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Part III: Small Business Growth Stage

Updated: Jul 8, 2022

With one year complete, you may now be thinking about how to scale up. If you have not already hired employees or contractors, you may be thinking that you could get more contracts, customers or clients if you had some help. Scaling up is difficult. The most important thing you can do when scaling is to have your processes in place. If your formula for success can’t be communicated to someone else, then someone else will not be able to replicate what you do.

On the accounting side, when you are in growth phase, you will need to work with an accountant to determine which entity type is best for you. As your revenue is growing, perhaps an S-corp election makes more sense to save money on taxes. You will also want to work with an accountant to help compensate your employees or contractors- and to help make the determination of whether the people you hire are employees or contractors. If you make the mistake of paying someone as a contractor when they should be an employee, this can be costly when the IRS or state catches on to your error.

You may also have a large enough budget to outsource all of your accounting- hire a bookkeeper, a payroll service and have more frequent tax planning. I recommend outsourcing your accounting once your gross sales are more than $150,000.

If you are going to DIY your accounting at this phase, you will need to make sure you have a solid understanding of how accounting and business laws work. Both the IRS and the state offer classes on tax law and general business law. If you are going in alone, lack of knowledge is not a reasonable excuse for running your business illegally. When I worked for the state Revenue Department, my job was to penalize businesses for not following tax laws. Every day, I saw small mom and pop shops who were paying people incorrectly, not paying correct taxes and not issuing the correct forms. The penalties those businesses had to pay put some out of business. I always thought, if only they had hired an accountant, those simple mistakes could have been easily avoided.

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