Business Best Practices

Once you have an idea, starting a business can be very exciting, but also daunting. It is important to map everything out before you start to avoid potential pitfalls down the road. Here is a guide to set up your new business for financial success.

Know Your Market

It is crucial to conduct research on the demographic you are targeting with your business. You should survey these people to determine if your product or service is something that can be of use. Make sure to question your actual target market. Many times, asking family and friends can lead to a falsely optimistic view of the targeted market.

Before you invest funds in your idea, you should consider doing a SWOT analysis. This stands for Strengths, Weaknesses, Opportunities, and Threats. Analyzing each of these aspects as if your business were to launch today can help you improve in the long run. Below are some examples to ask yourself in each category:

Strengths

• What makes our business unique from the competition?

• What traits/knowledge does our team bring to the table?

Weaknesses

• What is slowing us down? (labor, technology, etc.)

• What skills do we lack?

Opportunities

• Can we market our product/service differently based on a current market need?

• Can we expand our current services/products to include more?

Threats

• Are we too similar to our competitors?

• Are we dependent on a supplier?

Know Your Competitor

Researching your competitors can help in more than one way. You can research your competition to determine how to price your products. Many times, new business owners either under price or over price their products. Knowing what rate your competitors use can allow you to integrate your product to the market at a successful price point.

It is also possible to think of new ideas for your business model once you have seen how much overlap you share with your competitors. If you want your business to stand out, show the gap between your product/service and your competition’s. This can be difficult as you may have to go in a slightly different route for your business plan than you wanted, but it is necessary for the most success.

Create a Sturdy Business Plan

Whether you need investors or are financing your business by yourself, having a business plan to use as a roadmap for establishing your new business can make the process smoother. A business plan gives anyone analyzing your business, the understanding of your foundation and how you intend to develop your business. Forbes has a great guide for entrepreneurs to create a business plan.

Determine How You Want to Structure Your Business for Taxes

Unfortunately, taxes determine the structure of every business. You should consider the different types of structures and how they each affect your operations.

• Sole Proprietorship – This type of business structure is available to solo business owners. It means that the company and the owner are considered the same. You would be responsible for all legal and tax issues.
• LLC – This structure can be owned by one or more people. This limits your personal liability for legal and tax issues, unlike the sole proprietorship.
• LLP – This structure is similar to an LLC but requires a partnership. It is usually used for services from licensed professionals such as accountants.
• Corporation – Like an LLC, a Corporation is able to limit your liability as a business owner. There are two types of tax corporations: C-Corps and S-Corps. C-Corps are usually for larger companies while S-Corps are for smaller companies.

Register Your Business

Now it is time to officially register your business. Try to think of a name for your business that you feel confident that you will like long-term. You will have a business name, but oftentimes, businesses use a DBA (Doing Business As). This means that the name that the public recognizes may not be the same as what the business legally filed. Some states may require you to file your DBA.

Unless you are a Sole Proprietorship, you will need to collect a sizable amount of tax documents at the time of registering your business. You will need to select a registered agent to accept legal documents for your business. You will also need to apply for an Employer Identification Number (EIN). This is an easy process you can submit to the IRS.

Figure out Your Finances

The first thing you need to do is open up a business checking account. You should never mix personal and business expenses. Having a separate checking account helps with this distinction. You should pay business expenses and receive income through this account.

If you have a complicated business model, it is recommended that you hire a bookkeeper. This especially helps if you sell a product. You will need help with balancing your ledger with your inventory. Accounting software can also help with this. QuickBooks is a great resource for small businesses to stay on top of all of their tax requirements.

Funding Your Business

Once you figure out how much it costs your business to run, you need to figure out how to startup your business. Many people fund their own businesses from their savings accounts, personal credit cards, or from friends and family. This is a risky way to fund your business as it might leave you in trouble in your personal life if your business were to go south. There are other external options you can explore to fund your business such as small business loans or grants.

Getting Your Business Online

Now that you have figured out most of your business, it is time to create a website to properly showcase your products/services. Having a website is very important as it will get your business leads if marketed correctly. If you have no experience with website strategy, we suggest outsourcing to a web designer rather than making your own weak website. You will want to optimize your website so it will show up in search engines (SEO). A professional-made website will be able to put you in a good spot for this.

Registering your website on local listings can make a huge difference. Prioritize setting up listings for Google and Yelp. Make sure to add proper information in all of the fields. A good bio and pictures of your business and team can go a long way.

Social Media is also a great way to market your business. You should think about your audience and the platforms they mainly use to determine your marketing strategy. For example, if you have a younger target audience like Gen Z or Millennials, Instagram will be the best platform you can use. You do not need to have every social media platform to market your business. Being consistent and patient is the best mindset to have at the end of the day.

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Creating a new business takes a good amount of tedious work but can lead to rewarding results. Using this guide can help you start in the right direction for your business. For more questions, contact us today!

Running a small business is a demanding task, requiring you to wear many hats, from managing operations to marketing and customer service. Among these responsibilities, bookkeeping and accounting are crucial for the financial health and sustainability of your business. While it may seem daunting, effective financial management doesn’t have to be overly complicated. Here are some essential bookkeeping and accounting tips to help small business owners stay organized, compliant, and financially sound.

1. Separate Personal and Business Finances

One of the first steps for any small business owner is to separate personal and business finances. Open a dedicated business bank account and use it exclusively for business transactions. This separation simplifies bookkeeping, aids in tax preparation, and ensures legal protection of personal assets.

2. Use Accounting Software

Investing in accounting software can save you time and reduce the risk of errors. Tools like QuickBooks, Xero, or FreshBooks offer user-friendly interfaces and automate many bookkeeping tasks, such as invoicing, expense tracking, and financial reporting. Many of these platforms also integrate with your bank account, further streamlining the process.

3. Track All Expenses

Maintain meticulous records of all business expenses. Use your accounting software or apps to capture and categorize receipts immediately. Keeping a detailed record of expenses not only helps in managing cash flow but also ensures you can claim all possible tax deductions.

4. Regularly Reconcile Bank Statements

Reconcile your bank statements at least once a month. This process involves comparing your accounting records with your bank statements to ensure they match. Reconciling accounts helps identify discrepancies, catch errors, and detect potential fraud early.

5. Implement a Consistent Invoicing System

A consistent invoicing system ensures you get paid on time. Send out invoices promptly, set clear payment terms, and follow up on overdue payments. Using accounting software for invoicing can automate reminders and track outstanding invoices.

6. Monitor Cash Flow

Cash flow is the lifeblood of any small business. Regularly monitor your cash flow to ensure you have enough funds to cover operating expenses and invest in growth opportunities. Create cash flow projections to anticipate future needs and adjust your operations accordingly.

7. Set Aside Money for Taxes

Avoid the year-end scramble by setting aside money for taxes throughout the year. Estimate your tax liability and regularly deposit a portion of your revenue into a separate tax account. Consider consulting with a tax professional to understand your tax obligations and maximize deductions.

8. Maintain Accurate Financial Records

Accurate financial records are essential for making informed business decisions. Regularly update your books and keep records of all financial transactions, including sales, purchases, payroll, and other expenses. Accurate records are also crucial for compliance with tax laws and regulations.

9. Prepare for Financial Reporting

Prepare financial statements, such as the balance sheet, income statement, and cash flow statement, on a regular basis. These reports provide insights into your business’s financial health and performance. Use these reports to identify trends, assess profitability, and make strategic decisions.

10. Seek Professional Advice

Consider hiring a professional accountant or bookkeeper, especially if your business finances become complex. A professional can provide valuable insights, ensure compliance with tax laws, and help you optimize your financial strategy. Many small business owners find that the cost of professional advice is outweighed by the benefits of improved financial management and peace of mind.

Effective bookkeeping and accounting are fundamental to the success of any small business. By implementing these tips, small business owners can maintain financial order, make informed decisions, and ensure their business thrives. While it may require an initial investment of time and resources, the long-term benefits of sound financial practices are well worth the effort.

It’s reassuring to remember that downturns are a normal part of the business cycle. And, just as there are strategies that help businesses thrive during profitable times, there are basic survival tactics that businesses can employ when the outlook is less than rosy.

Control Spending

Finances should be your fundamental concern when economic conditions are unsettled. When sales are slow, it’s time to preserve your cash. Look closely at how you can reduce overhead. Make certain that all your operating expenses are necessary. Even if you’ve recently made cuts, see if there are other measures you can take. Unless absolutely necessary, consider putting plans that call for capital investment on the back burner until conditions improve.

Maintain Customers

While containing costs is essential, maintaining your customer base is also crucial. So, when you’re deciding how to trim spending, make sure you don’t make cuts in areas that deliver real value to your customers. At the same time, watch your receivables. Make sure your customers’ accounts stay current.

Think Short Term

Plan purchases for the short term, keeping a minimum of cash tied up in inventory. At the same time, however, make sure you’ll be able to restock quickly. Your suppliers may be able to suggest ways you can cut costs (perhaps by using different materials or an alternative manufacturing process). See if you can negotiate better credit terms.

Plan for Contingencies

There’s a big difference between imagining that you might have to seriously scale back your business and having an action plan in place that you can quickly execute. To develop a realistic contingency plan, prepare a budget based on the impact you imagine an extended downturn would have on your business. Then outline the steps you would need to take to survive those conditions. For an added level of preparedness, draw up a second, “worst case scenario” budget and chart the cost-cutting steps you’d need to take to outlive those more dire circumstances.

Many businesses will survive challenging economic times by being informed about their financial condition and by planning ahead to succeed.

Your most valuable asset isn’t your real estate or the tech stocks you bought in the 90s that have done well. It isn’t even your business per se. Your most valuable asset is you — specifically your ability to run a profitable company and make money.

Are you protecting that asset from the risk that a disabling illness or accident might prevent you from working? If you don’t have disability income insurance, you’re not protected.

What Are the Odds?

People generally think the odds of becoming disabled are low. But the numbers say otherwise: More than one in four 20-year-old workers become disabled before reaching retirement age. Here’s another reality check: Serious accidents are not the leading cause of long-term disability; chronic conditions are. Muscle and bone disorders (such as a back disorder or joint or muscle pain) are responsible for more than one in four disabilities.

How Long Could You Go Without an Income?

Even a short period of disability could be devastating. The average group long-term disability claim lasts 2.6 years. Even if you have reserves you 3 could tap, your personal finances would take a hit. If and when you were able to start earning an income again, you might have to start all over.

What Would Happen to Your Business?

Your involvement is vital to your company’s financial success. If you’re unable to work, you might have to hire someone to take your place and borrow money to pay the bills until you’re back on the job. Bottom line? If you’re sidelined by a long disability, it could jeopardize the success or even the survival of your business.

What Can You Do?

Call your financial professional to review and discuss this important issue.

A SIMPLE IRA is an option for small business owners who do not currently have a retirement plan in place but would like to have one. This particular type of retirement plan has several attractive features that deliver significant benefits to both employers and their employees.

What It Is

The Savings Incentive Match Plan for Employees (SIMPLE) is a retirement savings plan targeted at employers with 100 or fewer employees who earn $5,000 or more in compensation. With fewer reporting and administrative requirements than other retirement plans, the SIMPLE plan is designed to appeal to employers with limited resources and personnel to handle benefit administration and compliance issues.

With a SIMPLE IRA, employees may make tax-deferred contributions through payroll deduction to traditional individual retirement accounts set up under the plan. In 2023, the contribution limit is $15,500 ($19,000 if age 50 or over). All account earnings are tax deferred until the plan participant begins withdrawals. Withdrawals from a SIMPLE IRA are taxed at regular income tax rates.

Employers appreciate the fact that a SIMPLE IRA is relatively easy to set up and operate. An annual report is not required, although certain documents must be distributed to inform employees about the plan.

Employers are required to contribute to the plan, either by matching employee contributions up to 3% of pay or by contributing 2% of each eligible employee’s compensation. The matching percentage may be lowered in some years.

Plan Benefits

• Employee contributions are tax deferred
• Employer contributions to employees’ SIMPLE IRAs are tax deductible
• Account earnings are tax deferred
• No annual filing requirement or discrimination testing

Potential Drawbacks

• Employer contributions are required
• No Roth contributions are permitted
• Full immediate vesting (employee has ownership of all SIMPLE IRA money)
• No loans permitted

Your financial and tax professionals can help you assess your retirement plan options

There are distinct pluses and minuses that small business owners should consider when looking for a loan.

New small business owners typically enter the marketplace with high expectations — they want to build sales and increase profits quarter to quarter. More often than not, they hope to add employees and, perhaps, open up additional locations. To help turn their dreams of growth into reality, they often seek out financing.

The big question is when to borrow money and on what terms. The decision isn’t always clear-cut, as there are distinct pluses and minuses that small business owners should consider.

The Pluses of Business Borrowing…

Seeking financing can make sense from a business perspective if the loan is intended to help the business expand and grow. For example, using debt to add to or introduce a new line of products, acquire additional property, or take other actions that are expected to boost revenues is an appropriate business strategy. A loan can also make sense when it is used to repay the owner of the business some of what he or she put into the business using personal funds.

…And the Minuses

A business loan impacts cash flow as it is being repaid, often in monthly installments. The interest cost may be an important consideration, depending on the interest rate environment. Business borrowers should understand that their tax deduction for interest expense may be limited to 30% of the business’s adjusted taxable income. However, smaller businesses may be permitted to deduct more. A tax professional can provide details on these rules.

Excessive Debt

Business owners also need to consider other possible negative ramifications from taking on excessive debt. For example, the owner of a small business is typically required to personally guarantee loans to the business. If the business defaults on the loan, then the owner is personally liable for repaying the loan balance. It is possible that in such a situation, the lender would take steps to seize the owner’s auto, home, and other assets in order to settle the debt. Moreover, if the business ended up with more liabilities than assets and was unable to repay what it owed, then the business might be forced to file for bankruptcy.

Seek Professional Input

Before taking on debt, small business owners may want to consult with an experienced financial professional. A professional analysis of the business’s financial health, cash flow, and prospects can help the owner determine whether a business loan at this stage makes sense and how much debt the business can afford to take on.