Making Sense of Money Matters.TAKE FINANCIAL CONTROL OF YOUR ENTERPRISE IN 1997, LENWARD TERRY SMITH'S COMPANY, LIFESAVER Training Institute, took in more than $250,000 in revenue. But by 1998, income had plummeted. The once-lucrative company that designed medical response systems for corporations, schools and hospitals saw its year-end figures drop to less than $100,000. "I became overly dependent on a $250,000 contract I had with a private hospital," says Smith of his six-year-old, Brooklyn, New York-based business. "On top of that, I reinvested the money in capital expenses, which I used for expansion. If I had put that money into an account, I would have had a buffer. I virtually expanded my company out of business." When the hospital opted out of a contract renewal, Smith, 49, was forced to reduce his staff by 60% and give up a coveted cov·et v. cov·et·ed, cov·et·ing, cov·ets v.tr. 1. To feel blameworthy desire for (that which is another's). See Synonyms at envy. 2. To wish for longingly. See Synonyms at desire. office location because he failed to adequately plan his company's cash flow. Today, Smith works from home and generates $60,000 in revenues. He also plans to turn over nonprofit aspects of his business, such as EMT See Efficient markets theory. training, to a nonprofit volunteer ambulance corporation. Smith is one of an estimated 500,000 black self-employed business owners who grapple every day with financial issues ranging from cash flow to insurance to payroll to taxes. In the first installment of our four-part Business Management series, we explored how you make the transition from being an employee to becoming self-employed. In this, the second article of the series, we provide strategies for managing financial matters, avoiding financial pitfalls and dealing with tax issues. FORMULATE FINANCIAL PROJECTIONS Topping the list of pitfalls that affect small business owners such as Smith is undercapitalization Undercapitalization refers to any situation where a business owner cannot acquire the funds they need. Usually, this refers to a business that cannot afford current operational expenses due to a lack of capital, which can trigger bankruptcy. . "Oftentimes, small business owners think a year ahead: annual payroll, annual expenses and projected profits," says Allen Lipsky, first senior vice president at Valley National Bank, a leading SBA SBA abbr. Small Business Administration Noun 1. SBA - an independent agency of the United States government that protects the interests of small businesses and ensures that they receive a fair share of government lender in North Plainfield, New Jersey
North Plainfield is a Borough in Somerset County, New Jersey, United States. As of the United States 2000 Census, the borough population was 21,103. . "But in actuality their cash outlay has not been planned well enough, and whatever cushion is planned gets used up." To minimize the drain on working capital, Lipsky recommends identifying all the basic start-up costs associated with operating your business: inventory, equipment, office supplies Office supplies is the generic term that refers to all supplies regularly used in offices by businesses and other organizations, from private citizens to governments, who works with the collection, refinement, and output of information (colloquially referred to as "paper work"). and furniture, lease payments, transportation, payroll, utilities and phone, business insurance, advertising, business licenses or permits and legal or consulting fees. If you're just starting out, you'll be better able to identify operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. , accurately estimate the cost of start-up necessities and seek outside capital if you research your market and write a business plan first (see "Flying Solo," January 2000). Working capital (the amount of money needed to operate your business from day to day) should be projected for the first 90 days to protect against any unplanned events, such as slow sales or unexpected expenses, to keep your venture from stopping before it gets started. To assess your operating costs operating costs npl → gastos mpl operacionales , you should put together a budget based on start-up expenses; project your sales for the first 90 days (factor in competitors' pricing, your marketing strategies and geographic location); and review the financial statements and projections in your business plan. After working at IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) for 20 years, during which time she advanced from technical support person to sales rep, Cheryl Curry, 45, wanted to be sure that she was giving up her career for greater rewards before launching Kaleidoscope kaleidoscope (kəlī`dəskōp), optical instrument that uses mirrors to produce changing symmetrical patterns. Invented by the Scottish physicist Sir David Brewster in 1816, the device is usually a hand-held tube, a few inches to as much Learning Center, a preschool in South Plainfield, New Jersey South Plainfield is a Borough in Middlesex County, New Jersey, United States. As of the United States 2000 Census, the borough population was 21,810. South Plainfield was incorporated by an Act of the New Jersey Legislature on March 10, 1926, from portions of Piscataway , in April 1998. So, Curry prepared a business plan. "I went to the library. I got Census Bureau Noun 1. Census Bureau - the bureau of the Commerce Department responsible for taking the census; provides demographic information and analyses about the population of the United States Bureau of the Census data and demographic data from surrounding towns," says Curry. "I talked to people who had early childhood learning centers. I paid for a business profile on day care centers from Dun & Bradstreet." After having her plan reviewed by several professionals, Curry contacted the Small Business Administration (SBA) and the Service Corps of Retired Executives (SCORE) for additional business advice. Armed with $100,000 in savings, Curry approached Valley National Bank and was approved for a $250,000 loan. Curry used the funds to renovate her leased space and to purchase equipment for the school. It seemed Curry had all her bases covered, but like many people starting a business for the first time, Curry was overly optimistic. Her projections for her first month in business called for 33 children to be enrolled in her school. When her doors opened in September 1998, she had just three. "I had to dig much deeper in my pockets to find more than lint lint - A Unix C language processor which carries out more thorough checks on the code than is usual with C compilers. Lint is named after the bits of fluff it supposedly picks from programs. ," says Curry. "Because we had only three kids, my husband and I were committed to making a go of it for a year. We had to borrow [about $30,000] from friends and family, even though when we started, we thought our contributions and bank financing would take care of our operating expenses. What kept us going is that we were steadily getting children, but I needed 30 full-time to meet my monthly expenses. It wasn't until September Until September is a 1984 romantic drama set in France. It stars Karen Allen as an American tourist in Paris who falls in love with a married Frenchman (Thierry Lhermitte). External links 1999 that I had enough tuition to cover these expenses." Today, Curry has 55 children enrolled, seven full-time staffers and revenues of $250,000. With a capacity for 64 children, Curry says her current enrollment base of $650 per month per child sustains her monthly expenses of more than $20,000. "The school is growing, largely due to referrals, and now we're taking names for waiting lists," says Curry. "It feels good to be in that position." KEEP ACCURATE RECORDS Financial experts say one way to identify and solve cash flow problems is to set up a record-keeping system. Unfortunately, many business owners are apathetic ap·a·thet·ic adj. Lacking interest or concern; indifferent. ap  a·thet about their company's financial
status, especially how much money they have in their bank account and
how and where the money is being spent.
"Unfortunately, because entrepreneurs wear so many hats, they don't take the time to sit down and enter their financial information," says Daryl L. Mason, owner of the Mason Consulting Group, an Indianapolis, Indiana-based small business development firm. "Sometimes I will go into an office and the business owner has invoices scattered here and there, or all of their receipts and paperwork are in a big brown bag. If they can't answer what their net profit is, I know they haven't analyzed where their business is and where it is going." Detailed record keeping not only helps you determine whether you are making or losing money, but it also helps you track inventory, prepare financial statements, create a budget, secure a bank loan or venture capital financing To start an own company or to bring a new product to the market, the venture may need to attract financial funding. There are several categories of financing possibilities. If it is a small venture, then perhaps the venture can rely on family funding, loans from friends , devise a tax-planning strategy, determine your tax liabilities and complete income tax returns. The simplest way to keep track of your expenditures and inventory is to keep a journal where you can record cash transactions, sales and revenue transactions, accounts receivable/payable and record adjusting and closing entries at the end of an accounting period. After a transaction is made, it should be listed in your journal. At the end of an accounting period (usually a month, a quarter or a year), all entries are transferred to a ledger--a collection of the balance sheet, income and expense accounts you used to keep track of your accounting records. If done accurately, your debits should equal your credits. Once the ledger balances, the information it contains is used to prepare financial statements. As a former auditor with Arthur Anderson's Enterprise Group in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. , Louis Eustache was able to see firsthand the financial difficulties faced by small and mid-size companies. When he and his partner, Allan Rembaran, launched Account On Us Services, a Manhattan-based accounting outsourcing firm in 1997 with $50,000 in personal savings, he made keeping adequate cash reserves Cash reserves See: Cash investments cash reserves Investment funds that are held in short-term assets such as Treasury bills and certificates of deposit until more permanent investment opportunities are available. a priority. "We made sure the rent and payroll were covered," says Eustache, 30. "Our mentality was to pay everything in cash." Today the firm's revenues are $375,000. To avoid the trap of mingling business and personal funds, keep separate accounts. If you use a personal credit card to buy office supplies, immediately write yourself a check on your business or pay yourself from petty cash Petty Cash The small amount of cash and coins that an organization uses for minor purchases and providing change to customers. Notes: Petty cash is typically used by merchandising companies or small stores that are required to make change for customer purchases. , noting the category in which the money was used for tax purposes. If you find it necessary to withdraw funds from your business for personal reasons, enter the amount you took in your ledger and write a personal check to your business to repay the loan. Also, separate receipts when making personal and business purchases and store them in different locations, especially if you work at home. If you want an automated system set up to record more extensive information or want to create and tailor your journal to your firm's specific needs, try accounting software programs such as QuickBooks Pro (Intuit in·tu·it tr.v. in·tu·it·ed, in·tu·it·ing, in·tu·its Usage Problem To know intuitively. [Back-formation from intuition. ; www.quickbooks.com) or Peachtree Accounting Peachtree Accounting is business management software published by Sage Software and sold primarily in the United States. There have been several generations of software sold under the Peachtree Accounting name. (Peachtree Software; www.peachtree.com), where you can input information such as sale price and number of items sold. Both programs retail for under $200. An accountant or CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. can also assist with routine tasks such as preparing financial statements or adjusting and closing book entries, but be prepared to pay from $10 to $100 per hour in fees. Ask associates or friends for referrals. EASE YOUR TAX BURDEN As a self-employed business owner, filing as a sole proprietorship A form of business in which one person owns all the assets of the business, in contrast to a partnership or a corporation. A person who does business for himself is engaged in the operation of a sole proprietorship. (a business that has a single owner) can simplify tax matters, says Chad Piehl, a licensed stock broker and CPA partner in Hetchinson, Minnesota. Indeed, sole proprietorships are considered nontaxable entities, which means that business and assets and personal liabilities aren't separate from you, the business owner, and are considered to belong to you, the owner. In addition, all income and expenses (including your salary) are listed on Schedule C, Profit or Loss From Business or Schedule C-EZ. The net profit or loss is transferred to your Form 1040 Individual income tax return. No separate tax rate schedule applies to sole proprietorships, and you are not subject to any special business income taxes. However, keep in mind that as a sole proprietorship you are still responsible for city, state and federal self-employment taxes on your firm's net profits, as well as for any payroll taxes for employees, which must be paid quarterly. Planning to incorporate? Tax experts recommend a Subchapter S Corporation subchapter S corporation n. the choice by a small corporation to be treated under "subchapter S" by the Internal Revenue Service, which allows the corporation to be treated like a partnership for taxation purposes. status. An S Corporation operates as a regular corporation with shareholders, a board of directors and officers, but differs with regard to tax liability. "It [S Corporation status] offers corporate liability protection, but income taxes are paid at the shareholder level instead of at the corporate level, as they are with a C Corp," explains Piehl. "And if your business experiences a loss in its first year, you may be able to pass that loss through to your personal income tax return." Jacqueline Bell, owner of J.M. Bell & Associates L.L.C. in Indianapolis, operated her human resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. and hotel management training and consulting firm Noun 1. consulting firm - a firm of experts providing professional advice to an organization for a fee consulting company business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a part-time for 10 years before leaving her job as general manager for Courtyard By Marriott Courtyard by Marriott is a brand of hotels owned by Marriott International. They have over 2,800 hotels worldwide, as of June 2007. Courtyard by Marriott is designed for business travelers. in Indianapolis to become a full-time entrepreneur last year. Today, she has a client roster of seven, and provides training in such areas as diversity, customer service, sexual-harassment prevention and team building for $1,200 to $1,500 per day. She chose a limited liability structure for specific reasons. "It's easier to manage my business finances and tax reporting responsibilities to the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. , local and state governments," says Bell, 49. "[The L.L.C. structure] afforded me flexibility. With the issues I deal with, it opens me up to litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. , but as an L.L.C., I have personal liability protection." No matter what structure you choose, if you have employees, you will be responsible for collecting employee withholding tax The amount legally deducted from an employee's wages or salary by the employer, who uses it to prepay the charges imposed by the government on the employee's yearly earnings. (check with your city and state tax office for requirements). The IRS cautions against spending these funds because it is money owed to the government. And you could find yourself subject to a penalty if you use this money to pay bills because of cash constraints and later find yourself short when tax payments are due. To simplify your payroll process, use a payroll service. If you have more than one employee, you can outsource payroll to companies like ADP (1) (Automatic Data Processing) Synonymous with data processing (DP), electronic data processing (EDP) and information processing. (2) (Automatic Data Processing, Inc., Roseland, NJ, www.adp. , Paychecks or Staples for as little as $20 to $30 a month. Tax experts say most small business owners are unaware of breaks that can help them lower their tax bills. Consider these tax deductions you may have overlooked: * You can deduct business purchases in the first year you incur them, up to $19,000, instead of taking deductions based on yearly depreciations. * If you're a home-based business, you may qualify to file the home office deduction for expenses such as utilities, rent and repairs. * Don't overlook deducting personal expenses that you legitimately incurred for your business, such as the use of a cell phone or pager, business supplies, meals and travel expenses. * Whether you open an IRA Ira, in the Bible Ira (ī`rə), in the Bible. 1 Chief officer of David. 2, 3 Two of David's guard. IRA, abbreviation IRA. (individual retirement account), SEP 1. SEP - Someone Else's Problem. 2. (tool) SEP - A SASD tool from IDE. (simplified employee pension plan) or Keogh, you can earn significant tax advantages by putting away as much as $30,000. In addition, the contributions compound tax-free, and you can deposit funds even after your company's fiscal year ends. HIRE TO YOUR FINANCIAL ADVANTAGE Smith of Lifesaver Training Institute is well versed in dealing with independent contractors. His firm requires that he frequently hire instructors to train medical personnel and office workers in emergency life-saving procedures. "I have a three-page written agreement so these experts understand that they're responsible for their own taxes, they must carry general liability insurance [in case of injury or damages] and must have workmen's compensation Workmen's Compensation n. a former name for Workers' Compensation before the unisex title of the acts was adopted. insurance," says Smith. An added benefit from Smith's agreement is that by requiring the independent contractors to take out liability insurance, his company is indemnified if instructors give erroneous information. Because Smith's instructors are independent contractors, he also requires that they provide their own equipment and submit monthly invoices, both of which save him money. "Unfortunately, most people don't understand the rules and regulations of hiring independent contractors until they get fined," states Michael Dodson, managing partner of Dodson & Rossi CPA, and an adjunct professor for the City University of New York The City University of New York (CUNY; acronym: IPA pronunciation: [kjuni]), is the public university system of New York City. in Manhattan. "Mostly, it occurs when an employee challenges an independent contractor status while filing for unemployment compensation." Keep in mind that hiring independent contractors does not raise red flags, but the failure to send 1099 forms to independent contractors can. If the independent contractor earns over $600 and claims the income on his or her taxes and you fail to report it to the government, then you could be penalized pe·nal·ize tr.v. pe·nal·ized, pe·nal·iz·ing, pe·nal·iz·es 1. To subject to a penalty, especially for infringement of a law or official regulation. See Synonyms at punish. 2. by the IRS. To determine whether an individual you hire is an employee or an independent contractor, check out the IRS' Classification for Independent Contractor by visiting the IRS' Website at www.irs.ustreas.gov and view publication 15A, Employee Supplemental Tax Guide; 2, Employee or Independent Contractor. EXERCISE YOUR INSURANCE OPTIONS Just as independent contractors do, you must assess your company's liability. To accomplish this, it's critical to find an insurance agent that understands your type of business, says Jeanne Salvatore, vice president of consumer affairs of the Insurance Information Institute in New York City. Matthew Tassey, past president of the Association of Health Insurance Advisors in Washington, D.C., agrees. "The role of an agent or broker is not only to help with plan costs and benefits, but to answer questions." He suggests contacting trade associations, your local chamber of commerce and other businesses for referrals. After joining the National Association for the Self Employed, Bell was able to obtain insurance benefits through the organization at discounted rates. Salvatore recommends insuring your business with a business owner's policy (BOP)--an insurance package for small businesses that provides coverage for business liability, loss of income and business interruption. However, restaurants and manufacturing companies may need broader coverage. Small employers can also reap the benefits of larger health group plans, says David Williams David Williams is the name of: Musicians
WMC Weill Medical College (Cornell University) WMC Wisconsin Manufacturers and Commerce (Madison, WI) WMC Westchester Medical Center WMC Western Mining Corporation Insurance Services in Santa Ana, California Santa Ana is the most populous city in Orange County, California and is the county seat. It lies approximately 10 miles inland from the Pacific Ocean, on the largely seasonal Santa Ana River. . "In today's market, major carriers are competitive and are coming out with several options to choose from, such as shifting costs to employees." When shopping for health insurance policies, assess your medical needs and take into account your budget, says Williams. Determine what percentage your employees will contribute to the plan and on what basis, as well as if you would consider a plan with a higher deductible, which would significantly lower your premium costs. To find a health insurance agent, check with the local Health Insurance Agents Association and get referrals. As a self-employed business owner, staying on top of your finances is critical to your success. By accurately projecting your operating costs, maintaining precise records, preparing for taxes and thoroughly investigating employment and insurance options, you'll be fiscally fit to reap the rewards of your success. RELATED ARTICLE: Financial Resources For The Self Employed * SBA Answer Desk, 800-827-5722 or www.sba.gov * Service Corps of Retired Executives (SCORE), 202-205-6762 or www.score.org * Small Business Development Centers (SBDCs), www.smallbizsuny.edu/ * National Association of Accountants, 800-966-6679 * American Institute of Certified Public Accountants With over 330,525 CPA members (in August 2006), the American Institute of Certified Public Accountants (AICPA) is the largest professional organization of Certified Public Accountants (CPAs) in the United States of America. , 202-737-6600 * National Association of Black Accountants, 301-474-6222 or www.nabainc.org * National Insurance Consumer Helpline, 800-942-4242 * J.K. Lasser's Tax Deductions for Your Small Business by Barbara Weltman (Macmillan, $15.95) * Black Enterprise Guide to Starting Your Own Business by Wendy Beech (John Wiley John Wiley may refer to:
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