| Faulty information costs you money! Which of | | | | money, preparing a business plan can help you to |
| these | | | | succeed in your |
| popular business misconceptions do you | | | | business.Running a business without a plan is like |
| believe?Popular Misconception #1: | | | | going on a trip without a |
| "We Only Need Our Books Done Once A Year | | | | map,sufficient gas, money, or even a destination. |
| For Tax Purposes." | | | | Just as you wouldn`t |
| Are Your Accounting Records Adequate To Run | | | | go on a vacation without some planning, no |
| Your Business?Although it is important to keep | | | | business can be successful |
| records for tax purposes, | | | | without it. Putting that plan in writing helps you to |
| it is not the only reason (or even the primary | | | | think out a |
| reason) good | | | | strategy for successfully operating and growing |
| accounting records should be kept. Another | | | | your business.Where is your business today? |
| frequent reason | | | | Where will it be tomorrow? What is your |
| clients request financial statement preparation is | | | | mission statement? What product lines are |
| to obtain | | | | profitable? Which ones |
| bank financing. Although important, this also is not | | | | aren`t? What business do you think you are in? |
| the | | | | What business do your |
| primary purpose of keeping good records for | | | | clients think you are in? Should you be in a |
| your business.Good recordkeeping will enable you | | | | different business? Is |
| to extract meaningful | | | | your product or service less attractive to your |
| financial information for your business that will | | | | clients? How are |
| help you | | | | competition, global commerce, technological and |
| to manage it properly. If you can`t access this | | | | social changes affecting |
| information, | | | | your company? What is your competitive |
| you will not be able to manage your business | | | | strength? What are your |
| properly. Bad | | | | weaknesses? Who are your biggest |
| management leads to business failure.Yes, the | | | | competitors? What are their |
| primary reason good accounting records should be | | | | weaknesses and strengths? What is your |
| | | | marketing strategy?What are your projected |
| kept is to produce periodic (at least on a monthly | | | | income and expenses and cashflow for the next |
| basis) | | | | year? How about the next five years? Do you |
| financial statements for management information | | | | have a capital budget? |
| purposes. | | | | What determines whether you buy an asset or |
| Only with this current financial information can | | | | not? Do you have an exit |
| you properly | | | | strategy? How will you manage growth? Do you |
| manage your business. This information can alert | | | | have a financial plan? Do |
| you to | | | | you have an operations plan? What definite sales |
| declining sales, excessive expenses, tax | | | | and net profit targets |
| opportunities, | | | | have you set for this year and the next five |
| cashflow problems, and many other vital | | | | years? What factors could |
| concerns for your | | | | interfere with the attaining of these goals? What |
| business.To be of value, this accounting system | | | | contingency plans have |
| should be set up | | | | you made to deal with such problems?The |
| with meaningful account categories and | | | | purpose of these questions is to get you thinking |
| departments. It may | | | | and planning. |
| be cost-effective to have an outside accounting | | | | If you fail to plan, you plan to fail. Although your |
| service do | | | | accountant or |
| the monthly bookkeeping. However, with | | | | business advisor can help you prepare your |
| accounting software | | | | business plan, only you can |
| that is readily available, you don`t have to be an | | | | set the appropriate goals and follow through on |
| expert | | | | them. Yes, you |
| bookkeeper to do your own books and extract | | | | definitely need a business plan, not just for |
| meaningful | | | | obtaining capital, but as |
| financial information.If you do your monthly | | | | a roadmap for your business.Popular |
| statements yourself, it would still | | | | Misconception #6: |
| be prudent to have your accountant or business | | | | "I like bartering with clients |
| advisor help | | | | because it saves paperwork and taxes." |
| you set up your system and, as well review | | | | Are You Reporting Barter Transactions?Bartering |
| such information | | | | is an excellent way of doing business. However, |
| with you to discuss problems and | | | | contrary to |
| opportunities.Popular Misconception #2: | | | | popular belief, some barter transactions are |
| "Writing My Hobby Off As A Business Loss | | | | taxable, both for income |
| Saves Me A Lot Of Income Tax!" | | | | and sales tax purposes.Legally, you must maintain |
| Is Your Hobby A Tax Write-Off?If your business | | | | adequate financial records for your business. |
| has no reasonable expectation of profit, if it is a | | | | Barter transactions made by your business must |
| hobby and not really a business, you will | | | | be reported to the |
| ultimately fail in your tax | | | | appropriate taxation authorities and taxes paid. |
| objective. Since your losses are being incurred | | | | However, transactions |
| for a hobby and not a | | | | between friends not engaging in business with |
| true profit generating business, the tax | | | | each other may not be |
| authorities will take the | | | | taxable.If you are an auto mechanic and I am an |
| position that you aren`t entitled to any | | | | accountant and I swap accounting |
| deductions. This is a double | | | | services for your car repair services, the |
| blow. First, you`re losing money. Second, you`re | | | | transaction in this case is |
| denied tax deductions.It is true, however, that if | | | | most likely taxable, even if we are friends. |
| you enjoy what you`re doing, you`ll do | | | | However, your accounting |
| better at it. You`ll be willing to work longer hours | | | | fees should be deductible as a business expense |
| and you`ll be | | | | and so should the |
| willing to put up with more hardships in order to | | | | business portion of my car expenses. Note also |
| make your business a | | | | that sales and similar |
| success.Rather than attempting to have the tax | | | | taxes may apply on this transaction.On the other |
| system subsidize your hobby, | | | | hand, if I trade accounting services for a vacation |
| why not turn that favorite pasttime into a real, | | | | for my |
| profit generating | | | | family, I should really declare the value of such |
| business? This is a doubly rewarding. First, you | | | | services as income. |
| make money at | | | | The firm supplying the vacation would be able to |
| something you love doing. Secondly, the tax | | | | deduct that value as |
| authorities legally have to | | | | accounting fees. Any sales or similar taxes would |
| allow your reasonable expenses to earn your | | | | have to be paid on |
| now substantial business | | | | such transaction.Many persons don`t record such |
| income.Prove that you`re running a business by | | | | transactions. For some, it may be a |
| running a business. Prepare and | | | | matter of wanting to believe that you don`t need |
| follow a proper business plan. Keep good | | | | to be bothered with the |
| accounting records with at | | | | extra paperwork or taxes. Remember, though, |
| least monthly financial statements to give you | | | | that ignorance of the law |
| the information you need | | | | is no excuse. Legally, you must keep proper |
| to manage your business. Above all, make | | | | records and pay all taxes |
| money from what you do.Popular Misconception | | | | due.Popular Misconception #7: |
| #3: | | | | "All My Workers Are Self-Employed, So I Don`t |
| "I Don`t Make Enough Money to Incorporate!" | | | | Need |
| Will Incorporating Really Benefit You?Some | | | | To Bother With Payroll Or Workers` |
| persons resist the idea of incorporating | | | | Compensation." |
| themselves because | | | | Do You Need To Pay Payroll Taxes?To save on |
| the tax savings may not justify the added costs | | | | payroll taxes and workers` compensation |
| of incorporation, | | | | premiums, many |
| annual minutes, and extra tax returns. However, | | | | employers arrange their affairs in such a way |
| incorporation gives | | | | that those working for |
| advantages that go far beyond tax | | | | them are self-employed, independent contractors. |
| savings.Insurance may give you some protection | | | | This is good tax |
| against loss. However, you | | | | planning.On the other hand, some employers take |
| may suffer business losses and lawsuits that | | | | the position that all those |
| may not be covered. For | | | | working for them are self-employed, whether |
| extra protection, consider incorporating yourself. | | | | they are or not. Although |
| The limited | | | | it is tempting to eliminate payroll taxes and |
| liability of your own corporation alone may justify | | | | workers` compensation |
| the additional cost | | | | premiums, care should be taken to do so |
| and complexity.Corporations may also be used | | | | legally.Whether those working for you are |
| for income-splitting with your family, | | | | employed or self-employed is a |
| as well as estate planning and retirement planning | | | | question of fact (which can be determined by |
| objectives. | | | | the Courts). Do you supply |
| Additionally, corporations lend some credibility to | | | | the tools and vehicles? Do you determine the |
| smaller businesses | | | | working hours? Do you |
| and may enhance your image and prestige in the | | | | have the right to control how the job will be |
| eyes of clients or | | | | done? Do you pay a |
| suppliers.Lower corporate tax rates will generally | | | | flat-rate or by-the-hour or a salary? Does your |
| apply on small business income. | | | | worker have other |
| Even in loss years, wages can be paid by the | | | | clients?By asking several such questions, a |
| corporation to you so that | | | | pattern will emerge as to whether |
| you may utilize personal tax credits available. If | | | | your worker is employed or self-employed. If it |
| unincorporated, these | | | | turns out that your |
| credits might be lost forever. The now larger | | | | worker fits all the criteria of an employee, don`t |
| corporate losses can be | | | | say he`s |
| carried forward to future (hopefully more | | | | self-employed. On audit, you would still be |
| profitable) years.A full analysis of the advantages | | | | responsible for the payroll |
| and disadvantages of incorporation is | | | | taxes (and penalties and interest as well).Even if |
| beyond the scope of this report. However, being | | | | your workers are considered independent |
| incorporated may give | | | | contractors by the |
| you more flexibility and advantages than you | | | | Income Tax Department, it is still possible that |
| originally anticipated. | | | | they will be considered |
| Certainly, it is not prudent to reject it as an | | | | to be "workers" for purposes of Workers` |
| option simply because it | | | | Compensation legislation. |
| is more complicated and costly. In fact, it may | | | | Thus, it is the responsibility of the employer to |
| be one of the best | | | | determine whether such |
| investments you ever made.Popular | | | | coverage is necessary or not. Failure to obtain |
| Misconception #4: | | | | proper coverage could |
| "I really need an office out. | | | | subject you to substantial (and unnecessary) |
| Being home-based makes me look amateur!" | | | | costs.In review, calling someone self-employed, |
| Is A Home Office REALLY Professional?Many | | | | doesn`t necessarily make them |
| times small business persons make the mistake | | | | self-employed. If you have a dog, call it a dog. |
| of generating | | | | Your position that |
| unnecessary overhead in order to impress clients | | | | your dog is really a cat will not be successful. |
| and prospects. Often | | | | Likewise, make sure |
| this attitude leads to escalating debt and business | | | | that your position regarding your workers is |
| failure. One such | | | | legally correct.Popular Misconception #8: |
| example is getting an impressive, but expensive, | | | | "My Accountant Charges Too Much. |
| commercial office | | | | I Can`t Afford It Anymore." |
| space.Customers aren`t stupid. They can see | | | | Is Your Accountant Worth His Fee?Many |
| when such outside space is | | | | business persons view bookkeeping, accounting, |
| necessary or advantageous for them. They can | | | | and tax preparation |
| also see when it is a | | | | as necessary evils. In their view, accounting fees |
| waste of money and designed to fuel your ego. | | | | are an expense to be |
| What matters most to | | | | reduced, deferred or even completely |
| clients is whether they are getting cost-effective | | | | eliminated.A good accountant, however, can give |
| results or not. If | | | | you benefits far in excess of the |
| your product or service delivers such excellent | | | | fees charged. Well-designed accounting systems |
| value, your customers | | | | will enable you to |
| will be impressed and come back. In contrast, if | | | | extract meaningful financial information for your |
| one allows his ego to | | | | business that will |
| get in the way of satisfying the customers` | | | | help you to manage it properly, avoid business |
| needs, they will go | | | | failure, and alert you to |
| elsewhere.With the move to telecommuting, | | | | declining sales, excessive expenses, tax |
| downsizing, networked communications, | | | | opportunities, cashflow |
| and home-based businesses, operating from your | | | | problems, and many other vital concerns for |
| home office is actually | | | | your business.Your accountant can save you lots |
| smart and trendy. Can you think of a more | | | | of money with the advice you receive |
| appropriate location for a | | | | on tax and other business matters. As well, a |
| consulting firm specializing in home-based | | | | competent accountant can |
| businesses? They of all | | | | be a valuable resource in discussing business |
| businesses should set the example in cutting | | | | problems and opportunities |
| unnecessary expenses and | | | | with you.Popular Misconception #9: |
| operating efficiently.This is not to say that there | | | | "Nobody Makes Money On The Internet." |
| aren`t any disadvantages to being | | | | Can You REALLY Profit From The Internet?Many |
| home-based. One certainly must be well | | | | people feel that the Internet is all hype. Many |
| organized, disciplined, and | | | | others feel that |
| willing to follow good time management principles. | | | | it is overrated. Still others are of the opinion that |
| This alone could | | | | it may be good |
| mark you as more professional than other | | | | for some types of business, but not |
| businesses, home-based or not.Expensive office | | | | theirs.Typical comments heard include: "I`ve lost |
| space is not the answer to reflecting a | | | | money on the Internet...Major |
| professional | | | | corporations have lost millions...Do you personally |
| image. If you are truly concerned about your | | | | know anyone who has |
| image, offer quality | | | | made money from the Internet?"However, if |
| service. Make sure that all your corporate | | | | you check out the list of recent billionaires, a high |
| communications (telephone, | | | | proportion of these are Internet-related, and |
| websites, printed materials, et cetera) reflect the | | | | many of them under |
| professional nature | | | | forty years of age. As well as the very rich, you |
| of your business.Popular Misconception #5: | | | | can find many cases |
| "Since we`re not seeking financing, | | | | of more modest financial prosperity resulting |
| we don`t need a business plan." | | | | from Internet commerce.It is true that many are |
| Do You REALLY Need a Business Plan?To obtain | | | | losing money on the Internet. It is also true |
| financing, many persons will prepare a business | | | | that many don`t know what they`re doing. |
| plan. | | | | However, with the proper |
| Although entrepreneurs will go to great lengths | | | | assistance, you, too, could profit from the net.J. |
| to get their loan or | | | | Stephen Pope, President of Pope Consulting Inc., |
| capital, these same business persons will not | | | | has been helping clients to earn maximum |
| bother to plan ahead very | | | | business profits for over |
| far or analyse their business. Even if you required | | | | twenty-five years. |
| no additional | | | | |