A Guide to Greater Profits in Highly Contested Markets
- The Handbook of Financing Growth: Strategies, Capital Structure, and M&A Transactions (Wiley Finance)
- Get Financing Now: How to Navigate Through Bankers, Investors, and Alternative Sources for the Capital Your Business Needs
- The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow’s Profits
Article originally published July 2009. Updated on January 19, 2012