There is one step that is extremely important that should be one of your very first steps in building or continuing your business because it needs to be done regularly and annually. If you are not doing this step, you are number one, throwing away money and walking away leaving more money on the table. Number two, it’s going to result in you having to close your doors because you cannot keep your business alive. And number three, what is number three? Number three, it’s going to take the guesswork out of what to charge your customers and clients. No more comparing to other people in the same industry as you. No more guessing or wondering if you are charging too much or not enough. So what is this stuff that you need to be doing in your business every single year? It is calculating your cost of Doing Business so what is the cost of doing business? It is the amount of money that it takes to simply have your business in operation without covering a certain number of regular costs associated with running your business. Your business cannot exist or will not be successful. To calculate your cost of doing business, there are going to be several different numbers that you need to know.
Now many of you may need to estimate these numbers. While some of you may have last year’s numbers readily available depending on which point you are in your business development, if you are estimating for these numbers, an estimation is much better than not calculating them at all. This is going to give you a jumping-off point so that you can estimate your costs and then know exactly what to charge based on those costs. Product Based Business I’m going to have a separate article on that topic developed at a slightly later date.How many and exactly what expenses you’re going to be adding up are going to differ and vary between each different type of business, how you operate. But some things that you’re going to need to take into account for expenses are going to be things such as goods purchased marketing budget office supplies subscriptions and memberships Computer and software Professional services and legal fees labor, contractors and employee expenses Postage and shipping supplies Health, vision and dental insurance for yourself or your employees Travel and car expenses Professional equipment Professional education and workshops Professional licenses and fees Professional insurance Your office studio or business rent Repairs to all of your equipment as well as several other things that may apply to your unique field.
Next, you must take into account all of the income taxes that you’re going to be required to pay as a self-employed individual. Self-employed individuals are subject to three different kinds of income tax. Number one is federal income tax, number two is state income tax and number three is self-employed tax. Self-employed tax is 15.3% of your taxable self-employment income. Now as a self-employed individual, you do not have an employer. You are your employer. In a traditional job where you do have an employer, that employer is responsible for paying your Medicare and your Social Security taxes on your payroll. But as a self-employed individual, no one’s going to pay that for you, so you have to pay it yourself. Self-employed tax is 15.3% which covers Medicare and Social Security taxes. Self-employed income tax is applied to 92.35% of your net earnings. So after you have deducted all of your expenses out of your gross earnings, you’re left with your net earnings and 92 points 35% of those net earnings are subject to that 15.3% self Employment tax. Now luckily, the IRS does permit you to deduct half of your self-employed tax off of your tax return. Now once you have listed out all of your business expenses, you have an estimate of your cost of doing business. This amount is how much it costs you in order to have your business up and running. It can be extremely expensive to run a small business, but it can be even worse if you don’t calculate these costs upfront. Now, if you do not calculate these costs upfront and simply slap a price tag onto the services that you’re providing to your clients, you are not guaranteeing that you will be able to cover your cost of operation based on what you’re charging. This is a big problem when people base their prices off of other businesses and what they are seeing others charge. Now, this is extremely important because once you have calculated your cost of business, you not only know exactly what it costs to keep your business up and running, but then you know exactly what you must charge to turn a profit.
Now, many individuals skip calculating the cost of doing business because it can seem daunting or even intimidating if you’re not that comfortable with math, but I have created for you a template spreadsheet that you can download for free today. You can plug in your unique business expenses and I have the formulas already programmed in for you so that once you plug in your business expenses, it will automatically calculate your cost of doing business. Once your plugin, how many hours and what annual income you would like to achieve, it will then automatically calculate exactly what you need to charge per hour to achieve that income.
Thanks, hope it will help you…