Small Business Stress: Part 2
This is the second blog in our series on common stumbling blocks for start-ups and small businesses. The goal of our Mid-Missouri accounting firms is to be conversational and to provide readers with thinking points to kickstart important conversations in their organizations. Any stories told in these posts are completely fictional and are not based on actual individuals. However, the themes will likely be familiar to many small business owners. If you are a small business owner in need of some assistance with your bookkeeping, payroll, or just overall business accounting, call one of our Central Missouri accounting firms today. Wilson Toellner CPA has four CPA firms throughout Mid-Missouri, one in Marshall, Camdenton, Lake Ozark, and Sedalia. All of our phone numbers and locations can be found on our website at www.WTCPA.com.
Most small businesses begin when an individual or a team has an idea, a skill, or a product that has value to others. The trouble is that as sales ramp up, the product or skill alone is likely not enough to keep the business running smoothly. Instead of doing the thing that made the business special (the thing they’re most passionate about) the owner now has to manage relationships with customers and vendors, keep the bills paid and the receivables collected, carry appropriate insurance coverage, track liabilities for sales and use tax, keep organized books and records, monitor the budget, and try not to get waylaid at income tax time... and that’s all before even dipping a toe into hiring and managing employees.
David’s background is in metal fabrication. He was a loyal employee of a small local business for 15 years but his boss recently retired and closed his doors. David was never one to feel sorry for himself or to go without work, so he bought a welder and went into business for himself. With several good contacts from his previous employment, it didn’t take David long to find steady customers and his first ten months were very successful. Now it’s time for him to file a tax return, so he calls a local CPA.
In their initial meeting, the CPA observes that David kept decent records and David tells him that’s because he hired a bookkeeper. The CPA asks David if he had a W-9 in order to issue the bookkeeper a 1099, but David doesn’t know what a W-9 is. Further evaluating David’s books, the CPAs sees that David’s profits are very substantial, so he starts a discussion about the structure of David’s business. David responds that he didn’t really set anything up on the front end and was just doing business with his social security number, but figured he might want an LLC now that one of his customers is upset and threatening to take him to court.
David is a prime example of what can happen when a business owner doesn’t give proper consideration to what’s important in the start-up phase of a business. Fortunately for David, the CPA can help him get to where he needs to be (apart from the issue of potential legal liability, which should involve an attorney) but it would have been easier and more beneficial to have done so at the start of his business.
Putting thought into the organizational structure of a business before it begins is critical. Depending on the desired ownership structure, the projected profits, the future exit plan of the owner(s) and many other factors, the optimal business structure should be carefully analyzed and selected. This process can minimize risk as well as taxes, and put the business in a better position to accomplish its goals.
There’s also tremendous value for new business owners in seeking out advisors to educate them on things they may not know, but need to know right away. David did a good job in thinking about his accounting enough to hire a bookkeeper for basics, but he received no guidance regarding proper registrations for the business, health, and liability insurance coverage, employee/contractor considerations, banking practices, accounting system setup, tax types and deadlines, important deductions, understanding his financial statements, and a multitude of other matters.
At Wilson Toellner CPA, we are always happy to get to know new business owners and to help them build a comfort level with the things they need to know in order to accomplish their goals.
Written By: Adam Wolfe, CPA
Most small businesses begin when an individual or a team has an idea, a skill, or a product that has value to others. The trouble is that as sales ramp up, the product or skill alone is likely not enough to keep the business running smoothly. Instead of doing the thing that made the business special (the thing they’re most passionate about) the owner now has to manage relationships with customers and vendors, keep the bills paid and the receivables collected, carry appropriate insurance coverage, track liabilities for sales and use tax, keep organized books and records, monitor the budget, and try not to get waylaid at income tax time... and that’s all before even dipping a toe into hiring and managing employees.
David’s background is in metal fabrication. He was a loyal employee of a small local business for 15 years but his boss recently retired and closed his doors. David was never one to feel sorry for himself or to go without work, so he bought a welder and went into business for himself. With several good contacts from his previous employment, it didn’t take David long to find steady customers and his first ten months were very successful. Now it’s time for him to file a tax return, so he calls a local CPA.
In their initial meeting, the CPA observes that David kept decent records and David tells him that’s because he hired a bookkeeper. The CPA asks David if he had a W-9 in order to issue the bookkeeper a 1099, but David doesn’t know what a W-9 is. Further evaluating David’s books, the CPAs sees that David’s profits are very substantial, so he starts a discussion about the structure of David’s business. David responds that he didn’t really set anything up on the front end and was just doing business with his social security number, but figured he might want an LLC now that one of his customers is upset and threatening to take him to court.
David is a prime example of what can happen when a business owner doesn’t give proper consideration to what’s important in the start-up phase of a business. Fortunately for David, the CPA can help him get to where he needs to be (apart from the issue of potential legal liability, which should involve an attorney) but it would have been easier and more beneficial to have done so at the start of his business.
Putting thought into the organizational structure of a business before it begins is critical. Depending on the desired ownership structure, the projected profits, the future exit plan of the owner(s) and many other factors, the optimal business structure should be carefully analyzed and selected. This process can minimize risk as well as taxes, and put the business in a better position to accomplish its goals.
There’s also tremendous value for new business owners in seeking out advisors to educate them on things they may not know, but need to know right away. David did a good job in thinking about his accounting enough to hire a bookkeeper for basics, but he received no guidance regarding proper registrations for the business, health, and liability insurance coverage, employee/contractor considerations, banking practices, accounting system setup, tax types and deadlines, important deductions, understanding his financial statements, and a multitude of other matters.
At Wilson Toellner CPA, we are always happy to get to know new business owners and to help them build a comfort level with the things they need to know in order to accomplish their goals.
Written By: Adam Wolfe, CPA
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