A growing number of Americans are choosing self-employment and small business ownership over steady income from an employer with benefits such as health and 401(k) plans.
In 2017, FreshBooks sponsored a study that revealed the highly effective financial habits of 1,700 small businesses in the U.S. The survey revealed that one out of four highly effective business owners implements the following best practices.
Basic Financial Foundation
1. Reviewing the Finances
Financial reports will provide insight into the past, present, and future financial state of the business. As a business owner, it is critical to review this financial data. It will allow you to run your company more effectively, enable you to analyze operations better, and help guide business decisions.
2. Monthly review of the Budget
A budget compares what you believe you will receive in revenue compared against the expenses incurred during a given period. The budget is prepared monthly and reviewed with the financial reports. The budget will allow the reader to assess how closely a company’s spending and revenue generation meets the financial forecasting projections included in the budget.
3. Paying Federal and State taxes
Your business will pay taxes. If you were in business last year, set at least 90% of that amount to pay taxes in the current year. Suppose this is your first year; for every $1 you earn, set aside .30 cents to pay your federal and state taxes. I would encourage you to pay them every quarter (January, April, July, October).
4. Paying business Debt
Some business debt is good, but your goal should be to make payments on time and focus on reducing the principal amount.
5. Pay yourself a salary from the business earnings
If you are making a profit, you should pay yourself on a bi-monthly or monthly basis. Remember to keep your business account separate from your personal funds.
Consider Tax and Legal Options that benefit your business.
6. Optimize business structure for liability and taxes
Establish a business entity that will provide the optimal tax benefits for your business.
Seek advice from a tax accountant or attorney regarding the best business entity for you. However, a sole proprietorship can have legal consequences that could impact your personal assets. A tax professional will discuss your specific circumstances and provide the best solutions for you and your business.
7. Take advantage of Write-Offs and Deductions
Take advantage of every tax benefit available to your business. Since there were significant tax law changes in 2018, make plans to attend one information session to learn how the changes will benefit your business.
As an organization strategist, it is exciting to support small businesses with solutions to streamline business operations, decrease time and create cost savings without sacrificing quality services. My goal is to bring relevant content that will spark positive conversation and change to elevate your company to the next level.
Take time today to start implementing the seven highly effective habits. If your business is looking for training, please click here to schedule a coaching call to see if we are fit to serve your organization.