By Anita Campbell - As someone who runs Internet businesses for a living, I am reminded as I do some last-minute tax planning for 2007, how very different they are from traditional businesses.
How are they different? Let me count the ways:
Internet businesses often are run "virtually," meaning first of all that they have very few employees -- maybe none, just the owner. Most non-core functions are outsourced to independent contractors or service providers. Today you can find just about anything you need as a service, somewhere, so it's not hard to set up a virtual business.
There's little in the way of facilities, furniture, equipment and other physical accouterments of traditional businesses. Many Internet businesses are run primarily out of the owner's home and the homes of team members.
The business may have next to nothing in the way of tangible goods or property. Most of the assets consist of intellectual property. Even the IP may seem incredibly nebulous. For instance, a business with an advertising revenue model may not even own any software (using off-the-shelf software instead). No, the business may own nothing more than some URLs and some content. Oh, and "little" things like a brand and "pages indexed in Google" and traffic -- of crucial value to the business but hard to put a number on. When all is said and done, it will be a pretty skimpy balance sheet.
Often all payments are handled electronically, through PayPal and credit cards. Invoicing may also be done electronically. So the business's accounting system may be pieced together from a PayPal history download, credit card statements, and possibly a FreshBooks or Blinksale history download.
Despite their small size, these businesses may be surprisingly complex in some ways. For instance, they may actually be global. They could well have customers from around the world. They may also hire service providers and contractors from around the globe, too.
It could be quite the dichotomy: a home-based business pulling in six or low seven figures, with global sourcing networks and global customer sales and distribution.
Well, you get the picture ....
If you are a CPA with clients who fit the above description, you will want to read this post by Matthew Haughey, the founder of Metafilter: How to pick an accountant for your online business.
He talks about the importance to the entrepreneur of finding an accountant who understands Internet businesses.
Do what one CPA did who commented on Matt's article, and pass the article around to others in your firm.