Keeping your books balanced and your business finances under control begins with one of the popular small-business accounting software packages, says Suzanne Caplan, a Pittsburgh consultant and author of Streetwise Finance and Accounting: How to Keep Your Books and Manage Your Finances Without an MBA, a CPA, or a Ph.D. "They're really cheap and really easy," Caplan says. "They'll issue your checks; they'll do your invoicing. They'll do everything you need to run your business and stay on track." Try Microsoft Office Small Business Accounting 2006 ($180), Peachtree First Accounting ($100) or QuickBooks Premier Accountant Edition 2006 ($400). From there, follow these steps to keeping your books and finances in order:
66. Do a cash-flow projection. This should be one of your first financial exercises. Without knowing your cash-flow needs and supplies, you can't draw money out of the business for your own living expenses. "You want to know how to do cash-flow projections so you'll know when there will be money," says Caplan. Don't plan on having cash to pay yourself from Day One. "Figure out how much you'll have to grow revenue to be able to pay yourself," she says. "If it doesn't look like you're ever going to be able to pay yourself from the business you're starting, maybe you shouldn't do it."
67. Open a checking account for your business. Then, take care not to mingle business and personal funds. "It jeopardizes your bookkeeping as well as your legal standing," Caplan says. "If you commingle your personal funds with [funds from] a corporation or an LLC, you don't have corporate protection anymore." With separate accounts, you'll always be able to identify a business expense because it's been drawn from the business account.
68. Seek professional assistance. "Choose a good accountant from a small firm, and buy two hours of his time," Caplan says. "Make a list of your questions, and pay him to give you his best answers." Suggested questions include: How do I set up my books? When do I need to file tax returns? What returns do I need to file?
69. Start a relationship with a bank, even if you don't yet need or want a loan. "Drop in and meet your branch manager," Caplan says. "Tell them what kind of business you're starting so when you need to do some banking, you'll have someone to rely on." When you are eligible to get a line of credit, it's not a bad idea to get one, draw it down and pay it back. Then you'll have a history of repaying it. "A line of credit you retire in full is probably better for a startup than a longer-term loan," Caplan says. "You don't end up borrowing money that you won't pay back for a couple of years, and [that] may stretch you with debt service."
70. If you plan to sell your business someday, take extra care to keep good records. "Understand that you're creating value," Caplan says. "And make sure that you're selling something of value." For most businesses, value creation depends on gaining customers who are buying your products and making a profit on an ongoing basis. You can sell that future profit to a buyer who thinks he or she can run the business as well as or better than you. Says Caplan, "As long as your current value is growing, you can sell your potential to someone else."
Continued learning: Get in charge of your financial destiny with "The Basics of Money Management," which will help you learn how to accept payments, create a credit policy and more.
Keeping accurate records is the first line of defense against tax trouble, says Frederick Daily, a St. Petersburg Beach, Florida, tax attorney and author of Tax Savvy for Small Business: Year-Round Tax Strategies to Save You Money. Keep the following in mind:
71. Look at your payroll. It's the most likely place for you to get in trouble with the taxing authorities, even if you're the only employee. "If it's just you, then you're probably going to have to make quarterly estimated tax payments," says Daily. It's difficult for a startup owner to accurately forecast income a year in advance. "Nevertheless," Daily stresses, "it's the law. You're still liable for estimated quarterly tax payments."
72. Take care in calculating estimated income, social security and medicare taxes. It gets trickier if you or your spouse has a day job. But if you don't figure these right, you'll be subject to a tax penalty and interest, Daily warns. If you have the time and inclination, studying up on the topic should help you do the job adequately. Otherwise, he recommends you get personal tax advice from a professional.
73. Get professional help, especially if you have employees. Taxes get a lot more complicated with employees, since you're required to withhold taxes for each employee and report this on a quarterly or monthly basis. "This is where it pays to talk to a tax professional, and if you've got multiple employees, even get a payroll tax service that will make the filings for you," Daily says. Even this expert admits he has made mistakes with employment tax reporting, either by not filling in the forms correctly or not getting them in on time. Says Daily, "Anybody who's been in business for any length of time with employees is going to get in trouble [at some point]."
74. Log your miles. If you have a vehicle you use for both business and pleasure, invest in a pencil and notebook to track business use of the car. Log sales calls, trips to pick up or deliver materials, travel to entertain clients, or any other business use of a personal vehicle. This will allow you to accurately deduct operating expenses for business use of the vehicle. More important, it will keep you from getting in trouble in case you're audited. "It's an easy 'gotcha' for the IRS," Daily says. "They know most people don't keep records." It's also one of the best tax breaks for small-business owners: It can amount to thousands of dollars a year.
75. Think about your retirement. Even when you're just starting out and retirement seems a long way off, consider taking advantage of the tax savings represented by a retirement plan. IRAs, 401(k)s, Simplified Employee Plans and other retirement plans give you tremendous tax-saving opportunities. "The benefits are twofold," Daily explains. "You get an immediate tax deduction, and then the money accumulates, tax-deferred, until you withdraw it, which may be on retirement, or you may be able to withdraw it earlier under other rules."
Continued learning: Visit our Tax Center for top resources and information that'll help you with this not-so-fun business task.
Gwen Moran is co-author of The Complete Idiot's Guide to Business Plans. Chris Penttila is a freelance journalist in the Chapel Hill, North Carolina, area.