Boss of Your Bottom Line
Halftime, or midlife, is one of the best times to start a business but there are important financial principles that everyone should consider. This article is based upon an interview with Tatiana Tsoir, CPA, with over 15 years of specifically helping entrepreneur business owners. At the halftime of life, kids are grown or at a stage of independence and there is opportunity to pursue dreams you may have put on hold for many years. However, being the boss of your bottom line as an entrepreneur takes some proactive financial steps. (also see: Manage Finances During a Crisis)
To be the boss of your bottom line is not to fake it until you make it. It is setting up a solid plan and taking measured steps of prevention. Similar to going to a dentist, brushing, flossing and rinsing pro-actively, you want a routine to get your finances under control. This has the potential to take away the anxiety and fear of audits, running out of money and even taxes. Tatiana shared five financial principles that will help you do that.
Principle One: Separate Personal & Business Matters
This is a measure that will help you audit proof your accounts. You are never totally out of the woods on the outcome of an audit, but you will have a much better claim if you have one account that is used only for your business expenses. If you have put this decision off, it’s time to take care of it now. This not only applies to bank accounts, but credit cards. Tatiana suggests a separate card that is used only for business to keep records clean.
Principle Two: Get Your Entity Right
An entity is an LLC, S-Corp or C-Corp. If you are not making over a certain amount, it may not be worth it to establish an LLC because of the tax implications. It is worth the funds to pay a tax planner to pick the right one. Also, there are cases that will be retroactive if converting to an S-Corp or C-Corp so this should be discussed with your advisor.
Principle Three: Run Your Numbers
Does the math work for your business? Many entrepreneurs have great ideas, but is the idea sustainable and profitable? Tatiana suggests creating a 90 day forecast that is rolling—this means you are always looking 90 days ahead. Separate distinct revenue systems for each stream of income. I’m all about multiple streams of income, so this is a very smart strategy and it will help you look at each area realistically. (See: A New Way of Doing Business) Running your numbers will also help you with decisions on borrowing and hiring. Many hire too much too soon and find they are in a cash crunch.
Principle Four: Set Yourself up for a Tax Reduction
This is a mindset decision with pro-active tax planning. Find a tax professional that is very familiar with your particular business. Most are missing out on thousands of dollars in deductions because of misclassification. Most accountants keep 3-400 clients and an average tax preparer prepares over 700 returns a year. This means it’s worth you hiring an advisor that will help you put your expenses in the correct category that will benefit you the most. Your preparer will then just run the numbers.
Principle Five: Take Care of Bookkeeping
First of all, there is no perfect product for bookkeeping. So find what will work best for you. If you have under 20 transactions, you can do this on a simple spreadsheet. For 20-50, a program like Quick-books works well. For 50+ it is worth finding a bookkeeper. Quick-books, as well as other programs, will also have an online banking engine. The important principle here is to create a regular routine, updating finances weekly, bi-weekly or monthly. Don’t wait until the end of the year! I know many do this so it’s worth mentioning!
Take a Step Back
The first level of a crisis is shock. Why did this happen to me? How did this happen? That’s where many people found themselves when the pandemic hit, discovering they needed to reinvent or retool their business. It has never been more important to look realistically at the numbers, then take a step back in evaluating your options. (see: Questions to Ask)
Look at the core of your business offerings. When restaurants closed, they went to their core offering, which was to deliver cooked food. They could no longer do this indoors at a table, so they did take-out. To supplement that, they could provide online cooking classes and recipes. Many started creating outdoor dining arrangements and we saw cities lighten up the regulations on where they could place tables, even in parking lots. Think creatively, run the numbers and do the business with solid financial principles in place!
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