So, why in the world would I be talking about flying in combat in a multi-aircraft formation when I should be talking about business? Whether you know it or not, as a business person you are in a type of combat, because you are in stiff competition with others, everyone competing for the same customers and dollars. A recent article in the Wall Street Journal, “With Lobster Prices Low, Things Get Ugly in Maine,” by Simmi Aujla, points out the hazards of competition. Lobster prices are so low the fishermen are actually fighting one another. This is certainly an extreme situation, but we in small business are fighting for our survival, against our competition while dealing with a myriad of other factors. For example, we fight on a daily basis to keep up with local, state and federal regulations. So why are you going it alone? Just like fighters going off to combat, you need to arm yourself with a team of advisors. A good team of advisors can be “checking your six”, so to speak, and keeping you and your business out of trouble.

How do you go about forming a team of advisors and how should you use them? Each business and business owner is unique. The first thing you should do is assess your strengths and weaknesses and in any area you rate yourself as weak or even average, I would consider having an advisor.

What kind of advisor should you look for? You should look for a professional who has experience in small business and is at least familiar with your business.

I assume you are an expert at what you do or you would not be in your business. But perhaps you have decided to branch off into a new field. In that case I would definitely find someone, in the same field, who is not a direct competitor, to use as a resource. Pick that person’s brain to find out as much as you can about your business.

If you are strong in recordkeeping and enjoy doing it, that’s great. If not, bring a bookkeeper on board to do your bookkeeping for you, review your books periodically or, if not that, at least be available to give you advice how your books should be set up and kept. Good bookkeeping is critical to a successful business. Why would you want to cut yourself short here?

The same thing goes for taxes. Perhaps you have been operating your business long enough to know what you need to file and how to plan for your taxes, but if this is an area of weakness, bring a tax professional on your team to be there when you have a question. A tax professional experienced in small business can provide invaluable advice. For example, are you in the right business entity? Are you doing proper tax planning? Are you taking all the deductions you can legally take and does the business entity you have chosen help to minimize your taxes? You may be surprised what you learn.

If you are in a business that requires capital, get to know a banker or other source of capital. Even if your business does not require a lot of capital, you need to make sure you have a line of credit, a credit card or some other source of money to get you through the low income, high expense periods.

What about your E&O or similar insurance. Do you have someone you can call to give you straight forward advice and who will shop around for the best price for you?

The same thing could be said for: Marketing, legal, website development, retirement plans and other benefits for you and your employees.

Speaking of employees, that brings up one final consideration. Dealing with payroll is complicated and can get you in a lot of trouble with both the state and IRS if not done properly. (see my article, “So Far, So Good” http://biznik.com/articles/so-far-so-good ) Don’t be afraid of payroll. My advice, hire a professional to do your payroll for you or at least to get you set up properly. This could be your bookkeeper or a professional payroll service. If you do it yourself, make sure you know what you are doing and/or follow the advice of the advisor to the letter. Remember, if you are a Subchapter S Corporation, you are an employee of the Corporation and must pay yourself a reasonable salary, assuming you are making a profit in the business.

I could go on and on, but I think you get the picture.

Take a few minutes and do a self assessment. Try to think of everything you need to do to make your business successful, including the not-so-fun stuff like bookkeeping and taxes. Look at your list to see where you have rated yourself as weak or average, then try to think of someone you could call on as a resource in that area. Perhaps it’s a friend, perhaps an acquaintance or someone you have met through Biznik.

You will use some of your advisors more frequently than others. In those areas where you know you need help and will need frequent advice and assistance, consider an arrangement where you negotiate with the professional to pay an hourly rate, an annual amount for continuous advice, or hire that person to do everything and get their advice with it. For example, if you hire me to do your taxes, you get my advice free for the year. If you don’t want me to do your taxes, you could hire me for an annual fee or pay me by the hour. There are lots of choices. Remember, you get what you pay for, so if you want advice from an expert, expect to pay for it.

Depending on your business, you could also have your team of advisors set up so that you can refer a client to them if he/she needs that type of professional advice or service. It’s great when a group of professionals refers clients to one another. Clients who trust you will tend to take your referral.

Fly safe, your team of advisors has your six!

Success or failure of a business requires good recordkeeping and tax planning. Taxes can take 25% or more of your business income, so dealing with them is essential. Consider adding a tax professional to your team of advisers.

I know this is not a subject most of you like to talk or even hear about.  You probably believe that you pay way too much in taxes; you don’t like to talk about them and generally put off doing your taxes until the last possible moment.  Have I got it about right?

Think about it.  You’ve been working hard, marketing extensively and networking through Biznik.  The referrals are starting to come in now and your business is growing.  With a little more effort, you could move to the next level.  At least that’s the plan.

Let me ask you a simple, but very important question.  Do you know what your net income is for your business as of today?  Your income is way up; but what about your expenses?  What about those taxes you owe on that increased income?  What is your cash situation?  What bills are due in the next few months?
Will you have enough cash to pay them?

Let’s talk about a few vital things that can mean the difference between success and failure in your business.

First and foremost, you need to keep track of your income and expenses on a regular basis.  You need to know from month to month how your business is doing and whether or not you have sufficient cash flow to run your day-to-day operations.  You can sometimes get away with poor recordkeeping when your business is small; however, as your business grows it becomes increasingly more important to keep good records.  If you can’t or won’t do that yourself, there are lots of good bookkeepers and accountants out there who will do it for you for a reasonable fee.

Second, one of the biggest expenses your business has, if not the biggest, is taxes.  How you deal with those taxes can mean the difference between success and failure.  Some of the more significant taxes are:  city, county, state (B&O and sales tax in Washington State), and federal.  Federal taxes include income, self-employment and payroll taxes.  Depending on the business entity you chose, your filing status, your taxable income and other factors, your total taxes can vary significantly; anywhere from 25% to 40% or more of your net business income.  Is this worth paying attention to?  You betcha!

In your business, you must know what taxes you owe and to which government entity.  As you earn income you must estimate what those taxes are going to be and make plans to deal with them.  I have seen far too many small business owners, making great money in their business; spend that money without thinking about the eventual impact of taxes and other deferred expenses.

Taxes can be insidious.  Most tax forms are not required to be filed until early the following year.   Without knowing the full impact of those taxes it is easy to spend your hard earned money in the current year and not have enough left over to pay your taxes when they are due.

Alright, so I’ve identified a problem or two; what should you do?

• Keep good records and make projections about how your business is going to do in the next few months to a year.  Update that projection as the year progresses.  Once again, if you can’t do this, hire someone.
• Know the taxes you and your business are required to pay.  For example many businesses file on a Schedule C (sole proprietors and single member LLC’s) or file on a separate tax return (1065, 1120S), but the income/loss from the business passes through to their personal return on a Schedule K-1.  To fully understand the impact of taxes, you must project what the Schedule C or pass-through income will be and know the effect on taxes on your personal tax return.  For most types of business entities, your personal tax return is also where you pay Social Security and Medicare taxes on that net business income.
• The best way for most business owners to deal with taxes is to pay estimated taxes.  These are paid on Form 1040-ES and are due quarterly on April 15th, June 15th, September 15th and the following January 15th.
• When you receive money in your business, set aside a percentage (25% – 40%) for taxes.  Your projections will tell you how much.  Put this money in a separate bank account so that you will not be tempted to spend it on something else and keep it there until you need to pay your estimated taxes.
• Don’t get on the wrong side of the IRS.  That can happen quickly by not filing on time or not paying what you owe.  What to do if you get on the wrong side of the IRS is the subject of another article.

Recordkeeping and Tax planning are critical if you want a successful business.  In addition, selecting the right business entity (also the subject of another article) can make a difference in the amount of taxes you pay, so while doing your own taxes can be “penny wise”, you may be “pound foolish” by not engaging a tax professional to advise you on your business and your taxes.  I would be glad to give you advice on how best to use a tax professional on your advisory team.