At Long & Long CPAs we find most small business owners are passionate about what they do. However, they might lack the knowledge to succeed financially and lose track of revenue and expenditures. With years of experience assisting start-ups and small businesses with accounting, bookkeeping and tax-preparation we’ve run across some common mistakes and some steps to avoid them.
Not Planning for Success
Most small business do not have a business plan and have not thought about how to price their products and services. New business owners need to get a handle on what their fixed and variable expenses will be, what they need to live on and how to price their products and services. At times you may need to budget a loss for the first couple of years. Many new businesses fail within the first year because they have not done proper planning or obtained proper financing. Planning up front for the first three to five years of business can ultimately save your business from failure.
Not Picking the Right Business Structure
There are so many ways to start a business: a sole proprietorship, partnership, LLC, LLP, S-Corp and a C-Corporation. Picking the right business structure and purchasing supplemental insurance is key to limiting your personal liability and protecting your business. But all of these business structures have different tax consequences. And while some may save you income taxes, they may also require more detailed tax reporting and basis calculations. It is best to see a tax consultant before choosing the structure that is right for you.
Combining Business Finances with Personal Finances
It is best to separate your business finances from your personal finances. The business needs its own checking account, credit card and line of credit. Only pay business expenses out of your business account and never deposit business revenue into your personal account. Doing this will make it much easier to calculate your profit/loss and see where your business is heading. Make sure that you compare the business results with your business plan and goals. Understand your company’s financial position.
Not Planning for Retirement
It is easy to have retirement benefits if you are working for a big company. But saving for retirement when you have your own business takes time and effort. There are several small business options for providing for retirement. There is a SEP IRA, Self Employed 401K and a Simple IRA. Each plan has different attributes but all plans require that you use payroll for compensation. For the self-employed, the SEP IRA is the simplest. There are no matching calculations because the company provides all the contributions. (Up to 25% of compensation with a $56,000 maximum) It acts like an IRA but the company gets the tax deduction. The retirement plan does not have any tax reporting to the IRS.
Using Credit Cards to Finance the Business
Credit cards have the highest interest rate compared to any financing you can obtain for your business, even though they are the easiest to get. Financing can come in all forms; it includes up front capital as well as a business line of credit. However, banks like to see a business plan before they will give a line of credit to a new company. They also like to see that you have put some of your personal money into the company and will probably also require a personal guarantee for the loan. Mixing various types of financing is always best.
Finding the Right Business Balance With Good Advice
We know each business and owner has different accounting needs. Long & Long CPAs starts with understanding your business. We discuss your accounting needs and concerns and assist with an establishing an accounting plan with a full understanding of your revenue cycle. If you have any questions about your start-up or avoiding common small business mistakes – we’re here to help serving South Charlotte, Pineville and Fort Mill, SC.
Long & Long CPAs is a Pineville, NC based certified public accounting firm helmed by Virginia "Ginny" Long, CPA (QuickBooks Certified ProAdvisor) and CPA Skip Long. Consider us an all-in-one accounting, bookkeeping, consulting and tax preparation service for small businesses using QuickBooks Online software. Long & Long CPAs serves small business owners in South Charlotte, Pineville and Fort Mill.