Looking For a Crash Course in Accounting?
New franchise opportunities offer entrepreneurs on the rise the chance to be their own boss. And with the excitement of no longer having to work for the “man,” owners can make the costly mistake of diving into these ventures full speed ahead. If number crunching is not in your nature, mundane tasks like taxes and bookkeeping will likely slip through the cracks. Don’t let SNAFUs and other conundrums lead you down a path of financial destruction. Use this example as a crash course in accounting.
Dazzled by the possibility of turning his hobby into a paycheck, a small business owner from Maryland made his dreams into reality. “We were real excited,” recalled the proprietor of the startup apparel company. “We had an opportunity to start a business.” Earning just under $100K for the establishment in the first year, he and his partner learned the dos and don’ts of tax paying the hard way. By failing to maintain proper records and accurate bookkeeping, the oversight cost the company nearly $20,000 to iron things out. “Our biggest mistake was probably not taking an accounting class or not hitting the community college for some kind of new-business workshop,” he said. “We just dove into it and then tried to figure it out.”
Small business opportunities are a hot ticket item in today’s economy, where unemployment rates continue to climb. With a rise in new enterprises hitting the market over the last several years, the likelihood other entrepreneurs will make these same mistakes are high. Fading pensions are attracting retirees to look toward low cost franchise opportunities to subsidize smaller incomes, while the baby boomer generation will soon be joining the ranks of this age demographic. To help these folks get off to a fresh start, experts say that tax related matters should be an underlying focus out of the gate.
To run your business, are you required to set it up as a sole proprietorship, a partnership, a Subchapter S, limited liability or a full C corporation? And is your company expected to generate high or low revenues within the first few years of operation? Obtaining the answer to these questions is an important first step in understanding basic accounting matters for your company. If a startup expects annual revenue to exceed $50,000, tax advisors will tend to favor incorporation. The resulting business is typically taxed less heavily than a sole proprietorship, though extra recordkeeping might offset the savings. If you’re starting a Liberty Tax franchise, you have an advantage because you and your staff will have the expertise needed to keep track of your own tax filings, but you still need to be prudent!
Keeping business funds separate from personal money will also make for cleaner financial records. “It’s going to make tax preparation costs a lot less than if I have to try to figure out what is business and what is not,” said an accountant who specializes in small businesses. Besides saving your tax preparer a world of headaches, allocating these funds into designated accounts will allow you to better track all costs related to your business.
As your company grows, and revenues begin to rise, taxes may become more complex. Publication 583, Starting a Business and Keeping Records, provides a comprehensive overview of what entrepreneurs can expect when it comes to accounting. The information can be obtained on IRS.gov.