Myron Trafelet: Critical issues to consider while setting up a successful small business

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Time Requirements:

One of the most overlooked issues when considering a new small business venture is the amount of time required to operate a small business. When considering creating a small business, an individual needs to consider the hours of operation, hours of preparation, hours after closing and the hours necessary for record keeping.

The hours are different for different types of businesses. If your business is a service business, the hours of preparation and after closing are greatly reduced. If your business is a food service business, these hours are increased. One of the reasons for small businesses closing is owner burnout. This is due to underestimating time requirements necessary to operate the business and not being able to afford a manager to relieve you some of this time.

Setting up the proper business entity:

In many cases an individual will start a business without considering or consulting with a professional about the appropriate entity that should be established for the type of business being started. Questions need to be asked as to types of entities available, whether to create a sole proprietorship, a pass through entity (Partnership, LLC or an S-Corporation), or a taxable entity (C Corporation). This decision should be made very early in the process with the assistance of your tax and business consultant. The correct, timely decision can help the initial process go smoothly, reduce stress and save you money.

Keeping accurate records from day one:

Accounting records should be maintained from the very beginning of the process. Most small businesses look at the maintenance of accounting records as an afterthought and wait until it is time to prepare the year-end tax return before they begin gathering the information, and in many cases information is missed. Missing these deductions may cost you more than the costs to maintain the records from the beginning would be. These records can be maintained in many ways, either by the creator of the business or by a professional.

Understanding Available Financial Information:

Once accurate financial information is available, it is very important that this information be reviewed and understood by the business owner. This information will show trends for the business as to sales and cost of sales, which are key to running a profitable business.

Understanding Small Business Tax Issues:

It is very important to understand the various tax issues that confront small businesses: income tax, self-employment taxes, sales or TPT tax and payroll taxes. The sales and payroll taxes seem to be the most troublesome. These taxes are normally paid monthly and, if not paid on time, have significant penalties on them. Payroll taxes that are not paid on time have a 10 percent penalty for the quarter; if it’s the first time, contacting the IRS and explaining the issue then following with a letter may waive the penalty.

If you are considering starting a small business, or have any questions, please contact me at [email protected] or visit my office, Trafelet Accounting PLLC, 19756 N John Wayne Parkway, Suite 109, Maricopa, AZ 85239.

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