As a fee-only Advisor that works with small business owners, I constantly see issues with the management of prospective clients’ businesses. While every business has its own idiosyncrasies, there are several aspects of a business that should be similar regardless of the type of business. Bookkeeping is one example. A common mistake small business owners make is the improper tracking of income and expenses. Too often, I see owners commingling their business income with personal assets.
If you are a small business owner or thinking about starting a business, here are few tips.
1. Get a separate business checking account
A separate checking account is a great way to have a record of business income and expenses. If the business is audited or questioned by the IRS, only the business records may be needed. This could keep the personal assets out of the equation.
2. Track your income and expenses with software
There are several affordable software packages that are easy to use. Most packages these days will allow you to run reports which can help illuminate the true picture of the business. These reports can help set goals, establish budgets, as well as assist in tax preparation.
3. Set the business up for success
Run the business as a business! So often, small business owners “play” in their business. If you run the business as a hobby, it will probably remain a hobby. If you want to be a successful business owner, you must act like one. Study successful people and learn from their successes and failures.
4. Make sure to get a business license, if needed
Contact the local tax department and inquire about the proper licensing needed to operate the type of business you own. The last thing a business owner wants to learn is that proper licenses are not in place. Penalties and fines may follow suit, so it’s important to do the homework. For example, as a Financial Advisor in TN, I have to pay a $400 Professional Privilege tax every year. Failure to comply would result in penalties and eventually fines!
5. Keep Businesses separated
If you own more than one business, it’s imperative to keep all the business records and transactions separate. Again, this will make life much easier on several fronts. It’s make tax preparation and planning much easier, as well as projections involving business growth. If the business is to be sold, separate records are imperative.
These five tips will help to solidify the business side of the business. Don’t let your success be curtailed by bad business practices.