Archive for Small Business Owners

New Year’s Resolutions – waste of time or worth the effort?

As we head into the second half of January, how is it going with your New Year’s resolutions so far?

Are you meeting all your lofty intentions or have a few of them already fallen by the wayside?

If it’s the latter, you’re not alone.

We’re a nation geared toward self-improvement, but changing habits is hard work & resolutions are usually about big changes – lose weight, quit smoking, stick to a budget, save money, get a new job, maybe even start a business.

Statistically, about 30% of people who make resolutions fail to keep them through the first week of the New Year and around 80% fail to achieve them by the end of the year. Not such good stats.

Setting Business Goals vs. Making Resolutions

As both a small business owner & a business coach for entrepreneurs, I know that those stats would spell disaster if applied to meeting business goals. Missing your goals just doesn’t work if you want your business to succeed. Sooner or later it spells business failure instead.

As entrepreneurs, we set our own goals and are responsible for meeting them without anyone else pushing us to do so. That takes discipline and self-motivation both of which are key traits of successful entrepreneurs.

Why Do Goals Matter?

A common trait of high performing small business owners is that they set clear business goals and meet them consistently. Goals help us to move our businesses forward and to periodically assess whether we’re on track to build the business we envision.

They also give us useful guidance when we’re making daily decisions.

There are so many business challenges entrepreneurs deal with daily – operational challenges, vetting new opportunities, managing financial pressures, employee retention – that having clear goals as guideposts keeps us focused on what’s important for building our business’ success. They also help with us to keep focused on our most important tasks and help us to avoid business distractions.

Establishing timelines and breaking Goals down into measurable objectives helps to define projects, strategy and operational targets. When it comes to goal setting, I’m a true believer in the concept of SMART Goals:

S – Specific
A Attainable
R Realistic

Goal setting is both “art and science” in my experience. Look for my future blogs with tips on effective goal setting techniques as this skill is critical for achieving business success.


Make Your 2012 IRA Contribution by April 15th

Don’t miss out on the benefits of contributing annually to an IRA (Individual Retirement Account).

As a small business owner you are solely responsible for funding your retirement goals, so it is in your own best interests to consider making a Traditional or a ROTH IRA contribution if you can. And contributing to an IRA may even reduce your current personal tax bill, which is always good news to small business owners.

IRA Contribution Deadline

Time is running out to take advantage of this tax deferred savings option – you have to act by April 15th, 2013 to make an Individual Retirement Contribution for 2012.

For either Traditional IRAs or ROTH IRAs, contributions need to be made by your tax filing date. The IRA contribution date is not extended by filing a Tax Return Extension Request. So even if you are planning on requesting an extension of time to file your return, make sure your full IRA contribution is made by April 15th.

If you haven’t opened an account, there is still time to do so.  One reminder: if you make any contributions to your IRA between January 1st & April 15th, just make sure your bank or broker applies it to the right year.

IRA Rules

Nothing is simple with the IRS & the IRA rules are very complex, so get the information you need before contributing.

Some of the IRA basics are:

  • You need to be under age 70 ½.
  • You must have taxable compensation (wages, salary, commissions, etc.).
  • Taxable compensation for IRA purposes also includes Net Earnings from self-employment.
  • The maximum contribution for 2012 is $5,000 (or 100% of your compensation, whichever is less).
  • If you were 50 or older at the end of 2012, the maximum contribution is $6,000 (or 100% of your compensation, whichever is less).

Once the deadline passes, you can’t take advantage of it later.

Get All the IRA Facts First

Depending on the type of IRA you use and your annual income, your contribution may or may not be tax deductible. If you participated in a company retirement plan in 2012, you still may be able to make a contribution, but there are additional rules to consider.

Use tax filing software, check with your accountant or get 2012 Individual Retirement Account (IRA) contribution information on the IRS website. But don’t let this tax advantaged retirement savings option slip by if you are eligible to participate.


Crisis Management vs. Manufactured Crises

Politicians all proclaim that they are “friends” of small business. Clearly, they don’t know what being a friend means. If they were truly supportive of small businesses they would stop manufacturing crises and start dealing competently with the strategic issues facing the country. From immigration to taxes to defense to lending, they just keep on kicking the can down the road. If small business owners took that approach, we wouldn’t be business owners very long.

Congress keeps lurching from event to event, all of which have major economic consequences for consumers, taxpayers and businesses. The so-named Sequestration is only the latest manufactured crisis. Congress created this mess because they couldn’t reach agreement and, once again, chose to postpone governing.

So what’s the result?

Congress puts band-aids on serious tax and spending problems by making short-term and short-sighted policy decisions at the very last minute. Small businesses are casualties in this process. We can’t plan effectively; we don’t know if we should hire; we don’t know what the tax code will look like next year; and we certainly don’t think anyone is actually in charge in D.C.

No matter what your political perspective is, we’re all suffering from this chaotic approach to governing. “Just say no” wasn’t very effective with drugs and it doesn’t work well with financial and economic issues either. The point of negotiating is to come to agreement so that everyone can move forward. Business owners do it all the time. It’s not that difficult a concept to grasp.

Business vs. Government

I don’t subscribe to the idea that if you’re good at business, you’ll be good at governing. Maybe yes; maybe no.  The big difference that I see between politicians and business owners is that we try to avoid crises and they seem to enjoy them.

Maybe it is politicians’ love of sound bites that promotes this. After all, giving quirky names to bad policy and ineffective governance generates lots of air time. Terms like Fiscal Cliff, Federal Default, and Sequestration are handy short-hand for tweeting and banner headlines, but then we are all left holding the bag when reality hits.

Right now small businesses are trying to survive in a constant state of government-inspired crisis – with no real end in sight. Small businesses employ half the U.S. private labor force. Give us some stability and we just might be able to give this so-called recovery legs to stand on by creating more private sector jobs.


Small Business or Hobby?

net profit tax formIt’s quite possible that you and the IRS might disagree on this question, so keep good records to substantiate your position that what you are doing is actually a business.

If you’re a sole proprietor reporting your business on Schedule C of your personal tax return, the question of whether or not you are actually running a business is the basis for your ability to deduct business losses against other income like wages. Whether an activity is a hobby or a business is sometimes difficult to discern, especially for businesses with relatively low revenues in professions that are also often engaged in as a leisure activity, e.g. jewelry making or crafts.

If you’ve deducted losses in prior years & the IRS reclassifies your business as a hobby you can be subject to back taxes and interest, not to mention the prospect of being audited for up to 3 years of tax returns. Generally, the IRS expects you to report a profit in at least 3 of the last 5 years for you to be considered a business. But considering the economy in the last few years, making a profit has been difficult or impossible for businesses of all sizes, not just sole proprietorships.

The 3 years out of 5 profit rule isn’t an absolute, but it may take explaining and could flag you for an audit. If you are truly running a business, be prepared to prove it. Remember, with the tax authorities, the onus is on the taxpayer to provide sufficient documentation.

Start with keeping accurate books for the business, with documentation for all sales and expenses. Operate as a true business: use a separate bank account, don’t mix personal and business deductions, get a business license if it’s required, stay in compliance with all local laws and filings around sales tax, do professional development to improve your skills, have a plan about how you intend to grow your business, and keep records of marketing and networking efforts you make.

In short, if it isn’t a hobby, don’t approach it like a hobby. Chances are these steps will also help you to actually build your business so that you can start reporting a profit on a regular basis, in which case the 3 years out of 5 concept won’t be an issue any longer.


The Business Will Pay for It

expense report photoWhat a loaded statement that is, but I’ve heard it a thousand times. “The business” isn’t some disembodied entity with limitless cash resources. If you’re a small business owner, the business is you.
So, you’re paying for it…whatever “it” is.
For most people, the translation of this phrase means that it’s a deductible business expense and so therefore the true cost is somehow discounted. But just because “the business will pay for it,” doesn’t mean it’s a good way to spend money…and it is your money if you own the business. This line of reasoning is particularly prevalent among small business owners who came out of corporate and had a business expense account. In that case, the business was paying for it. Now that you are the business, you’re paying for it and it is important to understand that distinction.
When choosing which business expenditures to make, evaluate them in light of their absolute cost and decide if it’s worth it or not.  Just because something is tax deductible doesn’t make it a smart business move. Some business owners push the envelope on this business expense issue, especially around entertainment expenses. Don’t get caught in the trap of “letting the business pay for it” if the expense is actually a personal one and it doesn’t have a legitimate business purpose. If you’re audited and the deductions are disallowed, you could be facing a hefty tax bill along with penalties or interest.

Should You Hire a Bookkeeper?

bookkeeping ledgerThe answer is probably yes – particularly if you don’t have any knowledge of accounting or how to deal with more challenging topics such as payroll taxes. Bookkeeping software can make it deceptively easy to think you are keeping good quality accounting records, but accuracy involves much more than the ability to enter checks and deposits. Cleaning up a badly organized or incorrectly set up file later can be both costly and time consuming; much better to get it off to the right start when you set it up.

Spending the money to hire or outsource quality bookkeeping services is some of the best money you can spend. Not properly accounting for your revenue, expenses and capital expenditures can cost you money in any number of ways, including:

  • missing expenses you can deduct for tax purposes, effectively raising your tax bill
  • not sending invoices and statements out on a timely basis means it will take longer to be paid and negatively impact your cash flow
  • falling behind on the bookkeeping will result in you not having an accurate snapshot of the financial state of your business
  • spending so much time on the details may blind you to the strategic issues for your business – the old “can’t see the forest for the trees” analogy definitely applies here
  • errors with mishandled payroll or sales taxes can result in significant fines and penalties
  • using your time to do bookkeeping probably isn’t the most productive use of your time from a business growth standpoint

Use a good quality bookkeeping software program such as QuickBooks and hire or outsource the task of using it to someone qualified to do so and who understands how to use the program to its best advantage for you. QuickBooks also offers you the opportunity to backup your data online so that you are protected in the event your business suffers a disaster. If you can’t find someone locally, consider the options available on a “virtual” basis from services like Elance. You don’t have to lose control of your data, just provide access to the file for the person providing the service.

And using a bookkeeper will also provide you with someone who can keep all your financial records in good order so that you don’t have to and make it easier to prepare for your taxes at the end of the year. If your books aren’t accurate, you can’t effectively manage your business, so don’t be penny-wise and pound-foolish about this.

Doing it Yourself Isn’t Always the Smart Move

woman & PC frustratedMost entrepreneurs have a do-it-yourself streak…after all, if we weren’t confident in our own ability we probably wouldn’t have the chutzpah start our own businesses in the first place. This go-it-alone tendency, plus the tight budget constraints that start-ups usually have, means that we often try to do too many things ourselves.
This can be a poor business strategy for a variety of reasons. It tends to delay things…and time is money. The longer a product takes to create & sell, the longer you go before you have a revenue stream. Also, it can give a competitor a jump on you if they are faster to bring their product or idea to market, thus enabling them to garner market share.
We can’t all be good at everything. Using an expert can save you time & money because it is done right the first time and you don’t waste time with a learning curve. Focusing on the things you are really good at and putting the bulk of your time into those pursuits is the surest way to build your business. 
Outsourcing specific tasks or projects can make you much more efficient at what you truly should be doing and will keep you from squandering your time in areas you aren’t knowledgeable about. It is extremely flexible: you can hire for a specific project, such as, designing your website. Or, you can find a virtual assistant to give you support with a variety of tasks on an as-needed basis.
There is a financial concept known as “opportunity cost.” In this context it means that you are losing money because you are missing the opportunity to build your business by wasting your time on things that other people should be doing for you. While you are spending time doing an administrative or other task that you could hire someone else to do, you could be out selling or promoting your business. So you’ve lost an opportunity to make a sale and build your business.  And if you’re doing the bookkeeping or administrative tasks at midnight, you’re losing sleep which is another type of lost opportunity.
Outsourcing is easy to do these days, especially using services such as Elance. It is an easy way to get global access to expertise in a wide range of fields – from virtual assistants to programmers to engineers. And they will be competitively bidding on providing services for you, so it’s a cost-effective and easy way to find assistance with everything from bookkeeping to programming.
Work smart: be realistic about how much you can effectively do, concentrate on what you do well and always look at the potential cost to the business of doing it yourself rather than hiring someone with the needed skill to do it for you. Don’t just look at the cost to outsource, consider the return on that investment for your business. Outsourcing can help you to build your business faster by providing a  cost-effective way to get the assistance you need.