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