10 Mistakes Most Small Business Owners Miss When Starting Out

The process of starting a small business can be an arduous one; there are numerous steps that need to be taken — and often in a precise order — to legally establish a business. As a result, the process can be overwhelming. Unfortunately, it’s also easy to overlook some important details and steps along the way. By being aware of a few of the most common legal and compliance mistakes made by small business owners when starting out, you can be better prepared for future success.

1. Misclassifying Employees as Independent Contractors
Regulators are coming down hard on misclassifications. The IRS estimates that this problem includes millions of workers. It is best to talk this through with an expert, but you can get some background on the guidelines at the United States Department of Labor website.

2. Choosing the Wrong Business Structure
One of the first major decisions you’ll need to make in regards to your small business is the type of business structure you will select. This can range anywhere from a basic sole proprietorship (which doesn’t require any special forms or paperwork) to a more complex structure, such as a corporation or LLC. Keep in mind that different types of business structures offer different tax benefits and other protections, so it’s important to thoroughly explore your options and select the structure that’s best for your unique needs. You’ll also need to go through the legal process of establishing your business under your desired structure, which may require help from a legal or other type of professional.

3. Failing to Apply for an Employer Identification Number
Unless you plan on operating your business strictly as a sole proprietorship (in which case, you will use your personal Social Security number when filing taxes), you’ll also need to apply for a unique Employer Identification Number (EIN). This number will be specifically associated with your business, and it can be helpful to think of it as a business Social Security number of sorts; it’s used to file your business taxes, open up dedicated business bank accounts, and the like.

4. Overlooking Important Permits and Licenses
Depending on the specific industry in which your business will be operating and your location, you may also be required to obtain specialized licenses and/or permits in order to legally operate. Otherwise, you’ll run the risk of being shut down or finding yourself in serious legal trouble down the road. Take some time to research the specific types of permits or licenses that you may need to obtain, as well as the steps you’ll need to take in order to acquire them. Sometimes, this process can be time-consuming and even costly, so it’s not something you’ll want to put off until the last minute.

5. Not Knowing When to Speak to a Professional
When starting up a small business, it’s not uncommon to run a one-man (or woman) operation. After all, you may not have the cash flow or even the need to hire outside help in the early stages. Still, when it comes to making sure your business is squared away from a legal/compliance standpoint, it can certainly be worth the money to consult with tax and accounting professionals early in the game. You don’t necessarily need to onboard these experts full-time, but being able to turn to them for advice and guidance when you need it will help you avoid serious legal issues later on.

6. Putting Off Domain Name Registration
As soon as you have your business name picked out and registered, it’s also in your best interest to go ahead and register your website domain as soon as possible. Even if you don’t plan on setting up and launching your website any time soon, domain names are cheap, and having yours registered now will help you avoid a situation where the domain name you want is taken by somebody else later on.

7. Lack of a Comprehensive Business Plan
One of the biggest mistakes small business owners make when first starting out is that of not having a well thought-out and articulated business plan. A business plan is an important document that outlines in detail what your goals for your business are and how you will achieve them. This document is important not just for you and other members of your immediate team, but for potential investors as well. Should you seek financing for your company at any point, an investor is going to want to see and scrutinize your business plan — and it will likely have a major impact on the final decision.

8. Not Having Finances Squared Away
Another common mistake new business owners make is that of poor financial planning, which can lead to a lack of funding to get you through your first months successfully. Ideally, you’ll want to make sure your business plan accounts for all the company-related expenses you’ll incur during the first year of operation, as well as any personal expenses as well. Unfortunately, this is something that many small business owners overlook or miscalculate with disastrous results. The easiest way to avoid this mistake is to consult with a small business accountant during the early stages of drafting your business plan.

9. Failing to File Patents on Products or Ideas
It’s (hopefully) no surprise that you’ll want to be proactive about filing for patents for any unique products, prototypes or designs you may have. However, what many small business owners first starting out don’t realize is that they’ll also want to file patents on ideas, such as intellectual property, that could otherwise be stolen or copied and used by other entrepreneurs. After all, intellectual property can be just as valuable as a product prototype — so you’ll want to plan and protect these kinds of ideas accordingly.

Be careful to also avoid the mistake of waiting too long to file for relevant patents; the process can often be long and drawn out, so getting started as early as possible will be in your best interest.

10. Being Blind to Important Compliance Requirements
Last, but not least, make sure you’re aware of any and all compliance requirements that may apply to your business based on its structure, location, industry or other factors. For example, even if you’re keeping things “simple” by operating as a sole proprietorship, you’re going to be required to file and pay quarterly estimated taxes under that structure. Failing to meet compliance and other requirements can result in serious legal trouble, including fines and penalties, down the road.

When it comes to compliance requirements, such as annual reporting and tax filing, it’s always a good idea to keep a calendar of important dates, so you don’t forget anything. After all, you’ll have enough deadlines to worry about and remember on your own — especially during that first year of business operation. This is yet another situation where having a compliance expert, such as a tax or accounting professional, can really come in handy. He or she can assist you with annual compliance reviews, reminders on impending deadlines and the like.

From selecting a name and business structure to making sure your small business remains in compliance at all times, there are, unfortunately, a lot of opportunities to make mistakes as a new business owner. By keeping this information in mind and by working alongside the right types of professionals as you prepare to launch your new business, hopefully, you’ll be able to avoid these issues. From there, you can maximize your chances for success in the first year of operation and beyond.

First-Year Start-Up Tax Issues

If creating a start-up business were an easy thing to do, then a lot more people would be doing it. For those who make the decision to fulfill their dreams and go for it, success relies on being fully prepared. Some of the most common stressors encountered by entrepreneurs involve tax liabilities, whether business is booming or they’re struggling to keep their head above water. The best way to avoid these pitfalls is to learn about them ahead of time. Here’s what every entrepreneur needs to know.

Give Careful Consideration to the Type of Business Organization You Choose
The entity that you choose for your start-up will have a big impact on how your taxes are handled, so make sure you’ve done your research to find the option that works best for your specific situation. Factors like the state where you’re doing business and the type of business you’re operating will be a consideration, and so will your ownership profile. Businesses that don’t plan on adding partners or shareholders in the future or that anticipate changing owners in the near future are probably limited to establishing as a C corporation or an S corporation, with the former offering more flexibility on ownership shifts, as well as the possibility of international investors.

Though there’s no law to prevent you from shifting to another type of entity in the future, doing so can be disruptive, so it makes sense to take your time and choose the option that fits best and makes the most sense based on your current ownership plans.

Choosing an Accounting Method
Unless you’re an accountant or have experience and significant knowledge of accounting, it’s a good idea to sit down with a professional to determine whether you’re going to use a cash accounting method, an accrual method, or a hybrid of the two. If you don’t have a background in bookkeeping and taxes, it may seem like an academic question, but it plays a big part in determining your tax liability. A lot of the determination will also depend on the type of business you run. An experienced accountant will be able to walk you through the decision that makes the most sense and that will be easiest to implement in compliance with IRS regulations.

Putting Internal Controls in Place
As a start-up, there are certain internal controls you need to put in place to ensure that your business is running smoothly and according to your stated objectives and goals. You also want to be sure that you’re set up to provide comprehensive information for external investors. Company policies need to be written and communicated with an eye to regulations. A CPA will be invaluable in helping you get these controls in place.

Paying Attention to Compliance
Every entrepreneur likes to do things their own way, but there are some issues where compliance is key. Failure to follow the rules and regulations could lead to stiff penalties and fines, or even to your business either temporarily or permanently being shut down. In addition to paying taxes on your business’s income, you also need to find out whether your locale requires a business license and what the rules are if you’re selling either a digital or physical product over state lines. Sales tax will need to be paid, workers’ compensation insurance will need to be purchased and a policy put in place if you have even a single employee, and if you’ve organized yourself as a Delaware corporation, then you’ll need to have an annual franchise tax report prepared, filed and paid, whether you generate income or not.

Creating a Way to Track Performance and Stay on Budget
One of the biggest mistakes new business owners make is failing to create a budget and stick to it. Failure to do so can easily lead to a shortfall in available funds, including those you need to pay your tax liability. Take the time to make a reasonable budget and establish what your start-up’s key performance indicators (KPIs) are for both cutting expenses and generating income. With those issues addressed, you give yourself a solid way to measure how you’re doing, and you’re likely to find both short-term and long-term tax planning easier too.

Starting a new business is a dream come true for many, but your focus has to go beyond your own area of expertise and interest. By working with a tax professional, you can be sure that you’ve addressed the tax-related problems that have tripped up many start-up organizations.

Please call us with any questions related to creating a start-up business.

Nine Best Ways to Start a Business Budget to Spur and Guide Growth

Building a business is a process that requires careful attention to many individual points, all with the goal of increasing customers, improving products, and building profit. There are many elements that contribute to the ability of a company to grow. One key area to focus on is the budget. From the foundation of the business, a well-planned budget can create a financially sound business with clear directions. To achieve that, consider these nine key ways to create an effective budget that spurs and guides the growth of your company.

#1: Know what you are spending first
It is impossible to create a budget without knowing where your money is going. To that end, business owners need to pay careful attention to every expense the company has. This should include expenses related to running the business such as marketing, employee costs, and property costs. Create a system where every dollar spent for the company is carefully tracked. While this type of oversight may seem intense, it gives you a foundation from which to build.

#2: Analyze each expense carefully
Now that you know where your money is going, the next step is to know if you are overpaying in any area. For example, you may be able to reduce your overhead on employee labor by improving your scheduling methods. You may be able to reduce your inventory purchases to be more in line with what you need right now to improve your working capital. Look at each item to determine if it is worthwhile or if there is a less-expensive solution.

#3: Build an expense-based budget
With this information in hand, it becomes possible to then build a budget. A variety of software programs, as well as the help of an accountant, can help you to do this. The goal here is to ensure that the amount you allocate to each expense matches what you are currently paying or your revised amount. In short, it is accurate. When changes occur over the month, you can spot them easily and take action to rectify your budget.

#4: Hire a tax professional for timely reports
You cannot know how well your business is doing or how it can grow without having access to in-depth information. Clear, accurate reports delivered to you can show your current profit and loss. They can help you understand sales patterns. They can also break down information based on the specific types of profit margins various items bring in and which do not pay for themselves. A tax professional is more than just a pro to file your end-of-the-year taxes.

#5: Create a cash flow projection
Now that you have a professional on hand, you can use this team to help you build a realistic, accurate cash flow projection for the next month. You can extend that to include cash flow goals for the next six months and then for the year. By having this present, you can see where your growth is occurring as well as any limitations within the process.

#6: Create a savings plan
It sounds like a personal money management step, but one of the most costly components of growing a business is expanding assets, building space, marketing, or other large investments. Your business has working capital, but do you have a growth account? This is an account that you are saving in to allow your business to make large purchases down the road. It can also help a company to manage costs in financial emergencies or situations where they need a significant amount of cash on hand. By having these funds, you do not have to tap into costly credit and loans to grow.

#7: Tackle debt with a lot of effort
Debt is one of the most taxing of components in managing a business. Debt is expensive. Every dollar you spend on interest payments is money not going toward helping your business to grow. Work with your tax professional to understand your company’s current debt, cash flow needs, and allowances that could be used to pay down debt faster. Create an aggressive plan to reduce your company’s debt so that you can free up more capital for short-term and long-term investments.

#8: Begin moving profits toward growth goals
Companies that have their financials in line are likely to begin to see profit more readily. With that comes the ability to grow. Some companies may wish to be aggressive here. Instead of borrowing for another location or launching a new product based on costly debt, begin to move a percentage of all profits toward the business’s growth plan and investments. It’s important for companies to recognize growth as a cost of doing business. For example, if a company has a 25 percent margin for profit on every sale, recognize that to just 20%. Tuck the remaining 5% into an investment for future growth. In other words, see investing in future growth as an expense for your company now. This way, you begin to readily put money aside.

#9: Develop a growth plan
What is your goal? How does your company foresee growing revenue, providing more services, or otherwise scaling? Work with an accounting firm to create a solid plan of action. This should include outlining all goals for the company (for a year, five years, and so on). Then, create financial expectations for the next six months and year. Your growth plan should also include all costs of growth – as well as any expected investments necessary to build that long-term picture.

By focusing on each one of these areas, with the help of accounting professionals, it is possible to build a solid growth plan that addresses every need the company has. You cannot simply say you want to increase customers by 100%. You need a plan based on your financials to get you there.

If you have any questions related to this article, please give us a call.

Five Steps You Need to Take After Jumping Into Entrepreneurship

Congratulations! You’ve decided to dive into the exciting world of entrepreneurship and bring that great business idea to life. Whether you’re opening a local brick-and-mortar business that your community needs, looking to grow rapidly in the next few years and get an investor, or just keep things small and solo, certain steps come next that aren’t as exciting as preparing for launch, but need to be done.

Here are the five important steps to take after you’ve decided it’s time to go from idea to delivery.

1. Choose the Right Business Entity.
How you organize your business plays a major role in taxes, bookkeeping, current and potential ownership, and overall administrative burden. While all of these considerations would need to be made regardless of the current state of the tax code, it’s especially important to think about in the face of massive tax overhaul. The GOP tax reform bill has become law and many changes go into effect starting January 1, 2018.

Some owners of pass-through businesses can expect to get a bonus deduction of up to 20 percent of profits up to $157,500 for most filing statuses and $319,000 for married filing jointly. Ninety-five percent of U.S. businesses are pass-through entities, which is a sole proprietorship, partnership, S corporation, or limited liability company (LLC) using the same tax structure as one of these entities, with the maximum income tax being 29.6 percent for pass-through income. For C corporations, the maximum corporate income tax rate is dropping from 35 percent to 21 percent.

Taxes aside, each state also treats business entities differently and may present bonuses and disadvantages you weren’t aware of. For example, many small business owners reap numerous benefits from S corporations but if you’re a New York City resident, you still have to pay city income tax. New York State recognizes S status but New York City doesn’t. Sales tax nexus, risk management, and legal aspects are other considerations to make when choosing an entity.

Depending on your entrepreneurial goals as well as personal needs, you need to decide which entity makes the most sense for your operations. If you plan to change entities in the near future due to taking on a partner or investor, you should also factor in how the tax bill will affect you.

2. Register your business with the appropriate state, local, and federal agencies.
When you organize your business, you may automatically be registered into your state or local agency’s database after filing articles of incorporation or similar documents. Check with your local Division of Corporations or other authority to make sure that you’ve taken all necessary steps to register your business once you’ve decided which entity to go with.

If you’re forming an LLC, you may need to file additional paperwork such as a publication affidavit which is when the state requires you to announce your commencement in a newspaper. This can be inexpensive or present a major cost barrier. For any “DBA” claims where you’re not doing business under your actual name or business entity name, you also need to check with your county clerk regarding forms and filing fees.

For federal agencies, most of the registration has to do with hiring employees, but even if you don’t plan on hiring any in the near future or ever, you still need to get an Employer Identification Number from the IRS. If you need to obtain licenses or approvals before operations commence, you also need to prioritize contacting these agencies and getting your paperwork taken care of before working with your first client.

3. Find business advisers, mentors, and peers.
You want to work with business advisers who can teach you about not just business in general, but also about the specific type of business that you’re operating and your industry. A good business adviser is one that will tell you both what you’re excelling at and what really needs improvement and how to achieve your business goals.

You want to find an adviser who’s on the same wavelength as you, but who can also give you the benefit of their knowledge and experience for your particular industry. In seeking out mentors and professional peers, you’ll want to find spaces for your profession or business type online and in person to exchange ideas and learn from each other. They’re excellent ways to grow your business while learning the ropes and you’ll learn the dos and don’ts of pre-launch.

4. Pick the right accounting software.
Even if you plan on outsourcing your accounting and tax responsibilities to a competent professional, you still need to have an accounting solution in place for them to work with. Jotting your expenses down on an Excel sheet can be a placeholder when you don’t have that many transactions yet and haven’t formally set up an entity in the very beginning, but it’s not going to be a viable long-term solution.

Accounting software isn’t as cost-prohibitive as it once was and there are many different products on the market meant for small business owners, solopreneurs, people who travel frequently, and even programs and apps that work in the cloud designed specially for certain industries and types of businesses. Cloud accounting programs are perfect for busy people who use multiple devices, so your accounting professional can see transactions in real time and correctly adjust them as you go.

If your business has more robust accounting needs such as inventory tracking and payroll, you need to test out the program and see if it works well for you. For most people without accounting knowledge, figuring out how to get accounting software set up can be daunting, so you also want to see if your tax professional can help you with this or if there are training videos and courses for your software.

5. Get ready to launch!
Once you’ve taken care of these crucial items pre-launch, it’s time to get going! You can now focus your time and energy on building a great product, finding the best staff, and cultivating a following for your brand. It’s just part of the game when you own a business.

While your business entity and accounting needs might not be as exciting as putting together your website and initial marketing blasts, it’s extremely important to have them sorted out beforehand so you aren’t scrambling to get tax paperwork in order right when things are really taking off for you. By establishing your entity, business registration, publication affidavits, and other business-related paperwork beforehand with the help of a business adviser, you’ll also have peace of mind that these things were done right the first time and you won’t need to stop what you’re doing to keep mailing in forms.

The journey to a successful business is definitely not an easy one. But if you’ve got a pre-launch roadmap and the right professionals on your side, you’ll minimize your chances of dealing with irksome bureaucratic obstacles so you can focus on growing your business. If you have any questions about jumping into entrepreneurship, and the important steps to take afterward, please contact us.

A Beginner’s Guide to Bookkeeping

If you’re a new business owner, you might not remember the last night you slept more than four or five hours. Your days may be filled with developing marketing strategies, screening potential employees and trying to figure out how to set up a bookkeeping system. If working with numbers isn’t your favorite pastime, the latter activity may be posing quite a challenge. If you can relate to this common scenario that new entrepreneurs face, the following beginner’s guide to bookkeeping might calm your frayed nerves and set you on the right course.

Cash Versus Accrual Basis of Accounting
A pivotal first step when setting up a bookkeeping system is deciding whether to use the cash or accrual basis of accounting. Cash accounting requires you to record transactions at the time cash changes hands. Both actual money and electronic funds transfers constitute cash. If you’re a sole proprietor working from home or at a one-person office, opting for cash accounting can make sense. However, if you’re going to extend credit to your customers or request credit from your suppliers, you must utilize accrual accounting. Accrual accounting dictates that you record sales or purchases immediately, even if you receive cash from a customer or pay cash to a creditor at a later date.

Single- Versus Double-Entry Accounting System
Single-entry bookkeeping is similar to maintaining a check register. You record transactions when you make deposits into your business account or pay bills. This method only works if you own a small company with a low volume of transactions. If you own a mid-size or large business that is complex, a double-entry bookkeeping system is needed. With this type of system, at least two entries are made for every transaction. One account is debited, while another one is credited. A simultaneous debit and credit system is the key to a double-entry bookkeeping system.

Balance Sheet Basics
Before you can successfully develop a bookkeeping system, you must understand the basic balance sheets accounts: assets, liabilities and equity. If you don’t carefully track these items and ensure the transactions that deal with them are recorded in the right place, your books won’t balance. The accounting equation is a simple formula you can use to ensure your books always balance. This handy equation is: assets = liabilities + equity.

Assets
Assets are things your business owns, such as accounts receivables and inventory. On the balance sheet, assets are typically listed in order of their liquidity. For instance, the assets section of a balance sheet might begin with cash followed by marketable securities, inventory and accounts receivables. These accounts are referred to as current assets. Fixed assets, or tangible assets, round out the first portion of the balance sheet. They include things you can touch such as land, buildings and equipment.

Liabilities
Liabilities are things a company owes to third parties such as suppliers and banks. The liabilities section of the balance sheet comprises both current and long-term accounts. Current liabilities, those expected to be paid within a year, typically include accounts payable and accruals. Accounts payable contains amounts owed to suppliers. This account may also encompass credit card and bank debt. Accruals consist of taxes owed, including:

  • Sales taxes
  • Social security taxes
  • Medicare taxes

Long-term liabilities, such as bonds and mortgages, aren’t expected to be paid off during the next year.

Equity
Equity represents the ownership a business owner and other investors have in a company. If you’re the only person who has put money into your business, the equity section of the balance sheet will only have one account in it.

Income Statement Basics
In addition to being familiar with balance sheet accounts, understanding income statement basics is critical to setting up a superb bookkeeping system. The income statement consists of revenue and expense accounts.

Revenues
Revenue represents all the income received when selling goods or services. On the income statement, revenues are classified as either “operating” or “non-operating.” Operating revenues stem from your business’s main operations. Sales is an example of this type of revenue. Non-operating revenues are earned from some other activity such as rent or interest revenue.

Expenses
Expenses are the costs incurred to run your business. On the income statement, expenses are classified as either cost of goods sold, operating or non-operating. Cost of goods sold represents the cash a company spends to manufacture or buy the products or services it sells to customers. Operating expenses are the costs a company incurs as part of its regular business activities excluding cost of goods sold.

Examples of operating expenses include:

  • Supplies expense
  • Wages expense
  • Rent expense
  • Utilities expense

Non-operating expenses are incurred for reasons outside the scope of normal business activities such as interest expense.

Benefits of Working With a Bookkeeping Professional
Besides familiarizing yourself with the aforementioned beginner’s guide to bookkeeping, working with a professional accounting expert is a smart idea. Numerous details go into managing your enterprise’s bookkeeping. Even a trivial mistake such as putting a decimal point in the wrong place can wreak havoc on your books. In addition to assisting you in setting up and managing a bookkeeping system, our professionals can help you raise financing, develop a pricing structure for your goods or services, and discover ways to save money on operations, which may decrease your stress levels and increase your odds of long-term business success.

Startups: Research Credit Can Offset Payroll Taxes

A little-known tax benefit for new, qualified small businesses is the ability to apply a portion of their research credit – no more than $250,000 – to pay the employer’s share of their employees’ FICA withholding requirement (the 6.2% payroll tax). This can be quite a benefit, as in their early years, start-up companies generally do not have any taxable profits for the research credit to offset; quite often, it is in these early years when companies make expenditures that qualify for the research credit. This can substantially help these young companies’ cash flow.

Research Credit – The research credit is equal to 20% of qualified research expenditures in excess of the established base amount. If using the simplified method, the research credit is equal to 14% of qualified research expenditures in excess of 50% of the company’s average research expenditures in the prior three years.

Qualified Research – Research expenditures that qualify for the credit generally include spending on research that is undertaken for the purpose of discovering technological information. This information is intended to be useful in the development of a new or improved business component for the taxpayer relating to new or improved functionality, performance, reliability or quality.

Qualified Small Business (QSB) – To apply the research credit to payroll taxes, a company must be a QSB and must not be a tax-exempt organization. A QSB is a corporation or partnership with these criteria:

  1. The entity does not have gross receipts in any year before the fourth preceding year. Thus, the payroll credit can only be taken in the first 5 years of the entity’s existence. However, this rule does not require a business to have been in existence for at least 5 years.
  2. The entity’s gross receipts for the year when the credit is elected must be less than $5 million.

Any person (other than a corporation or partnership) is a QSB if that person meets the two requirements above after taking into account the person’s aggregate gross receipts received for all the person’s trades or businesses.

Example – The taxpayer is a calendar-year individual with one business that operates as a sole proprietorship. The taxpayer had gross receipts of $4 million in 2016. For the years 2012, 2013, 2014 and 2015, the taxpayer had gross receipts of $1 million, $7 million, $4 million, and $3 million, respectively; the taxpayer did not have gross receipts for any taxable year prior to 2012. The taxpayer is a qualified small business for 2016 because he had less than $5 million in gross receipts for 2016 and did not have gross receipts before 2012 (the beginning of the 5-taxable-year period that ends in 2016). The taxpayer’s gross receipts in the years 2012-2015 are not relevant in determining whether he is a qualified small business in taxable year 2016. Because the taxpayer had gross receipts in 2012, the taxpayer will not be a qualified small business for 2017, regardless of his gross receipts in that year.

The research credit must first be accrued back to the preceding year, where it must be used to offset any tax liability for that year. Then, the excess (up to $250,000 maximum) can be used to offset the 6.2% employer payroll tax. Any amount not used is carried forward to the next year.If you have questions related to the research credit or if your business could benefit from using the credit to offset payroll taxes, please give us a call.

How An Accountant Can Help Your Small Business Boom

One of the most positive qualities that many small business owners share is a burning desire – an insatiable willingness – to “do it all.” It’s what separates entrepreneurs from employees in the first place. An employee is more than willing to set out on the path that someone else has carved for them. An entrepreneur has a need to carve a path for themselves.

Unfortunately, this mentality can also get even the most passionate small business owners into a bit of trouble – particularly when it comes to their finances. Being able to balance your own checkbook and running the finances of a small business are NOT the same thing, nor should they ever be treated as such. To that end, the importance of finding the right accounting professional to help support your small business as it continues to grow and evolve cannot be overstated enough.

There are a number of essential ways, in particular, that an accounting expert can help your small business.

When You’re Just Starting Out
Perhaps the most important role that an accounting professional will play in terms of your small business takes place when you’re just starting out. One of the most common mistakes that many business owners make involves selecting the wrong business entity – a small problem that can have major ramifications when tax season rolls around. A accounting pro who is intimately involved with the makeup of your business from a basic level can help make sure this doesn’t happen to you.

Along the same lines, an accounting professional can also help make sure that your accounting system is properly set up in the first place. They can make sure that you’re picking the right accounting system that actually supports your long-term goals for your business and can create a chart of accounts to offer superior visibility into money coming into and out of your organization.

The Day-to-Day Grind
Another one of the hugely invaluable ways that an accounting expert can help your small business comes by the small, yet critical, decisions they make on a daily basis. A financial expert can help give you greater visibility into cash flow (including accounts payable and accounts receivable), for example. Cash flow and other instability issues are one of the major reasons why most small businesses fail in the first place, and having the right person at your side can help you avoid them altogether.

An accounting professional can also help make sure your security controls are properly set up and executed, particularly in terms of factors like compliance. Remember that we’re living in an era where the average cost of a data breach has ballooned to almost $4 million. If the security aspect of your finances is not properly accounted for, it could be putting your entire business at risk. Even one small data breach could expose the personal records of multiple clients, something that opens the door to things like lawsuits, and that could eventually close the door on everything you’ve worked so hard to build.

Other Benefits
A financial professional will also play an important role when it comes to growing your small business. Remember that both an inability to scale up as fast as you need AND growing your business faster than you can sustain are additional reasons why many small businesses fail. Because such a large part of your growth and expansion pace has to do with personal finances, it stands to reason that bringing someone into the fold who can leverage their years of experience to your advantage is a very good idea.

A financial expert can help you raise money – particularly helpful if you’re getting ready to bring a new product or service to market. If you ever decide that this chapter of your life is closed and that it’s time to look for new opportunities, these professionals can also help sell your small business as well. Selling a business is a process filled with potential mistakes just waiting to happen, and the expert hand of someone who has been in this position before is something that you literally cannot put a price on. It isn’t just an investment in your organizational ability – it’s an investment in the future of your business as a whole.

In the End
The fact of the matter is that there really is no “one size fits all” approach to small business accounting. Every business is a little bit different, which will require a certain level of care and finesse when it comes to finances in particular. Only by consulting the help of a professional as early on in the process as possible will you be able to avoid the normal pitfalls of running a small business and create a financially stable foundation from which to work.

If you are considering starting a new business, it may be appropriate to consult with this office before you get too far through the process. Please call for assistance.

8 Financial Tips to Help Save Money While Building Your Startup

Starting a new business is one of life’s most exciting adventures. However, in order to build a successful company you need to start turning a profit as soon as possible. In the beginning of any business, expenses are unavoidable, but you can increase your profits by minimizing these expenses as much as possible. Here are eight tips you can use to save money while building your startup company.

1. Be careful with perks.
As a new business, you want to attract the best employees to your company. However, trying to offer the same perks as a venture capital startup can put you in debt quickly. Many successful businesses started in a garage, and there is no shame in keeping things simple at first. Once you’ve made it, you can start thinking about adding cappuccino machines, ping pong tables, and other perks to your office environment.

2. Use free software programs.
As you begin building your new business, resist the urge to invest in the latest, most expensive software programs. Instead, look for inexpensive software programs, or find programs that offer a lengthy free trial period. For example, instead of investing in Microsoft Office, you may consider using the free software programs offered by Google or Trello.

3. Make the most of your credit cards.
If you already have credit cards, make sure you are getting the most out of any perks they offer, such as frequent flyer miles or cash back. If you are planning to apply for a business credit card, research your options carefully, and choose the card that will give you the best benefits.

4. Hire interns from local colleges.
Instead of looking to the open market to find all of your employees, consider hiring interns from a local college instead. These individuals work for much less than a seasoned professional would, and they are often eager to prove themselves in the workplace.

5. Barter for services.
As you work to grow your business, you may need a variety of services from independent contractors or other companies. Instead of offering to pay cash for the services you receive, try to offer a different type of benefit that won’t impact your bottom line as much. For example, you may offer some of your own products or services, or you may allow the other party to collect a small amount of the profits you earn because of their services.

6. Minimize your personal expenses.
Because you will likely be investing a lot of your own money into your startup, you can increase profitability by reducing your personal expenses. Be careful about how you spend money, especially when you start bringing in revenue. Avoid making large purchases, such as a new house or car, unless they are absolutely necessary. Consider working with your accountant to keep track of all of your expenses so you can identify opportunities to cut back.

7. Outsource some of your projects.
To save more money while your business is getting off the ground, consider outsourcing some of your smaller projects, such as building or updating your website. Outsourcing one-time projects to independent contractors or consulting companies can be much more cost-effective than trying to hire a full-time employee to handle the job.

8. Use LinkedIn for recruitment.
Recruiting new employees can be expensive, especially if you are determined to find the best people. To cut down on these costs, consider using LinkedIn to recruit new people for your startup. Although you will have to do some of the legwork, you won’t spend as much as you would with other recruiting strategies.

Regardless of the steps you take to save money as your business grows, you will still need to manage your funds carefully to ensure that your financial situation is improving over time. A professional accountant can help you set up a realistic budget and cash flow forecast to keep you on the right track. Contact our office today to learn more.

Why Do Small Businesses Fail, and How Can I Prevent This?

Many people dream of starting a small business. This is a dream that can become a reality, or — as happens to about 33% of prospective business owners, according to the Small Business Administration — it can result in dismal failure within two years. There’s no magic-bullet solution to ensure a successful business, but if you don’t want to be in that 33%, you should be aware of the common reasons that small businesses fail.

1. Poor cash flow.
Uneven, unstable, or nonexistent cash flow is the #1 killer of small businesses. New business owners are liable to run into this problem because they have few or no paying customers and because they must overcome an onslaught of new expenses to keep their doors open. Depending on the type of business, the impact can be severe (particularly for brick-and-mortar businesses that must pay rent).

Heavily project-based businesses are also apt to run into cash-flow problems if getting paid takes too long, as the bills don’t stop coming due. Before trying to predict income, sit down with an accountant to forecast your expenses so that you know how much savings you should have on hand and how much capital to seek.

2. Lack of managerial experience.
Say that you have decided to open a specialty bake shop because you’re an incredibly talented pastry chef. You may know how to pipe a macaron better than the old French masters, but that doesn’t mean you know how to run a bake shop. Many talented individuals are fantastic at the chief service or product that their business offers but lack the business insight they need to make it succeed.

An MBA is not needed to run a business, but it certainly helps to take business courses dedicated to the appropriate industry and to enlist a small-business consultant to help draft a business plan and put it into action. Talk to other business owners of all types and learn from them; ask them what they would and wouldn’t do again when running their businesses.

3. Not providing what the market wants.
There’s a reason that small-business ownership is just a dream for some people; often, a person’s dream career just is not realistic because it does not have a market. If you live in a small town and want to open a formal dress shop, you should ask, “Do the people in this town have the income and tastes to present sufficient demand, or would a big city have a better market?”

Whether businesses target local or general markets, the inability to find a customer base is often what causes them to fail, despite their owners’ love. Do some market research first before deciding to invest in a business or start a new product line. Such research takes time and money, but it can prevent a major loss—or reveal a major opportunity in a different place or another line of work.

4. Not keeping up with the pace of growth.
Have you ever heard of “the law of diminishing returns”? It refers to the inability to keep up with growth—both forecasted and unexpected. This problem causes a lot of business owners to crash and burn. When a business has been in famine mode for years because of cash-flow issues but suddenly begins to take off, it can be difficult for its owner to change his or her attitudes about money.

When a business grows, it eventually needs to hire help to keep up with the number of customers, as the owner can’t do it all; if this doesn’t happen, the business will start to lose money. Is that slow, old computer taking up too much time on high-value gigs and preventing work from getting done faster? Invest in both people and equipment when the time comes. Don’t fall victim to the law of diminishing returns.

5. Not Learning From Failure
Even the wealthiest business owners in the world have had failures, whether they are projects or entire companies. They got to where they are by learning from their failures.

Based on the common causes of business failure outlined above, if the market doesn’t want your product, you must adapt. If a lack of time or poor-quality equipment are holding you back, you must hire help or invest in faster computers and more efficient machinery.

It’s only truly a failure if you do not learn from your mistakes.

By getting a proper handle on your finances and properly managing of all of your resources (including labor), you can drastically increase the chances that your business will succeed. Sometimes, the market is just fickle, requiring you to adapt to changing demands and technologies. By being prepared for all the intricacies of running a business and by having the wisdom to learn from failure, your business won’t be among the 33% that fail in the first 2 years.

10 Questions to Ask Your Financial Team When Starting Up

Starting up your business is an exciting time, but it is also a time with many questions. While it may seem initially very easy to create a product, open a store, and start selling, the financial aspects of being successful are a bit more challenging. As you consider the process of starting up, work with a local financial planning team and tax professional to ensure you get your financial footing in place now. Ask these questions.

#1: What should be in a basic business plan?
A business plan should outline each detail of your company including who will run it, how much you’ll charge, and what you expect to earn. Putting time into creating a thorough business plan is important. Work with your team to ensure your plan is accurate and represents your business well.

#2: Who will you need to pay taxes to?
Your local jurisdiction and state have specific taxation requirements. You’ll likely have to pay taxes on sales, but also costs associated with payroll. Ensure your accountant not only talks to you about who you need to pay, but payment deadlines as well.

#3: What is a projected cash flow for the business?
How much cash does your company need to keep on hand? The key here is to be able to anticipate how much it will cost you to operate your business. Most companies should not expect to have positive cash flow for at least a year, often longer. Your professionals can help you decide what your cash flow projections are.

#4: How much of an investment do you need to put into your company right now?
Your financial team can help you project the cost of setting up your new business. This will include costs related to establishing the physical business and paying for supplies. Your initial investment generally will be the highest amount put into the company by the founder, but it changes significantly from one company to the next.

#5: What is your break-even analysis?
This may be an important question to ask early on. How much do you need to make to break even? You’ll want to talk to your financial team about the timeline for this and what can be done to help ensure you break even as soon as possible.

#6: What liability insurance do you need?
While most tax professionals don’t offer recommendations here, having adequate policies to cover potential loss is important. Work with your team to ensure you have comprehensive protection to minimize risks against your company’s financial health.

#7: What will interest cost you?
Interest on loans is not something to overlook. You’ll want to ensure you have an accurate representation of how much you are paying in interest so you can make adjustments to pay off any borrowed debt sooner, make better decisions about borrowing, or factor in the cost.

#8: How will you manage payroll?
This is a very big component of starting up since it can be troublesome for most startups to actually know how to pay employees and meet all federal and state requirements. Working with a payroll provider is often the easiest option (and most financially secure since paying an employee to do this work tends to be more expensive).

#9: How can you reduce your taxes?
Tax professionals will work with you to determine if there are any routes to reducing taxation on your business including local incentives that may be available. You’ll also want to talk about projects taxes, investments that could reduce taxes, and having all possible deductions in place.

#10: What’s the right profit margin?
Working with a financial team often comes down to this question. How much should you charge to make the best profit possible while still ensuring your company can grow? It’s not a simple question, but having the right team by your side ensures it will be clarified as much as possible.

Working with tax and accounting professionals is the most important decision any startup founder needs to take long before any commitments are made. It is here that you will formulate the success for your company.