Faulty ... costs you money! Which of these popular business ... do you believe? Popular ... #1: ... "We Only Need Our Books Done Once A Year For Tax
Faulty information costs you money! Which of these
popular business misconceptions do you believe?
Popular Misconception #1:
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"We Only Need Our Books Done Once A Year For Tax Purposes."
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Are Your Accounting Records Adequate To Run Your Business?
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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 Misconception #2:
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"Writing My Hobby Off As A Business Loss
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Saves Me A Lot Of Income Tax!"
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Is Your Hobby A Tax Write-Off?
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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 Misconception #3:
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"I Don't Make Enough Money to Incorporate!"
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Will Incorporating Really Benefit You?
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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 Misconception #4:
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"I really need an office out.
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Being home-based makes me look amateur!"
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Is A Home Office REALLY Professional?
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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.
Article Tags: Popular Business Misconceptions, Good Accounting Records, Popular Business, Business Misconceptions, Popular Misconception, Accounting Records, Good Accounting, Financial Information
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