As the end of the year approaches, most business owners use this as a time to analyze their yearly numbers and brainstorms ways to make next year more successful. As a business owner myself, I always use the end of the year as a time reflect on my business and understand what I could be doing better to better serve my clients. Furthermore, I ensure to reflect on what I can do to ensure my business is profitable so that I can stay in business. Understanding that most small businesses fail within the first couple of years is something that never leaves my mind, and one of the main factors to this statistic is that most small business owners have no idea how to handle their business finances. Due to this, Small Business Pulse, wanted me to discuss 5 financial tips to help small business owners succeed. You can find the original article here, or read my extended version below.
Tip 1 – Get a bookkeeper early on
The most common theme I run into with small business owners is a lack of organized books. Without these records, it’s impossible to understand if your business is successful or not, or where to find areas in which you can improve. Trying to operate a business without organized books is like trying to cook a 5-star meal without a recipe, it might look good on the outside but inside will taste terrible.
Tip 2 – Select the proper entity structure
Entity structures serve two main purposes for all small business owners; asset protection and tax savings. Asset protection is so important as a small business owner because you are transacting with a multitude of clients and at any moment a client having a bad day can decide to take it out on your through litigation. Without the proper asset protection not only can someone sue you for what’s in your business, but they can also sue you for everything else you own personally. It’s unfortunate how many stories I’ve heard where someone lost everything they owned due to a small business lawsuit. The second purpose is tax savings. The correct entity structure can save you loads on taxes and we all know that taxes are everyone’s highest expense.
Tip 3 – Set up a self-employed retirement account
As a self-employed person, you no longer have an employer-provided 401k. However, there are various vehicles that you can use in place of this like a SEP IRA or Solo 401k to save for retirement. For every dollar you put away in one of these accounts you will earn about a 30% tax savings, not to mention you are putting money away toward your future. And for all of you real estate professionals out there you can use this money to invest in new real estate deals tax-free but setting up a “Self-directed retirement account”!
Tip 4 – Know your write-offs
Countless business owners miss out on thousands of tax savings by not realizing how many expenses they can write off. With the proper CPA or accountant by your side, you can literally convert your personal expenses into business expenses. The tax code is written for business owners and investors to prosper, don’t let these savings escape your pockets.
Tip 5 – Don’t be afraid to reinvest in your business
Reinvesting into your business is not only a write-off, but it's the only way to successfully grown. Many of our clients have a set percent that they reinvest into their business every year, and I think it's a great way to continue steady growth.
For more great small business tips, read this next article.