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FEATURE STORY

A New Year, a New Business Venture
Tips for helping you launch and keep your small business.

You’ve been planning for months or even years to start your new business venture and with the stroke of midnight on New Year’s Eve you’ll officially be a small business owner. Congratulations! Now what? If you’re like most small business owners, you’ll feel overwhelmed, proud and terrified all in the same moment. The process of starting and more importantly keeping your business is not an easy one especially throughout that all critical first year. Business ownership can be fraught with pitfalls and even the best laid plans can go awry without watchful diligence.

What happens during year one that can make or break a business and what can you do to help ensure your company’s success? According to small business financial expert and Fiducial franchisee Van Ballantyne, EA, in Greenland, New Hampshire there are many areas of weakness that business owners can prepare for and avoid with a little upfront research and homework.

Hire the Right Experts

Your first executive decision should include the types of business experts that you need to help you set up and manage your new venture. A banker, lawyer, insurance agent, and accountant should top your list.

A banker will help you to outline the financial needs of the company and identify key milestones for cash influx. They can explain and set up lines of credit, small business loans and even business credit cards to help you better manage your money. Together with your attorney and banker, you’ll need to decide what type of business entity (sole proprietorship, limited liability company (LLC), C corporation, S corporation, etc.) will be best for you. The entity choice is especially important because it will also determine the type and level of tax obligations you’ll need to meet.

The insurance agent can guide you on insurance liabilities, worker’s compensation, and other insurance issues unique to your industry. Don’t forget about health and life insurance policies too. “Health insurance is especially critical because one accident or serious illness can mean tens of thousands in health care expenses and can quickly drain any savings,” says Ballantyne. “Having insurance in place helps to maintain a sense of stability and avoid unnecessary financial tragedies.”

Don’t forget about the accountant. “Often this task is overlooked during the first year and business clients come to us after they have gone a full year in business having paid no quarterly payroll or income taxes,” says Ballantyne. “Once we look at their books, they’re sometimes faced with back tax payments and paying the coming year’s quarterly payments. Starting the year in arrears is no way to grow a business.”

Remember that the accountant is one of the few professionals that does not require a license, so be sure that you investigate your selection thoroughly. Look for someone that is at least an Enrolled Agent (EA) or Certified Public Accountant (CPA) and an expert in the small business arena. Talk with some of their clients and references and see how they work with their accountant over the course of a year. Is the accountant responsive and proactive? Is the business experiencing issues because the only time they meet is to discuss tax preparation? Answers to these and many other questions will give you the clues you need to help make your decision.

Recordkeeping

Business owners need to be able to pull a balance sheet, a profit and loss, and develop a budget. Ask yourself if you can identify where the business is headed and where it has been. If you can’t come up with the answer in hard budgetary numbers, find help fast. “The professionals you hire will need that information to be sure that you have the right loan information, you’re the right type of business formation, and that you’re on track for tax liabilities,” continues Ballantyne. “Poor records make poor tax returns and most certainly lost deductions. If you can’t substantiate a deduction with receipts and a paper trail, then you can’t take the deduction come tax time.” Most small businesses fall short on the recordkeeping side of the business because they don’t understand where they’re going and how to plan for future growth.

Employment and Income Tax

Beware of estimated quarterly and payroll tax payments. On the employment side the rules are very stringent. “Everything is about timeliness,” says Ballantyne. “If you have employees and you are withholding monies, they have to be properly deposited, reported, and paid on a quarterly basis. The IRS is not understanding about business owners with a lack of knowledge in this area.” That means that it’s your responsibility to have a solid understanding on Federal and state tax requirements before you hire your first employee.

If you are a sole proprietor you may not need to worry about payroll taxes, but you are still responsible for paying quarterly income tax. In the first year, new businesses often show a loss and don’t worry about paying quarterly income taxes. The problems arise during year two and subsequent years when the business begins to show a profit. Often nothing has been paid for estimated tax payments and the business quickly finds itself in arrears. Now the owner needs to pay back taxes on top of making quarterly tax payments for the upcoming year (i.e. double tax payments).

“About twenty percent of our new business clients come to our office owing Uncle Sam back tax payments and there’s just no reason for it,” says Ballantyne. “There’s a great disconnect between the business owner and the IRS. The business owners don’t know what the requirements are yet there’s a wealth of information out there to help explain the process. Many of our business clients start a business because they like to cook or they like to make furniture. What they don’t realize is the significant impact of poor business accounting and missing or late tax payments.”

Secure Financing

Next to making timely tax payments undercapitalization is probably the largest obstacle to small business success during the first year. The Small Business Administration (SBA) reported 544,800* business closures in 2005. Many of them are due to a lack of sustainable funding to support the new venture. This is where having the right professionals in place from the start will prove advantageous. Your banker and accountant can work to develop a cash flow projection and establish ways to ensure success.

Develop personal and business goals.

Often business owners are so busy running the business that they lose sight of why they went into business or what their goals were at the start. The New Year brings a great opportunity to sit down and chart those goals both personally and professionally. Did you start your business so that you would have more control over your time and finances? If you did, what steps are you taking to ensure that personal time isn’t being consumed by the business? Do you want a small enterprise or a large multibillion dollar company like Amazon.com? Your business shouldn’t run your life. By remembering who is in control (you and not your business) and why, you’ll gain a clearer focus of what needs to be done, what can be handed off to employees or subcontractors, and where your true priorities lie.

Do your research and homework.

Don’t go into business without doing your due diligence. Entrepreneurs need to fully understand what the obligations are and if they are prepared to meet them before hanging out the Open for Business sign. Look at the business from all angles including emotional, physical, and financial. Talk with other business owners, peers and your industry trade association leaders about the product or service you’re planning to promote. Ask questions and spend time at your local library researching both your industry and target markets. “Trade associations are a tremendous source of knowledge in your industry,” says Ballantyne. “Go to a convention to meet colleagues to pick up a wealth of information on managing and owning your small business. Don’t just join the group, become active and learn as much as you can along the way.”

If done with a little forethought and planning, starting a business can be a rewarding experience. To learn more about starting a business venture, talk with a Fiducial Advisor by calling 866-Fiducial or visit the web site at www.Fiducial.com .