Congratulations! You’re ready to start your own business, and you’ve got the drive and determination to make it work. However, given the current state of the economy, you’d do well to revisit a basic “to do” list of financial fundamentals that could have a dramatic impact on your level of success.
1. Get a good accountant: Sounds like a no-brainer but a good accountant can save you big bucks, especially during that critical first year of doing business. We’re not talking about counting beans here. We’re talking about a person with experience and expertise in the small business arena; someone who knows the ins and outs, the ups and downs, the do’s and don’ts and, more importantly, the latest legal loopholes that will benefit your bottom line. Think of a good accountant as a safety net for your business—a person with the ability to spin healthy profits or hefty losses to your greatest benefit come tax time. Although choosing the right accountant can be a laborious process, the dividends can be quite substantial.
2. Start keeping track of all your expenses: Well before you launch your business, you’ll want to develop the habit of keeping track of all your expenses. This means saving every receipt, regardless of whether you consider the expense to be a potential write-off. Then, when the time comes, you can let your accountant determine what expenses you can claim. However, if you don’t keep receipts and expenditure records, even the most creative accountant will have a tough time justifying undocumented expenses on an income tax return.
3. Set up a personal savings account: Regardless of how well funded your new business venture is, you need to have an emergency fund for contingencies. This means setting up a personal savings account and having the discipline to fund it consistently and realistically without making unwarranted withdrawals. Remember, even in healthy economic times, most businesses fail, not because their business models are flawed, but because they don’t have enough ready capital to meet their expenses during those first critical years of operation.
4. Pay down your personal debt: Starting a business can be a costly venture, often requiring extra funding through small business loans. Paying down personal debt will give you a much greater chance of qualifying for financial assistance. While it may be tempting to invest potential “pay-down funds” in stocks or bonds (even in this economy), the amount of interest earned will most likely fall short of offsetting the interest paid out on outstanding loans.
5. Make your yearly tax appointment sooner than later: A common mistake, especially when the chances are that you will owe money come tax time, is to put off the tax appointment as long as possible. However, since you’ve got a good accountant, the sooner you make that appointment before the dreaded April 15th deadline the better. When you know exactly how much you’re going to owe come tax time you can formulate a plan and avoid paying needless penalties should you need to file for an extension.
Although nothing short of a crystal ball can guarantee the future success of any business, paying attention to the basics going in will give you greater freedom and flexibility, allowing you to use your entrepreneurial drive and skills to the fullest.
About the Author: Tim Coffman is a freelance writer.