Covid caused irreparable harm to small businesses, with many not surviving even with government assistance and intervention. The small businesses that did survive benefited from the loss of competition but now face rising supply costs and labor shortages. What can you do to protect your business from bankruptcy? Follow these simple suggestions:
Obtain the services of a CPA – Many small business owners prefer to do their own bookkeeping and income taxes. However, they lack the knowledge of the ever – changing tax landscape and may overlook deductions. In addition, a CPA will assist them in maintaining compliance with tax regulations that affect not only the business but its employees. Most importantly, a CPA will maintain a neutral and unbiased opinion with respect to the business’s financial performance. THE IMPORTANCE OF INCOME TAX RETURNS
Incorporate your business or organize an LLC – While this does not automatically protect the business owner from liability it can shield some assets from the reach of creditors if the rules of incorporation are followed. WILL INCORPORATION PROTECT ME?
Segregate personal bank accounts and business bank accounts – Some small businesses, especially sole proprietorships, often place all of their business income into their personal account, and then pay personal and business expenses from that account. By co-mingling expenses, it will be difficult if not impossible to determine whether or not the business is actually making money. A small business should have a dedicated business account into which all business revenue is deposited. Only business expenses should be paid from the business account. Only after all the monthly business expenses have been paid should the business owner transfer money into the personal account for use in paying personal expenses. If there is little or no money left after payment of all the business expenses, then the owner will know that the business is struggling. Having a dedicated business account will also make it easier to prepare income tax returns since they will reflect all the business income and expenses.
Segregate your personal assets and business assets – If your business is incorporated or organized as an LLC, it is essential that you clearly define what are business assets and what are personal assets. Only business assets (with some exceptions) will be subject to collection for business debts so you do not want to unknowingly pledge personal assets as collateral for business debt, or transfer personal assets to the business. WHAT YOUR ATTORNEY NEEDS TO KNOW
Always pay withholding taxes for employees – Employee income tax withholdings, or more commonly 941 taxes, are the property of the employees. When some small businesses get into financial trouble they may delay payment of the 941 tax payments in order to pay more urgent expenses or debts. This can generate both civil and criminal liability for the business owner. Even if the business is incorporated, the liability can be asserted against the principals of the business. IS YOUR SMALL BUSINESS HEADED FOR BANKRUPTCY?
Know your market – A small business owner always has to monitor the market for their product and services. Has new competition entered the market? Is there an overall decline for the product or services being offered? Being proactive rather than reactive is a trait common to all successful small business owners.
Ultimately, the success of any small business will come down to organization and discipline. Hard work will not always yield profit if the business is poorly organized or poorly operated. TEN MISTAKES CONSUMERS MAKE Extra effort in the beginning will hopefully prevent a costly and untimely end for your small business!