Top five mistakes business owners make and how to avoid them
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"As a business owner you need to avoid as many mistakes as possible to reach success in the quickest amount of time," said Dallas Financial Advisor Derrick Kinney, principal of Derrick Kinney & Associates. "These problems can cause major setbacks to your future growth."
Whether you're a rookie or seasoned business owner, here's how to avoid making these five mistakes.
Top Five Mistakes Business Owners Make:
Mistake #1 - Starting a business before self-assessing
Before starting a new business, an owner must be 100 percent prepared mentally, emotionally and financially. Although there are a few business owners who started out broke in their basements and reached great success, entrepreneurs should know this is not the norm. According to the U.S. Small Business Association, more than 50 percent of small businesses fail in the first five years.
Before starting your business, self-evaluate. Make sure you're prepared to devote your time and energy for the first few years. It's also important that you're financially stable enough to live without relying on your new business for a while. Last, don't start your business at a time when your life is filled with emotional stressors. Wait until you have a clear head to concentrate on your new venture, he said.
Mistake #2 - Cruise controlling your finances
"When it comes to your money, ignorance is not bliss. Putting all financial responsibility in the hands of a tax advisor, then stepping back until tax season is like handing over complete financial control. Taking the time to monitor your finances and accounts empowers and informs you as a business owner, while increasing your ability to protect your company," Kinney said.
Tracking expenses doesn't have to be stressful or time consuming. Asking an advisor to give you regular reports is one way to do this. Another easy way to track finances is by downloading a mobile banking app that allows account viewing in real time. Some owners also find it helpful to protect their companies from fraud by sending statements through an outside CPA.
Mistake #3 - Not separating your cash stash
Mixing business expenses with personal expenses from time to time may not seem like a terrible thing to do. However, many business owners don't realize doing this puts their company at risk for an IRS audit. Failing to keep business and personal expenses separate could trigger an unexpected visit. You could also lose track of where you stand financially with your business and your personal finances.
"From a tax standpoint, commingling expenses can bring into question 'is this really for business or are you just trying to get a deduction for your personal items?'" said Debra Long, a Dallas/Fort Worth CPA focusing on the needs of small business. "It puts legitimate expenses into question."
To help keep your business and personal expenses separate, open two bank accounts. Designate one for business and one for personal expenses. Use the same system with your credit cards. Once these are established, do not mix the charges or payments for the two.
Mistake #4 - Missing opportunities to maximize your money
Not knowing tax laws can put business owners at risk to lose money. Most entrepreneurs count on other people to take care of taxes for them. While this is not a bad thing, if business owners do not have personal knowledge of tax laws and other related legislation, they risk missing out on money-making opportunities, Kinney said.
For example, a recent bill was passed that may make it easier for small businesses and startups to raise funds over the Internet. That is a large opportunity that business owners could miss out on if they aren't paying attention.
Mistake #5 - Not knowing the right retirement plan
According to the 2011 Retirement Confidence Survey, 42 percent of people admitted they determined their retirement savings needs by guessing. Many people shy away from setting up a retirement plan because they do not know where to start. However, setting up the wrong plan for you can be a huge financial mistake.
"Setting up and funding the right retirement plan can lead to thousands of dollars of tax savings and hundreds of thousands of dollars in retirement savings," said Kinney. "Meeting with a qualified financial advisor or CPA is a great first step for your business."
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Source: Derrick Kinney
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