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Set Up your business for success

Set Up your business for success

| August 24, 2021
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5 Ways to Set Up Your Business for Financial Success

It's well-established that most small businesses fail within the first five years. What sets businesses that succeed apart from those that fail? While there are a number of factors that contribute to a business's success or failure, one thing is universally true: The steps you take in the beginning set your business's trajectory.

To give your business the best shot at success, you need to take the right steps from the onset. The excitement of a new business idea lures entrepreneurs to dive in head-first, but this puts businesses on the path to an early grave. Instead, follow these tips from Brent Eugenides, CFP, to set your business up for success.

Choose the right business entity

A business's legal structure influences the way it's taxed and managed. Your choice of business entity also determines whether your personal property is protected from business liabilities.

● Sole proprietorships and general partnerships are the simplest structures. In fact, no paperwork is required to form these entities. However, convenience comes with a trade-off: full personal liability for business debts.

● On the opposite end of the spectrum are corporations. Corporations avoid personal liability, but they also require extensive recordkeeping and subject owners to double taxation.

● Limited liability companies, or LLCs, are a popular hybrid. LLCs couple the pass-through taxation of sole proprietorships and partnerships with the liability protections of a corporation. You can easily set up your LLC and register a business name with an online service.

File paperwork and pay taxes on time

No matter the entity, there are taxes to pay and paperwork to file. In addition to income taxes, businesses must comply with payroll taxes, sales taxes, and annual reports. Plug important compliance dates recurring annually into your calendar to avoid costly penalties.

Start with sound accounting practices

Speaking of paying taxes: It's a lot easier to determine tax obligations, process payroll, and track income and expenses when you start with a solid accounting system. This includes:

● Opening a business bank account.

● Choosing an accounting method. ● Purchasing and integrating accounting software.

● Organizing the chart of accounts.

● Establishing recordkeeping procedures.

In addition, you will be best served with good batch invoicing software on your bookkeeping arsenal. This allows you easily track your expenses, organize receipts and invoices, and integrate with your bank accounts and POS systems. Alternatively, you could work with an accounting firm to help with all elements of payroll, in addition to HR and employee benefits.

Learn to read financial statements

In the same vein, plugging numbers doesn't do much good if you can’t interpret them. Familiarize yourself with key financial statements, including profit and loss statements, balance sheets, and cash flow statements.

In particular, entrepreneurs should know how to read a balance sheet. This financial statement provides a snapshot of a company's assets, liabilities, and equity. However, to make the most of balance sheets, business owners need to review them on a regular basis to monitor trends in their financial position. The right accounting tools make this easy by automatically generating business balance sheets on a pre-set schedule.

Depending on your industry and your current business acumen, it could be worthwhile to return to school for another degree or an advanced degree in an area that benefits your venture. For example, if you want to build a stronger understanding of best accounting practices and how they affect your business, enrolling in a degree program offers the chance to expand your knowledge. Online courses make it easy to run your business while still working toward your diploma.

Establish payment terms to get paid faster

One problem the balance sheet can reveal is outsized outstanding accounts. When customers don't pay on time, it puts a stranglehold on cash flow. Invoice payment terms influence how quickly you get paid. While 30-day terms used to be the default, short payment terms are now increasingly popular. However, you can’t expect clients to pay quickly if you’re slow in sending bills. Invoicing tools are a must for sending timely invoices and automatically following up on late payments.

Setting up a business for success requires hard work and dedication. However, with the tips outlined above, you can lay a solid foundation that will help you achieve your goals.

As your business grows and you begin to generate wealth, it’s crucial to put your money to work for you. Work with a certified financial planner like Brent Eugenides to create a roadmap for your financial future, from investments to your retirement goals. Reach out today for a consultation.

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