Gabriel Garcia Marengo
As a small business owner, you’re probably responsible for almost all of the day-to-day tasks related to operating the company. Since you’re the one acting as tech support, customer service manager and cashier, you may not have a lot of time to organize your company’s finances. However, if there is one gift that you can give to yourself this year, it’s to take some time and clean up your company’s finances. How can this be done?
1. Convert Your Paper Records to Digital Records
You will never be able to keep track of your accounts payable and accounts receivable when they are two separate piles within a shoe box. Most likely, these records get lumped into the same pile over time, which makes it even harder to keep track of them. To complicate matters, you may not be able to read your own handwriting on the paperwork that you do have. By digitizing your paperwork, it becomes much easier to track and much easier to read what you wrote in the first place.
2. Get Rid of Paperwork That Is More Than Three Years Old
For the most part, you can get rid of paperwork that is three years old or older. The IRS generally cannot audit your business after three years, and you generally only have to keep employee records for a year or two after you terminate them. Even if your employees are still there, you may be able to update or streamline their documents to reduce clutter and make managing your people easier. The only documents that you don’t want to get rid of are those related to bills that haven’t been paid, contracts that are still in effect or tax documents if you know that you are under an audit.
3. Hire an Accountant if You Don’t Have One
If you don’t have an accountant, it is a good idea to get one. Business owners don’t need to spend more than a few hundred dollars a year for a quality professional who will help you go over your records or organize your records to make them easier to track. At tax time, your accountant can prepare all the documents that you need to send to the government.
He or she may also be able to fill and send quarterly or monthly documents if they apply to your business. Compared to missing a deadline or possibly making an error on your taxes, hiring an accountant is an inexpensive investment in your company. In fact, a financial professional may find tax breaks that you didn’t even know about that will reduce your tax burden.
4. Look Into Cheaper Insurance Plans for Yourself and Your Workers
Offering insurance to yourself or to your workers can be a great way to keep them happy without having to spend too much money. Every year or so, you should look into the cost of switching providers. This is especially true if you are planning on hiring new workers as rates may be lower for group plans. If you are the only employee of your company, you should still look into low cost plans on health insurance marketplaces as well as looking into health savings accounts.
In addition to providing the coverage that you need, it may be possible to take a tax write-off when you contribute to an HSA. Even if you can’t get a tax write-off, saving money on your monthly premiums or lowering the amount you pay in deductibles and co-pays can help your bottom line.
5. Look into Using VoIP Systems to Run Your Company
VoIP is the technology that makes programs like Skype possible. It is also why you can plug a phone into your modem and get cheap phone service through your internet connection. Using this technology means that you can have meetings with your sales staff or talk to your business partner before a big meeting with an investor or potential new client.
In fact, you can skip the travel and simply have the meeting through a video chat or conference wherever you happen to be. That can save thousands of dollars each year in travel and other expenses related to communicating and meeting with those associated with your company. With a VoIP system, you may also gain access to features that route calls from the office phone to your cell phone, which means you are never out of reach.
6. Review Contracts With Vendors and Sales Staff
There is never a bad time to review existing deals with contracted workers, vendors or others who do business with your company. For instance, if you think that your sales team is making too much compared to how much they bring to your company, you may want to reduce their pay to commission only or reduce their salary. The same may be true with the SEO team you hired or the IT people you work with.
Your vendors may be willing to either lower the price that you pay for raw materials or extend the amount of time you have to pay for your orders. Instead of paying upon delivery, you could ask for 30 or 60 days to pay or agree to pay on delivery if the price is reduced by 10 percent. Assuming that you have a good relationship with your vendors or are on the verge of increasing your volume, your vendors should be willing to negotiate.
7. Review Current Loans to See if Refinancing Can Cut Costs
Just like you can refinance your personal mortgage or a personal loan to reduce your monthly payment, the same may be possible with business loans. If your company has improved its credit score or has had stable revenue over the past several years, it may be possible to reduce the interest rate on a loan or line of credit.
Even if you save a $100 per month, that is over $1,000 that can be used toward paying yourself or otherwise reinvesting in your company. You may also be able to put that money toward paying down the loan and eliminating the debt completely. This can be advantageous if you are seeking investment or if you want to sell some or all of the company at some point in the future.
8. Have You Properly Depreciated Equipment and Other Assets?
Depreciation for tax purposes can help save money by lowering your taxes. While this is something that your accountant may mention when you get one, you can start depreciating as soon as you open your company. A company car, a building or a machine used to make your product can all be depreciated according to a schedule that the IRS publishes each year.
In some cases, depreciation could allow you to take a paper loss, which could entitle you to a refund as opposed to paying business taxes for the year. Remember, once an item has fully depreciated, you can’t continue to take the deduction, and you may be exposed to recapture if you sell a depreciated asset.
9. Should You Change the Way Your Business is Structured?
If you are a sole proprietor who is looking to save money, it may be a good idea to become an s corporation or start an LLC. This is because you can solicit investors as well as take some of your money as a distribution as opposed to a wage. This means that you are taxed at the ordinary income rate instead of being taxed at the full self-employment rate at 15.3 percent.
However, make sure that you can benefit from being an LLC or corporate entity because there are extra filing requirements and taxes that you must pay to the state government where you are incorporated. This is another decision that your accountant can discuss with you to help you make an informed decision.
10. Do a Complete Business Audit
The easiest way to make sure that you are making as much money as possible is to perform a complete audit of your company. This will show you if any of your processes are too complex or are not being done as efficiently as possible. It can also show you whether or not your employees are being as productive as they need to be or if you should engage in a round of layoffs. An audit may also show you whether adopting biometric time clocks or adopting new scheduling techniques will control labor costs without sacrificing customer service. You and your accounting team can put the audit together within a few days, and it may be possible to start implementing cost-cutting measures within weeks.
If you run a small business, take some time to go over your finances at least once a year. There are a myriad of ways that you can save time and money for your company that can then be used to expand your business or pay down debt. As time goes on, these small moves could be the difference between thriving and eventually having to close your doors.