Business
Myths: Popular Business Myths!
Faulty
information costs you money! Which of these popular business myths do you believe?
Popular
Business Myth Number 1: "We Only Need Our Books Done Once A Year For Tax
Purposes."
Are Your
Accounting Records Adequate To Run Your Business?
Although
it is important to keep records for tax purposes, it is not the only
reason (or even the primary reason) good accounting records should be
kept. Another frequent reason clients request financial statement
preparation is to obtain bank financing. Although important, this also is
not the primary purpose of keeping good records for your business.
Good
recordkeeping will enable you to extract meaningful financial information
for your business that will help you to manage it properly. If you can't
access this information, you will not be able to manage your business
properly. Bad management leads to business failure.
Yes, the
primary reason good accounting records should be kept is to produce
periodic (at least on a monthly basis) financial statements for management
information purposes. Only with this current financial information can you
properly manage your business. This information can alert you to declining
sales, excessive expenses, tax opportunities, cashflow problems, and many
other vital concerns for your business.
To be of
value, this accounting system should be set up with meaningful account
categories and departments. It may be cost-effective to have an outside
accounting service do the monthly bookkeeping. However, with accounting
software that is readily available, you don't have to be an expert
bookkeeper to do your own books and extract meaningful financial
information.
If you
do your monthly statements yourself, it would still be prudent to have
your accountant or business advisor help you set up your system and, as
well review such information with you to discuss problems and
opportunities.
Popular
Business
Myth Number 2: "Writing My Hobby Off As A Business Loss Saves Me
A Lot Of Income Tax!"
Is Your
Hobby A Tax Write-Off?
If your
business has no reasonable expectation of profit, if it is a hobby and not
really a business, you will ultimately fail in your tax objective. Since
your losses are being incurred for a hobby and not a true profit
generating business, the tax authorities will take the position that you
aren't entitled to any deductions. This is a double blow. First, you're
losing money. Second, you're denied tax deductions.
It is
true, however, that if you enjoy what you're doing, you'll do better at
it. You'll be willing to work longer hours and you'll be willing to put up
with more hardships in order to make your business a success.
Rather
than attempting to have the tax system subsidize your hobby, why not turn
that favorite pasttime into a real, profit generating business? This is a
doubly rewarding. First, you make money at something you love doing.
Secondly, the tax authorities legally have to allow your reasonable
expenses to earn your now substantial business income.
Prove
that you're running a business by running a business. Prepare and follow a
proper business plan. Keep good accounting records with at least monthly
financial statements to give you the information you need to manage your
business. Above all, make money from what you do.
Popular
Business
Myth Number 3: "I Don't Make Enough Money to Incorporate!"
Will
Incorporating Really Benefit You?
Some
persons resist the idea of incorporating themselves because the tax
savings may not justify the added costs of incorporation, annual minutes,
and extra tax returns. However, incorporation gives advantages that go far
beyond tax savings.
Insurance may give you some protection against loss. However, you may
suffer business losses and lawsuits that may not be covered. For extra
protection, consider incorporating yourself. The limited liability of your
own corporation alone may justify the additional cost and complexity.
Corporations may also be used for income-splitting with your family, as
well as estate planning and retirement planning objectives. Additionally,
corporations lend some credibility to smaller businesses and may enhance
your image and prestige in the eyes of clients or suppliers.
Lower
corporate tax rates will generally apply on small business income. Even in
loss years, wages can be paid by the corporation to you so that you may
utilize personal tax credits available. If unincorporated, these credits
might be lost forever. The now larger corporate losses can be carried
forward to future (hopefully more profitable) years.
A full
analysis of the advantages and disadvantages of incorporation is beyond
the scope of this report. However, being incorporated may give you more
flexibility and advantages than you originally anticipated. Certainly, it
is not prudent to reject it as an option simply because it is more
complicated and costly. In fact, it may be one of the best investments you
ever made.
Popular
Business
Myth
Number 4: "I really need an office out. Being home-based
makes me look amateur!"
Is A
Home Office REALLY Professional?
Many
times small business persons make the mistake of generating unnecessary
overhead in order to impress clients and prospects. Often this attitude
leads to escalating debt and business failure. One such example is getting
an impressive, but expensive, commercial office space.
Customers aren't stupid. They can see when such outside space is necessary
or advantageous for them. They can also see when it is a waste of money
and designed to fuel your ego. What matters most to clients is whether
they are getting cost-effective results or not. If your product or service
delivers such excellent value, your customers will be impressed and come
back. In contrast, if one allows his ego to get in the way of satisfying
the customers' needs, they will go elsewhere.
With the
move to telecommuting, downsizing, networked communications, and
home-based businesses, operating from your home office is actually smart
and trendy. Can you think of a more appropriate location for a consulting
firm specializing in home-based businesses? They of all businesses should
set the example in cutting unnecessary expenses and operating efficiently.
This is
not to say that there aren't any disadvantages to being home-based. One
certainly must be well organized, disciplined, and willing to follow good
time management principles. This alone could mark you as more professional
than other businesses, home-based or not.
Expensive office space is not the answer to reflecting a professional
image. If you are truly concerned about your image, offer quality service.
Make sure that all your corporate communications (telephone, websites,
printed materials, et cetera) reflect the professional nature of your
business.
Popular
Business
Myth Number 5: "Since we're not seeking financing, we don't need
a business plan."
Do You
REALLY Need a Business Plan?
To
obtain financing, many persons will prepare a business plan. Although
entrepreneurs will go to great lengths to get their loan or capital, these
same business persons will not bother to plan ahead very far or analyse
their business. Even if you required no additional money, preparing a
business plan can help you to succeed in your business.
Running
a business without a plan is like going on a trip without a map,sufficient
gas, money, or even a destination. Just as you wouldn't go on a vacation
without some planning, no business can be successful without it. Putting
that plan in writing helps you to think out a strategy for successfully
operating and growing your business.
Where is
your business today? Where will it be tomorrow? What is your mission
statement? What product lines are profitable? Which ones aren't? What
business do you think you are in? What business do your clients think you
are in? Should you be in a different business? Is your product or service
less attractive to your clients? How are competition, global commerce,
technological and social changes affecting your company? What is your
competitive strength? What are your weaknesses? Who are your biggest
competitors? What are their weaknesses and strengths? What is your
marketing strategy?
What are
your projected income and expenses and cashflow for the next year? How
about the next five years? Do you have a capital budget? What determines
whether you buy an asset or not? Do you have an exit strategy? How will
you manage growth? Do you have a financial plan? Do you have an operations
plan? What definite sales and net profit targets have you set for this
year and the next five years? What factors could interfere with the
attaining of these goals? What contingency plans have you made to deal
with such problems?
The
purpose of these questions is to get you thinking and planning. If you
fail to plan, you plan to fail. Although your accountant or business
advisor can help you prepare your business plan, only you can set the
appropriate goals and follow through on them. Yes, you definitely need a
business plan, not just for obtaining capital, but as a roadmap for your
business.
J. Stephen Pope, President of Pope Consulting Inc., has been helping
clients to earn maximum business profits for over twenty-five years. For
profitable Work at Home Small Business Ideas, visit:
http://www.yenommarketinginc.com/
