When I retire in 5 years, I plan to start a small business. It will be me and 1 or 2 helpers.  

For argument purposes, it will be selling, installing, and servicing widgets in residential homes.

I plan to fund this endeavor with bitcoin.  I have enough now that, if cashed out, would fund my entire startup.  I have all the tools I'll ever need.

Here is the question; How does a small business person get to KNOW the tax/financial side of things?  I hear people say things like, "I bought a new work truck so I could show a loss this year."  "We made some losses this year by moving profits to next year..."

When to make capital expenditures?
How to maximize profit, and save on taxes?
Buy a building, rent, lease, or continue to work out of my garage?

Who figures that crap out for a knuckle-dragging widget installer from a financial standpoint?

Good question. School or running a business.  

The things you just used as examples are things that morons say. They have no idea how it actually works. No one that can actually dissect a p/l or run a successful business says that.

They can lose all the money they want,  its a write off. I hear that one.  Its still a loss.

Get a bookkeeper and a cpa to help.  A bookkeeper will help with the basics at a fair price,  use the accountant for big stuff.

I started out with COA example spreadsheets and kept my own income/expense records that were passed to an accountant for review each year.

This gave me a solid understanding of tax basics. Now we use Quick Quickbooks online and let the same accountant review everything.

With our progressive tax system,  it doesn't really matter if you come in just under or smash the bracket. Only the amount above that level is taxed at that rate. Nearly every laymen I've ever met, doesn't know what.  

For instance, at 165k in income (roughly,  don't recall exactly) for a single guy, the rate is 32%. But only the money above 165, until the next bracket hits is taxes at that rate.  You're earnings below 165 are taxes at the other bracket rates.  So just under or smashing it doesn't make a difference at all.  The more money you make,  you more money you have.  

We do well and are growing  every year,  I've got nearly 60 employees between the businesses.  I never buy something new just because i made more than average. You should make more every single year until you're dead. I still drive a pickup every day with 400k miles.  Not to say i don't have others that are nicer. The little guy doesn't have to worry about buying things just to buy.  That's a major mistake that keeps most guys from going to the next level. All of the ultra successful guys i work with,  worth 10 to 200 million,  don't blow money on wheels and engines.  

Just my 2 cents.  Give op a different view. In fact of the 10 richest men i deal with,  only 3 buy new pickups, ever.  2 are car guys,  and the other just does. The other 7 buy newer but used.  And not fancy.  One of those 7 is worth 80 million and finally had a good enough year he let himself buy a used extended cab pickup.  He said 4 doors are for rich people.  He always had used single cab surplus forest service pickups.  

Not saying you're wrong,  other than the bracket info,  just a different view. People get sucked into that cycle when they aren't even making a good wage.  If you make less than 250 a year,  work on that. That is the low hanging fruit.  Be the short giraffe first.  When you grow into the tall giraffe, you can reach for tax optimization.

I thought I knew what I was in for when I started mine. I'd managed several companies, trained all the skilled positions, ran invoices and scheduled the personnel and moved all the equipment.

In my mind, all I needed was an LLC and a client. I was already doing everything....right? Wrong.

Quuckbooks will likely be overkill for a small company unless you have tons of funds flowing everywhere. Ours is simple cash in and cash out. I hate quickbooks. But...I use quickbooks.

The best advice I got was to get with SCORE, a branch of the SBA and sit down with their volunteers. They have everyone from retired Fortune 500 CEOs down to low key millionaires who sold out and now volunteer. Put together your business plan, in great detail, and go sit with a volunteer that best suits your business and style.

A 3 man company that's self funded won't need a TON of help, but they can provide an unbiased look into the plan and are always a phone to call away if wierd stuff happens.

Other than that, document everything, have subs sign contractual agreements that spell out duties, pay, etc. And document everything.

Get a good CPA in your state that knows your area of business.

Most of the companies we hate make setting up a website and company email a breeze. I use Squarespace,  Gmail, and Remote PC for our connectivity. Vistaprint for literature, biz cards, and mailers.

Best of luck. It's the hardest job I've ever had, but I keep 4 families making 100k a year and that makes it all worth it as they are more than gophers. They are friends, allies and good people.

You received various posts from others detailing their experiences so I will keep this brief:
1) Those experiences while informative, do not necessarily apply to you;
2) The post regarding the rich living below their means and how they watch expenses and how they spend is profound;
3) The suggestion regarding SCORE is a good one:

Now my turn...on just a few items....
4) You are five (5) years out, a lot can happen during that time....your health could fail; more competition from others in the same industry....etc.

Roughly 90% of new businesses fail within the first two years and of the remaining 10%, half of them fail by year five.  So, if you are going to risk your retirement money, then it is imperative to:
5) Have a business plan along with projections;
6) Hire a CPA and ask him/her to punch holes into your plan and state reasons why it is a bad idea.  Be careful of the CPA that gives the green light on such an endeavor.  I know of a CPA that becomes so excited and tells the client he/she will make it big.  I asked that CPA why does he do that and his answer was he then transitions the conversation to where he will provide bookkeeping services.  That CPA does NOT follow any fiduciary or ethical values.  So, be careful.
7) Have a marketing analysis and plan.
8) Have a contingent plan (Plan B) if you become ill at any point when running the business.  Would the business fail if you could not work due to illness or injury?  Is the business dependent upon YOUR skillset?  Who would/could step up to fill the gap?
9) Entity selection and liability protection need to be investigated.

There are so many more issues to discuss.  Not to discourage you, however, I seriously question why a person would start a new business when they retire.  Why risk your retirement?  Does this dream of a new business allow for sufficient time for you to recover if it fails?  I've seen this happen before and I have never seen a successful business venture.  I'm sure there are examples of successes, but in over 35 years, I have never seen one.

Be real careful and hire a CPA that does not do just compliance type of work (tax prep, bookkeeping, FS prep), but also is experienced in evaluating the business plan, marketing analysis, tax mitigation techniques, liability mitigation techniques, etc.

Good luck.  Since it is something you are thinking about five years from now, it doesn't make sense to hire a CPA now.

Thank you for the post.  I met with SCORE locally 3 weeks ago.  We went over the basics (that CAN be discussed w/o a completed business plan for them to look at); Get a company email and website to create a presence, don't mix business and personal money, start to identify customers and WHY people are going to beat a path to your door.  Identify competitors and figure out what I bring to the table that they cannot duplicate.  He pushed me to get an LLC established soon.  I deflected that, as I do not have the free cycles to continue to work full time with this job, and risk the new gig taking off.  

I am about 1/3 of the way through the business plan using their template.  I am working on the cost portion, and identifying competitors.  I have the competitor's price lists, so it makes my life a little easier.

I will still be young when I retire, and have a pension.  I have my 401k fully funded.  I will fund the entire business with the BTC I mined back in 2012, which I will HODL until it's time to need cash for the business.  The only thing I risk is enough BTC to build a Factory Five replica.  If the business goes tango uniform, I'm only out .39 BTC.  Yes, my health is always something to worry about, but not enough to not take a chance on this.

I HAVE begun to think about succession; I am almost finished with "The 7-Power Contractor: Run Your Contracting Business With Less Stress and More Success" by Al Levi.  The gyst is, make an operations manual that documents and iterates EVERYTHING (Answering the phone, interacting with new and potential customers, etc)

I haven't "risked" anything yet other than the possibility of some overdue library books.  Once the business plan is done, I'll see what SCORE thinks (Mainly, if I bring something unique to the market that cannot be duplicated).

I'm glad to read your above post!  Contracting is a brutal business, but if you have a niche and a good reputation, it can be very rewarding and very profitable.  While I have not read the book you mentioned, it sounds like there are very good tips (detailed operations manual, etc.) in it.  Excellent choice of reading material!

Succession strategies and exit strategies are generally broken into two areas: short-term and long-term.  A health issue may only be temporary, whereas as say an injury from an accident may be more permanent.  At least you are thinking about it.  Realize the strategies may change due to various factors....its a living type of document that should be reviewed annually.  I know of contractors that have stopped performing the work themselves due to lower (lumbar) back issues and rely solely upon subs.  Thus, they are merely managing the jobs and are responsible for providing estimates.  The ones I know are making good money.

Again, good luck.  While I understand you have an estimated loss/threshold, I would still be concerned.  Many failed businesses have thrown good money after bad and failed just the same, only it took them longer.  The insanity was rather than making changes, they continued the same way of doing business thinking somehow the additional money spent would help them.  So, I applaud you for having a line in the sand where you would stop operations if certain items (profits, etc.) did not happen.

Score is nothing I've utilized but I've heard a lot of good from friends. Definitely a good idea.

Oh i missed that.  

This is some kind of contracting? I ran a 25 million dollar a year industrial mechanical contractor from age 18 to 26. I still work in that field as a self employed tech for a few large customers.  And i own 2 auto shops with partners.

The company i ran had 4 divisions. Chemical, service,  new construction/install, and equipment sales.  I ran all 4 divisions. Not just schedule the guys.  I bid the jobs,  looked at the p/l every single day. Managed 4 million in inventory. If you need any specific questions answered,  i might be able to help.  

I also own a lot of rentals and am building an e-commerce business right now.  So i think i know everything about every business.  

I was finance director for one of the big autos. Multi billion dollar decisions. I think I was too high up to fully appreciate the small stuff. However I was unprepared for small business ownership.

Whereas before I entered a well established multinational corporation where I just made decisions to open or close plants without the minutiae of HR, taxes, local regulations, etc.  I just looked at the broad strokes. The details were left to the experts in those fields.

When I started my own business I concentrated on the fundamental operations first. Focus on making the goods or services correctly. Next, I hired a good bookkeeper to detail everything. I did not interfere with the bookkeeper. She set up the accounts as she saw fit. However she only recorded what happened. I also hired a good accountant who kept up with the myriad of rules and regulations to advise me the various options available based on the bookkeeper’s records.

I knew it was coming but not the amount of detail behind “expensing the pens with logos” or “minimum number of employees for a retirement plan” or buying a more expensive truck this year instead of a cheaper truck next year and coming out ahead.

Was it successful? There's no way in hell id let a bookkeeper do what she wanted.  That's an odd way to sail a ship. But if it worked out,  the proof is in the pudding.

Great question.  There are some very good finance courses that you can take online.  

Here's one from Rice University.  https://www.coursera.org/learn/finance-for-non-finance#syllabus

There are a few others that I have seen specifically for small business/entrepreneurs, but I have to go and find them again.

Cash flow and cash flow timing, is the paramount issue for most small businesses.

Y'all are being very helpful, thank you.

You’d be better off retiring on the dough and not trying to risk it. Plainly, that’s a dumb decision with retirement funds.

The .39 BTC is not my 401k, Roth, or pension.  It is found "money" from using a raspberry pi and 3 small ASIC miners under my desk at the beginning of BTC.

A good accountant is worth the expense.

You learn that stuff in school or by running a business for an extended period of time with another person (think CFO) who you learn from over time.

I will say, those things are not all that important.

I've seen several businesses fail and they usually all have the same probelm, the owner doesn't understand their costs.  I've had to educate several business owners on this.

You said you have all the tools you'll ever need.  Those tools are a business cost.  How much does it cost to install your widget?  If your answer is labor plus materials times mark up, you'll go out of business.

Your rent, insurance l, truck fees, gas, rent, tools (I don't care if you own a tool, you'll have to replace it someday so you better be charging a few bucks an hour for tools), you've got time in invoicing and depositing payments, bank/loan fees, doubtful accounts (some asshole is gonna stiff you) warranty/call backs, something aside to grow the business, etc.

It's obviously more detailed than that, but you get the idea.  I have a few hundred employees, and only about 12 of them fully understand our costs.  Most people just don't get it.

I've reviewed plenty of balance sheets and income statements of floundering companies who think their jobs are profitable, but can't understand why they have no cash flow.  Costs, they don't understand their costs.  The stuff you're thinking about is so minor that it won't matter to a couple man business.  Your costs, if not understood, will sink you in no time.

Look at what tax forms you will be filling out at tax time.

That should get you a starting point on how to categorize things like expenses and income.

There are certain things you can depreciate and they have different timetables.

There will always be a trade off for things, sure you can create more expenses to reduce your profits )and taxes), but unless it was something you were already going to expense, I don’t know that I would go out of my way (like looking to buy a new truck) looking for additional expenses. (Unless there was a tax rule that was about to change).

Once you have your income and expenses, you can look at each expense and see if there is a better way to manage things for tax savings.

I have a small business, but it’s small enough that everything is pretty basic.

I put in about $2m and in 5 yrs grew to $100m sales. The bookkeeper was soon supplanted by an entire accounting staff. It was the right time to start a consulting business during Obama’s second campaign and Trump’s first.

Bookkeeper just set up the accounts, not make spending decisions. I reviewed them but it had been 20 yrs since I made a JE

This is solid advice. Thanks for posting.

Look into using Legal Zoom to set the business up properly.  1-800-ACCOUNTING can get you bookkeeping and CPA for reasonable amount and they can prepare your General Ledger, keep your books, prepare your financials and taxes.  The downside is that everyone you deal with is remote and via phone or messaging within the 1-800-ACCOUNTING website.

Once you get established you can always switch to local CPA firm or hire full time.

Good luck OP

You hire a good accountant.

I started a business a few years ago.

We have 12 employees and a ton of equipment.

Hire a law firm and an accounting firm.

Take their advice.

We also use Quickbooks, which is neither intuitive nor user friendly, but the accountant’s like it.

My 2 cents.

I turned a hobby into a business.  Jan 1 2021. I manufacture and sell via online retail wood products using cnc routers and lasers.

If your going to do this you’ll want to  form the entity sooner rather than later. Around here you can not get a corporate
Credit account until the business has been established for 2 years. Covid killed slot of new businesses so the banks do this now.

It may be worth while for you to pay someone to do all the filings for you. For my I set up a single owner llc online, federal tax id, state sales tax lic. Local merchant lic, then you can get tax exempt status through suppliers.

QuickBooks is a huge time saver for me. I also use a site called greenback to import transaction data into QuickBooks from multiple selling platforms. Plus I use ship station which makes my life a lot easier.

Big ticket write offs are a thing I leave to accountants at the end of the year. They can save money. My next equipment purchase will be a lease to own with a 1 dollar buy out. The lease payments are fully deductible so I can purchase the equipment payroll tax and sales tax free.

It’s a struggle dealing with the book keeping side of things for me. We sell through 2 online platforms in addition to our website. Plus local shows. I buy materials from 3 online wholesalers and 3 local sources.  Once set up right with greenback it’s a couple buttons a week and a quick review of accounts every Sunday.

I suggest you talk to your tax professional about the differences between a capital lease and an operating lease.  Google capital lease rules or when must you capitalize the lease and you will find various links to choose/learn from like these: https://vlcpa.com/articles/new-lease-accounting-standard-requires-capitalizing-more-assets-2018102/310 and https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses-7 and
https://www.calt.iastate.edu/blogpost/make-sure-you-understand-tax-implications-equipment-%E2%80%9Ctrade%E2%80%9D

Ultimately you will most likely need an accountants services but I’d recommend buying a copy of this text book to keep on hand. Pretty standard in undergrad accounting programs, commonly just referred to as the Kieso book. Previous editions could probably be had used for very cheap and it will pay for itself.
Attached File

Can anyone elaborate on this? There have been a few years where i would have gladly dropped an extra 10k in my 401k to not pay taxes on it. How is this done?

Find a good CPA, not just one who inputs the numbers but someone who actually knows what they're doing. Then pay a lawyer who specializes in your field for a few hours of their time. Then after that it's not hard. QuickBooks makes everything easy to track.

1st you'll want a book or class on basic double entry accounting. It's the financial equivalent of "For every action, there is an equal and opposite reaction".

Then another book or class on Quickbooks. As has been mentioned, it's the language of small business to your accountant. There is an account called "Ask my accountant" for the rare "What the hell do I do with this?". He will sort it at tax time. Google will resolve 99% of the "What the hell do I do with this?" problems.

You need to understand the basics of business financials. Debits vs. Credits, Assets vs. Liabilities, capital, depreciation, a few other things. I never bothered with small short term "payables", I just paid things when they were due which is a credit to checking and a debit to whatever expense category that thing falls under. Some things like loans you have to record as payables, they're a liability and offset assets. "receivables" take care of themselves when you use quickbooks to create invoices if you are not a cash and carry business.

It will be a little confusing at first, but the logic of it all will click.
The last company I owned had 150 employees but we only worked about 8 days a month. I did all the bookwork once a month, took about 8 hours but I had a LOT of receipts from field work to log.
For Payroll if you need to pay hourly employees, just use a service like Paychex which you can somewhat easily download into your quickbooks, and they will take care of ALL your tax headaches related to payroll.

As far as when to make capital expenditures (buy a truck), or "move profits ahead to next year" (hold off on invoicing big jobs in Nov/Dec), those are things that will come out if you talk to your accountant BEFORE the end of the fiscal year and let him get an idea of where you stand on profits or losses for the year, what your short term plans and needs are, things like that. THAT is where the value of your accountants is at.

It is POSSIBLE to do it without this knowledge, but trust me that knowing the above will save you a ton of money, headaches, and time.

You want a bookkeeper and a tax accountant. Bookeeper will keep you busy on your business and not bogged down with the accounting. For business of one with two helpers expect to pay $300 a month.   A tax accountant will tell you all about Capital Expenditures.

Putting profits into next year would be telling your customer to pay you in January or excelerating expenditures in the current year. Most tax accountants would probably roll their eyes at this since it defers a small amount of tax for a year which will generally not make or break you.

When you buy capital equipment you depreciate it over a number of years but for tax purposes you get to take it all in the year you bought it. Section 268 and 179 deal with this. Basically you are getting a temporary tax benefit where you defer taxes down the road. In the end its a net zero benefit but this is how big companies avoid paying taxes since they are growing and constantly buying new equipment.