There’s always an element of uncertainty in starting a new business. You’re always wondering if the risk element is too great and whether you’ve overreached yourself and let your family down, but taking risks and adapting to changing situations are just two of the many personality traits that may make you a great business owner. However, fear and anxiety can cause a lot of people to make mistakes under such circumstances. One of the worst mistakes that new business owners make is failing to be honest with themselves about the state of their finances, often a result of poor expense management. Ultimately, about half of all businesses fail to survive longer than five years.
When you’re a business owner, keeping an eye on expenses isn’t like balancing your checkbook. You have to be prepared to make difficult bottom-line decisions and cuts that can affect employees and the way your business functions. Paying close attention to the balance sheet is essential if you’re to stay ahead of the curve and avoid the fate of many new businesses that run into trouble.
Examine Each Line Item
If you’re a small business owner, it’s important to pay close attention to every expense no matter how small. Many people do a good job of tracking expenses but fail to take the next step and get rid of items they don’t really need. A good rule of thumb is to cut any expenses that don’t contribute to your bottom line, anything from office supplies to free drinks and snacks. If your sales personnel are on the road a lot, consider committing to computer-based meetings and presentations rather than investing thousands in a trip built around a single meeting.
Usually, cuts in more substantive areas are the most important ones and have the most enduring impact. The important thing is to be careful about where you cut. You might consider seeking the advice of a consultant experienced in such matters to make sure that you’re headed in the right direction.
An examination of your inventory system may reveal that some products aren’t selling adequately and could be discounted or discontinued. Vendors are another good place to look when cutting expenses. They may be willing to discuss discounts or renegotiate contracts if you have a good record of on-time payments with them. In many cases, you’ll find a vendor is more willing to reduce pricing if there’s a contract extension in it.
As a small business owner, you’re close enough to the day-to-day operations of your company that you can have a direct impact on things if you see expenses veering out of control. Try establishing three to five priorities each week, objects specifically aimed at helping you keep expenses under control. At the end of each week, review your task list to determine which ones have been met and which ones you can address next week.
There’s a growing number of people who work as freelancers or who form a single proprietorship and work out of their home. In order to avoid a massive tax bill in April, you’ll need to arrange for quarterly tax payments. You should be able to take the home office deduction, which allows you to write off expenses such as rent or mortgage, utility costs, and more. It can be confusing to someone who has no experience figuring out business taxes.
You can also gain tax advantages (and protect your assets) by forming an LLC in your state. There are only five steps involved in setting up a North Carolina LLC, but it’s easiest to hire a formation service to handle the job.
Launching your own business can be a risky proposition. But the rewards, both personal and professional, can be great for those who pay close attention to their bottom line. Do yourself a big favor and monitor expenses each week.
Courtesy of Pixabay.com.