Money, Debt and Taxes

I started my first business during a recession, and now, during this recession I am starting another one.
I think recessions are the best times to start a new business, especially a service business, and I am going to quickly tell you why.

#1. Rents are cheap.
You can tell yourself all you like that your clients don’t mind that you work out of your home, but I have found I get more respect, and more money from my clients when I have a professional business office. Right now commercial vacancies are high, and you can find good office space at bargain prices.

#2. Help is cheap.
Sometimes you just can’t do it alone. With unemployment at an all time high, it is easier than ever to find talented, qualified people to help you out. They are also willing to work on a temporary, contract basis, so when I don’t need them, I don’t need to pay them.

#3. It seems that everyone is willing to bargain.
I hate paying full price for anything. But often, vendors will say the price is the price. Recently I have been getting discounts on software and services just by asking. I try to give something back, and nothing talks like cash! My favorite line: Will you take $X for this if I pay you cash right now?

#4. You Have the time!
I was laid off from my job 3 months ago, and with unemployment over 11% where I live I probably won’t be getting a new job any time soon. It doesn’t take long to look and see that there are no new jobs I can apply for. So now I am using my considerable amount of spare time to get the new business rolling.

Most of the time, a small business owner can save money by wearing many hats in the business. If they consult with an accountant a few times a year they usually do just fine. Things change when you decide to add an employee or two. I cannot stress this enough, when you have employees, even if you have only one employee, you need to hire a professional.

Unlike almost anything else you will do in business, when you hire your first employee you are now under the jurisdiction of a number of different government entities, all with their own set of rules, reports, and regulations! You will need to worry about labor laws, worker’s compensation insurance, wage garnishments and benefits administration, as well as federal and state withholding requirements.

If you are not ready to hire a whole HR (Human Resource) department, then a good way to go is with a PEO service like NationalPEO.com. PEO stands for Professional Employer Organization. On a contractual basis, the PEO takes over the HR responsibilities of the employer. In effect, the PEO becomes the employer and leases the employees to the small business.

This frees the small business owner from many responsibilities and liabilities of being an employer. The PEO will provide all required HR services, including payroll services such as time card management, government reporting and tax payments, benefits administration and worker’s compensation insurance. And more importantly, they will verify that your employees are eligible to work in the U.S. NationalPEO uses E-verify to insure that every employee you hire is legal to work. They will also work with the employee to quickly resolve any discrepancies.

Another benefit of using a PEO is that it is a cost effective way for small employers to offer large company benefits, such as health insurance, cafeteria plans, and 401(k) plans to their employees.

This is one area where it just doesn’t make sense to try and save money by doing it yourself. A small mistake can lead to expensive consequences including lawsuits and government fines. Before you even interview your first potential employee, hire a professinal. In the long run, it will save you time and money.

Starting a new business? Most new businesses are bootstrapping it, trying to get the business going while spending the least amount of money. But at what point does it make sense to hire a professional? This is the first in a series on how and when to hire professionals for your business.

After 20 years of offering accounting services I can tell you when most new businesses finally hire an accountant. It is when their business has hit it’s first growth spurt and they are running to keep up with business, their accounting system (or lack thereof!) isn’t working for them, and maybe they have even gotten a letter from the IRS. Things tend to be in chaos and the business owner(s) have no idea if they are making money or not. They are just trying to keep up. I’d like to suggest hiring an account before crisis hits. You’ll save money and maybe even your sanity. Here are some times when it makes sense to visit an accountant.

Right Before You Open Your Business

This is probably the most important time to consult with an accountant. During these initial first sessions a good accountant will give you advice on how to set up an effective accounting system, how to maximize your tax deductions, and which type of business entity is best for your business. (Corporation, LLC, Sole Proprietor, etc.) They will also point you in the right direction as far as what payments and reports you need to file with various government agencies.

Tax Time

You may be an expert when it comes to doing your own taxes, but the rules are different for businesses. Not only that, with tax law constantly changing, you are probably too busy running your business to keep up on the latest tax law. Often a good tax accountant will save you more in taxes than you are paying them in fees. At the very least, have an accountant prepare your taxes the very first year you are in business.

When You Are Looking For Investors

Smart investors with lots of money don’t get that way by trusting business owners. When you have an Independent Auditor review you books you give investors the assurance that financially everything is on the up and up. They then know that your financial statements are a true reflection of your business.

When Gross Receipts Reach $100,000

Preferably earlier, but once your gross receipts reach $100,000 you need professional accounting . At this point the accountant’s knowledge of money management and tax savings will almost certainly be cost effective. And your time will be better spent running and marketing your business.

Make sure that you are not “penny wise and pound foolish” when it comes to hiring an accountant. At the very least, consult with an accountant during these key times in your business. If you are searching for an accountant, one resource I found was AccountingAisle.com. They provide a service where they will match you with a local accountant based on your specific needs. You can also check with your local chamber of commerce, or ask other successful business owners in your area to give you a referral.