McLan Accounting’s Business Guide
Running a business is a major undertaking, and one that you want to make sure is handled correctly. No matter what type of business you are running, it is important to really think it through and make good decisions that will help you for years to come. This extensive business guide will answer common questions, provide tips, and much more. If you ever have any questions that aren’t answered here, please don’t hesitate to contact us at 718-871-8250.
Running a Small business
How to Prepare Your Small Business for the Next Generation of Owners
If you own a small business and you want to pass it down to your children or other loved ones, you will want to start preparing as soon as possible. Less than 1/3 of small businesses survive passing down to a second-generation owner. Only about half of those survive making it to the third generation. This is largely because it is handled poorly. Here are some tips that can help you avoid common problems:
• Sell the Company – Rather than passing a company to your child, why not consider selling it to an experienced business owner. This way you’ll have the money to leave to your kids with far less risk.
• Close the Business – If the company isn’t something your children are interested in running, it may be best to just close shop. You can often sell off a lot of equipment and inventory for one final influx of money.
• Hire a Manager – Rather than selling the business, why not remain the owner but bring on a manager who will take care of all the day to day work.
• Strategy – If you are going to pass the business to your children, you need to have a good strategy in place. Start planning several years in advance to have the best chance at success.
• Competence – Try to look at the loved one who you are passing the business down to in an objective way. Are they really qualified for the responsibilities? If not, don’t try to force it on them. It will only result in failure.
What Goes In the Business Strategy
One of the most useful things to have when passing your business on to another party is a comprehensive business strategy. This document should include details about your business, lists of customers, important information about marketing, finances for the previous years, plans for the future, information about the day to day operations of the company, and a final statement about the business. While the new owner will be able to make all their own decisions about how it should be run, this will help to ensure a smooth transition.
Is a Home-Based Business Right for Me?
Running a business from home is a very attractive idea for many people. The benefits to this option include convenience, low expenses, and many others. You will want to make sure that you are not overlooking the potential downsides. For example, you need to be able to focus and avoid common distractions that can take place in the home. Managing your taxes can also be more difficult since you may be able to exempt a portion of your household expenses. If you are thinking about running a business from home, make sure you plan it out well to ensure everything goes smoothly.
How to Avoid Cash Flow Problems
One of the most difficult parts of running a business is making sure you have the necessary cash flow to do the things that need to be done. Without proper planning in this area, your business could be forced to shut down over a relatively minor issue.
Your business should have a set amount of cash on hand to deal with both expected and unexpected expenses. The amount will depend on the size and type of business you are operating, but in general you should be able to cover critical expenses like payroll, inventory costs, rent, and more for a least a set period of time. If your business is particularly vulnerable to swings in the economy, having a larger cash fund to draw on during lean times will be very helpful. In some cases, it can be appropriate to simply have a line of credit that you can access should it be necessary, but most of the time having cash in a bank account is best.
Tips for Developing a Better Cash Flow Strategy
There are quite a few things you can do to improve your cash flow strategy. Take a look at these options and see which ones you can implement for your business:
• Know Accounts Receivable – Have a good understanding of what money is expected to come in over the course of a set timeframe so you can plan accordingly.
• Don’t Rely on Single Customers – Whenever possible, make sure you are spreading your income across multiple different clients or customers. Even if each one is paying less, the stability of income will make it worth it in most cases.
• Business Emergency Fund – Most people are aware of the importance of having an emergency fund for their personal finances, but it is a good idea to have one for businesses as well.
• Credit – Have access to lines of credit for when it is needed. Whether this is in the form of an equity line of credit, a credit card, a standing loan option, or something else, this can help to cover emergency situations.
• Know Valuation – Knowing the value of the different products, equipment, and other items you have can make it faster and easier to sell should you need an urgent influx of money.
Working with Professionals
When running a business you will often need some type of help or service from another party. Working with professionals will help ensure you are getting the right level of service for your company. Also, knowing when to hire a professional and when to try to handle something on your own is critical.
Hiring an Attorney
There are many times when a business will need to work with an attorney. Major corporations all have extensive legal teams, so it just makes sense that a small business would at least occasionally need access to a lawyer. Many small businesses will have an attorney on retainer so they are available when needed, but not as costly as hiring someone in full time.
When is an Attorney Needed
Knowing when to hire an attorney and when to try to handle an issue on your own is very important. You don’t want to attempt to deal with complex legal issues on your own or you could get into serious trouble, or end up spending far more money than is necessary. On the other hand, you also don’t want to hire an attorney when you don’t have to since they aren’t cheap. Some examples of when spending the money on an attorney makes sense include:
• When an Issue Could End Up in Court
• Whenever a Contract is Being Written or Modified
• When Dealing with Hostile Individuals or Companies
Then there are times when it is likely best to just handle it on your own:
• Negotiating Salary with Employees
• Performing Standard Sales
• Filing a Complaint or Return to a Supplier
Most business owners develop a sense of when they need legal assistance and when they don’t. Of course, if you’re not sure, you can always call your attorney and ask their opinion. They typically won’t charge for this, and you may be surprised to learn that they will give you an honest answer even if they don’t think you need their assistance at the time.
How to Find a Good Attorney
Finding a good attorney is not unlike finding a good professional in any other industry. Start by looking for recommendations. If you have friends, family members, or especially business associates, ask them if they know any lawyers who work in business law. If they do, give them a call and see if they are a good fit. While experience, education, and other factors are important, you also want to make sure you have a good connection with the firm so you are comfortable working with them.
The first time you meet with an attorney it should be more of an interview going both ways. Each party should do their best to see if they are a good fit for the other as nobody wants to work in a situation that is full of conflict. Some answers to ask an attorney when deciding whether or not to work with them include:
• What is the Consultation Fee?
• How Much Experience in Business Law Do You Have?
• Do They Handle Other Clients Like You?
• Do You Offer General Council Services?
• How Quickly Can I Expect a Call Back when I Reach Out To You?
• Are You Working for Any Direct Competitors?
You can come up with other questions based on your specific situation as well. If you have a case that you need help with right from the beginning, make sure to discuss that as well.
What Lawyer Fee Structure is Best
Attorneys often offer multiple different fee schedules to their clients. Finding the one that works best for you is very important. For some people, simply paying as you go is the best course of action. For others, paying a flat fee each month for a specific set of services is a better deal. Still others will put down a significant retainer so they can use their services whenever needed. Discuss what type of help you believe you’ll need with the attorney, and see if they can make recommendations on what pay structure is going to be best for you.
Tips on Saving Money on Legal Fees
Nobody likes to spend money on an attorney, and it’s no surprise as to why. There are ways that you can reduce the legal fees you have to pay. When done properly, you can potentially end up saving thousands of dollars. Here are some proven tips:
• Use a Flat Fee Service When Possible
• Use an Attorney Experienced in Your Area of Business
• Offer to Do General Paperwork Yourself
• Have Your Questions Ready Before a Meeting to Keep it Brief
• Trust the Advice of Your Attorney
• Review Invoices and Question Anything that Doesn’t Look Right
Offering Employee Benefits
Providing employees with benefits is one of the best ways to keep them happy and able to remain working for your company. Benefits are a complex issue, however, and can be quite expensive. With this in mind, you need to do everything possible to avoid problems and get the right deal for your business and employees.
Some Benefits are Mandatory
There are some benefits that almost all businesses need to provide to their employees. These would include unemployment insurance, worker’s compensation, contributions toward Social Security, and more. Fortunately, talking to an accountant can help to get these things set up initially.
Providing Additional Benefits as a Small Business
As a small business you need to make sure you are planning out your benefits package carefully. Not only is this important because of the cost, but also because there are a lot of laws and regulations in place concerning this topic. Many small businesses will have a third-party benefits specialist help take care of this for them since it will help to avoid problems and ensure everything is done properly.
Whether you do it on your own or you work with a third-party provider, you will need to decide what types of benefits to cover. Some common options include:
• Medical Insurance
• Dental Insurance
• Optical Insurance
• Mental Health Coverage
• Prescription Drug Coverage
• Paid Time Off (Vacation)
• Disability Insurance
• Life Insurance
• 401(k) or Other Retirement Plans
There are, of course, many other options that you can pick from. Finding the right balance between caring for your employees and making sure your business is sustainable is very important.
Types of Medical Plans
Medical coverage is widely considered the most important benefit that employers can provide. There are quite a few different types of medical plans that you can choose from, each of which will cover different things in different ways. They of course will also have varying associated costs. The most common options are Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). There are also Health Savings Accounts (HSAs), which are typically combined with a type of catastrophic insurance coverage.
Talking to a benefits specialist will be the best way to determine exactly what you need and what you can afford to provide for your employees. Many employers who are considering adding a medical plan, or adjusting to a new one, will also survey their employees to see what type of coverage would benefit them the most.
Keeping Records for Benefits
It is critical that you keep proper records for all the benefits you provide to your employees. This is because many of the benefits will be paid pre-tax, which means the employees aren’t taxed on the money they spend on these benefits. The IRS will require proof that you are giving the insurance coverage you claim or they will want the extra money that isn’t coming in. This is why it is so critical to keep all paper and electronic records related to your business benefits.