Don’t become another failed business statistic

Don't become another failed business statistic

The failure rate of small businesses in the United States is staggering. And most failed businesses can attribute their lack of success to the owner’s lack of understanding of basic business principles. Providing quality goods and services in a timely manner is just the first step in running a successful business. As the business owner, your job is to manage the success of the business. One way to do that is watching the company’s operating cycle. Your operating cycle is the time it takes from producing a product or service to collecting the payment from the customer. The longer your operating cycle, the better your chances of having cash flow problems. As the business owner, you must decrease the amount of time to collect your receivables to become and remain a healthy company. Take time and regularly review your accounts receivables. Don’t become another failed small business.

Small businesses: protect your cash

Small businesses: protect your cash

Many businesses struggle to build cash reserves. But maintaining a healthy cash balance is vital to the health of your business. There are many advantages to having extra cash. First, you can avoid a short-term cash crunch. With enough cash reserves, you do not have to fret over making the next payroll. Second, having extra cash will allow your company to seize opportunities that it might otherwise have to pass on. Opportunities like buying out a competitor or expanding into a new market. How do you build up your cash reserves? Just like you build your personal savings. Set aside a little every month. Make a habit of reviewing your net profits and cash balance monthly and setting aside a percentage into a separate account. Then, leave it alone. Don’t touch this cash until absolutely necessary. And keep saving until you have six monthly operating capital in cash.

How much of your small business do you really own?

Debt to equity ratio

I have read through the Book of Proverbs a couple of times over the past 12 months. One proverb that always sticks with me is from Proverbs 22:7, “The rich ruleth over the poor, and the borrower is servant to the lender.” While this proverb has meaningful applications for individuals, I want to discuss the application for small businesses. Related: Small business owners: take the 31-day reading challenge Business owners generally use debt as a way to grow their business at a faster pace than they are able to grow using only the cash generated by operations. Oftentimes, business owners will seek to rapidly grow their business. They forget about economic downturns, which always happen sooner or later. Businesses with high levels of debt generally have more trouble surviving than companies with low levels of debt. Looking at your balance sheet There are two sides to every balance sheet. On ...

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5 reasons why you should stop keeping your books by hand


Our firm is located in rural Eastern North Carolina. As such, we still have some clients that maintain a manual set of books for their business. Some use the long green ledger paper while others are still using Dome Books. These methods of bookkeeping have always seemed sufficient to some business owners. But I believe that it is time to move to a computerized bookkeeping system such as QuickBooks. Here are five reasons to move from keeping your business’s books by hand to using a computerized accounting system: Better Audit Evidence: Let’s face it, nobody wants to go through a tax audit. But if your business is audited, I can assure you that you will want to have computer printouts instead of manual documents. Why? Because in any tax audit situation, you want to present your financial information to the auditor in as concise and clear a manner as possible. ...

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Now is the time for all good businesses to be debt free

Be Debt Free

Benjamin Franklin once said that the only things in this world that were certain were death and taxes. And while we cannot be certain that he was the first to record this observation, generally most of us would agree with him. One item that seems fairly certain to occur sometime over the next 12 months or so is federal income tax reform legislation. While it is much too early in the process to discuss the details of any tax reform plan, there are a couple of items being discussed that, if passed, are certain to affect small businesses. These two items are the possible write off of all purchases except for land, and the non-deductibility of interest expense. Current legislative proposals regarding business debt Congress appears to be willing to offset the current year deduction for acquisitions of long-term assets with a disallowed interest expense deduction. While this may help ...

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Respect the legal organization of your small business

Pay attention to the details

I was approached by a new client last year to help him transition his successful small business to his children. What started out as a business succession plan quickly ballooned into a business reorganization. This was necessary because the business owner failed to honor the legal business structure that had been set up for the business. A typical small business success story Originally, the business operated as a sole proprietorship. The business had substantial real estate holdings, which were all owned by the business owner in his personal name. The business operated under an assumed name. As a sole proprietorship, the profits and losses of the business were subject to self-employment taxes. So, for every dollar in taxable income, the owner was paying income taxes and the full amount of Social Security and Medicare taxes. This created an effective tax rate for the business of 45% of taxable income. To ...

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The one way to absolutely, positively ruin your business

Deposit your payroll taxes

Small business owners can be very creative when it comes to making bad business decisions for their companies. Some business owners negate their liability protection by failing to respect their various legal entities and intermingling personal expenses in their business. Others overspend at year-end on equipment and supplies that they do not need just to reduce their income tax bill for the year. And many fail to plan for business continuity upon their death or disability. Related: The truth about year-end income tax planning However, you do not have to be too creative to make perhaps the worst mistake any business owner can make – the willful decision to not submit timely payroll tax deposits. The one bill that has to be paid. Every. Single. Time. Ever had one of those weeks where you were barely able to pay your employees, much less make minimum payments to your suppliers? Many ...

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The truth about year end income tax planning

Heavy Equipment

At Seiler, Singleton, & Associates, PA, I do a lot of year end income tax planning for small businesses. In fact, income tax planning will occupy a majority of my time from now through the end of the year. This service is an important part of the financial health of many of our small business clients. Year end income tax planning consists of two parts. First, a projection of taxable income for the business and its owners is made. Second, recommendations are made to the business to decrease or increase taxable income. These recommendations are made based on the unique situation of the company and the business owner’s long-term goals. For instance, a business may be looking to make a significant loan to fund the purchase of a major piece of equipment. Planning may include ways to increase business taxable income before year end to help meet bank loan requirements. ...

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About David

About David

David is an accountant and adviser for small business owners. He also coaches clients on leadership and success. David is an avid reader. He blogs regularly on the books that he is currently reading.

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