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Business Decisions

7 Powerful Business Decisions You Need To Make Now

What is the worst business decision you’ve ever made? Could you have prevented it?

The best thing about starting a small business (it’s easy to do!) is also sometimes the worst thing (a little TOO easy to do!) You can get yourself in a pretty tough spot quickly without consulting anyone.

If you do ask someone, it’s Joe down the street who has a little shop selling antiques. The only problem is, you are an HVAC contractor, or a restaurant owner, or anything else except an antique shop, and a lot of what Joe may know, or think he knows, probably doesn’t apply to you.

Truthfully, almost every business financial question you might ask can be answered in two words: It depends.

There are often too many variables to clearly and quickly know what to do. However, there are some key areas where the right decisions, applied correctly, can set you up for success.

It’s mid-December, and while most people are thinking about family, celebrations, and vacations, I am typically sitting in a meeting with a frazzled business owner who wants to know where it all went wrong. The end of the year has snuck up on them once again and suddenly they realize that they have no idea where their business stands for the year.

Maybe they think they should have made money and don’t know why they didn’t. Or they made money and don’t know where it went, so when it comes to paying taxes, they are in trouble. They made the first step in getting things straight by turning to an accountant to help, but there’s only so much that can be fixed after the damage has been done.

After working through many of these meetings, I have found several recurring areas where owners usually get hung up. Once the right things are addressed, businesses are well on their way to success and profit. It all comes down to making the right choice for the situation, and therein lies the problem.

As a business owner, how do you know what the right decision is? How would the answer be different if the situation was different? Questions like these often paralyze you from making a decision, or, worse, push you to pick something arbitrarily in order to move on. You are left with a process or belief that doesn’t really work for you and often you aren’t even sure where it came from or what the consequences are.

The good news is, you can fix the most common financial errors by making a few key decisions in the most important areas. You will save money in the process, and relieve a ton of stress at the same time. Let me show you how.

  1. Choose the right entity

    This is a very common mistake for small businesses. You decide you want to start a business, so you just start working and worry about the “business” part later.

    Not making a decision in this area is actually a decision in itself, as you default to being a sole proprietor when you go into business by yourself. In some cases, this can be fine to start with, but as your business grows, it is usually the worst choice for tax and liability consequences.

    There can also be differences between your business entity choice and your tax filing choice. Different states also treat businesses differently, so if you do business in multiple states, there are several sets of rules that you will need to follow.

    Find out what your options are and make an educated decision based on where you expect your business to be in the coming years, as it can be difficult and expensive to change after the fact.

  2. Seek the right advisers

    If you are serious about your business, hiring qualified advisers should be non-negotiable. People are all over the spectrum on this one: some ask everyone about anything and everything in their business, others won’t discuss business with anyone, and everything in between.

    The most important takeaway here is that you need to take into consideration who you are soliciting advice from. There are a lot of people out there who will offer advice without knowing anything about your situation. And believe me, nearly every situation is different. You get what you pay for with free advice.

    Although it will cost you something, you are far better off seeking the advice of a qualified professional, such as a CPA, who can get to know exactly what your situation is and give you all the options available. The operative word here is ‘qualified’.

    As always, if it sounds too good to be true (“My clients don’t pay any taxes!”), it is.

  3. Record the right expenses

    A huge area that trips up many business owners when it comes to taxes is the difference between what they think can be deducted and what actually is deductible by law.

    The first step to getting this right is to find out from the professional you hired in #2 or, at the very least, by doing some research on your own, what constitutes a business expense. This is not always a clear line, so, again, it pays to have an adviser who you can ask when something comes up that you are unsure of.

    Also, make sure that business and personal expenses are kept separately, no exceptions! This means having at least two different bank accounts, and making sure not to mix income from the business with personal income. Just because you are the only person working in the business doesn’t mean that you and the business are one and the same.

    This gets out of hand quickly and easily, so no matter how small your business seems right now, get those items separated. It will save you so much heartache later and set up good habits for when you grow in the future.

  4. Focus on the right numbers

    Most small business owners don’t think about, understand, or see a need for financial statements. They see a cash balance in the bank and think that’s all they need to know about their finances, and they are dead wrong.

    A simple set of financial statements can give you valuable information about the health and future of your business. At a minimum, you should track your monthly and yearly sales, direct costs, fixed costs (“overhead”), and profit from your income statement, and your cash balances, accounts payable and receivable, loan balances, and personal draws from your balance sheet. These numbers will help you make decisions for future growth, schedule large purchases, plan for taxes, stabilize cash flow, and perform many other crucial functions.

    This is where you should use your accountant’s expertise to keep an eye on critical balances. Learn or decide together what your numbers should be and direct him or her to alert you when something is starting to go off the rails. That way, you don’t have to spend as much of your time on it, but you have peace of mind.

  5. Keep the right amount of cash

    Speaking of cash flow, many don’t realize the importance of maintaining a cash reserve for their business.

    Even when you are small, having some cash that is not allocated to a future expense can be enormously helpful in making decisions and lowering stress. Available cash means that when an unexpected opportunity comes your way, you can take it instead of having to figure out where to get the funding for it first. Or when a customer pays slowly (or not at all!), you don’t have to in turn damage your reputation by paying your vendors slowly.

    This is one of the hardest things for a small business to do, because you are usually just scraping by and using all your profits to either grow the business or pay yourself, but it can be one of the best goals to work toward.

    At the very least, apply for a small line of credit before you need it so that you have something to fall back on when things don’t go as planned. It’s obviously easier to qualify for loans when you are in a steady financial position than when you are in desperate need. Use it in moderation, though, as overextending yourself on loans can cause an entirely different set of problems.

  6. Hire for the right tasks

    I am a huge believer in working your strengths and hiring your weaknesses. There is very little to be gained by spending time trying to get better at something you are terrible at and don’t enjoy to begin with.

    As a business owner, you will feel like you need to do everything personally, and in the beginning, you may have to. But as soon as you have any leeway to hire some help (see #5), use it to pay qualified people to do the tasks that you should not be focusing on. That means if you are a baker, you should be in the kitchen or researching new recipes, not bookkeeping, or designing your website, or even ordering ingredients.

    You can outsource a ton of things for a minimal amount these days, and some things you may be able to barter services for, so get creative! You make money by doing what you are best at and what you started the business to do, and you are the only one who can do that. Virtually everything else can be done in less time by someone more qualified to do it, which will save you money and stress in the long run. I know it’s easier said than done, but it is something that the most successful people and businesses do all the time.

  7. Pay the right amount of taxes

    I know, I know, this is a tough one. Almost every client I have ever met would say that the right amount of taxes is zero.

    I get it, no one likes to pay taxes. Unfortunately, you don’t have a choice (no, the federal income tax is not voluntary, Wesley Snipes), and there are several really good reasons why you may owe taxes, as well as many things that you use that your taxes pay for, like national security, health care, infrastructure, farms, retirement, and education.

    I don’t want to get into an argument about the relative merits of how those dollars are spent and who pays them, but suffice it to say that paying taxes is the price we pay to live and do business in this country. My job is to help you remain compliant based on the current laws and pay as little as required. There are very few situations where you can do that by yourself, so here is another area where the trusted adviser and hiring your weaknesses comes in. You need to file and pay your taxes properly and on time or you will end up in a lot of trouble, end of story.

    Smart business owners don’t take that kind of risk with their livelihood.

You might have already made bad decisions in some of these areas, or maybe you are just planning your business and need to know where to start. No matter how far along you are on the entrepreneurial road, you can always choose to make your next step the right one.

I have seen every one of these decisions in action and I can tell you it is worth the effort. Just take them one at a time, fix any damage along the way, and press on to create a more successful future.

If you have seen the results from a good or bad decision in one of these areas, share in the comments below or on Facebook!

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