Starting your own business or service can be an exciting, yet confusing time. To make it easier, we recommend working with us, as well as a financial planning team, to get off to a good start. We also recommend asking these ten questions to a professional:
#1: What should be in a basic business plan?
A business plan should outline each detail of your company including who will run it, how much you’ll charge, and what you expect to earn. Putting time into creating a thorough business plan is important. Work with your team to ensure your plan is accurate and represents your business well.
#2: Who will you need to pay taxes to?
Your local jurisdiction and state have specific taxation requirements. You’ll likely have to pay taxes on sales, but also costs associated with payroll. Ensure your accountant not only talks to you about who you need to pay, but payment deadlines as well.
#3: What is a projected cash flow for the business?
How much cash does your company need to keep on hand? The key here is to be able to anticipate how much it will cost you to operate your business. Most companies should not expect to have positive cash flow for at least a year, often longer. Your professionals can help you decide what your cash flow projections are.
#4: How much of an investment do you need to put into your company right now?
Your financial team can help you project the cost of setting up your new business. This will include costs related to establishing the physical business and paying for supplies. Your initial investment generally will be the highest amount put into the company by the founder, but it changes significantly from one company to the next.
#5: What is your break-even analysis?
This may be an important question to ask early on. How much do you need to make to break even? You’ll want to talk to your financial team about the timeline for this and what can be done to help ensure you break even as soon as possible.
#6: What liability insurance do you need?
While most tax professionals don’t offer recommendations here, having adequate policies to cover potential loss is important. Work with your team to ensure you have comprehensive protection to minimize risks against your company’s financial health.
#7: What will interest cost you?
Interest on loans is not something to overlook. You’ll want to ensure you have an accurate representation of how much you are paying in interest so you can make adjustments to pay off any borrowed debt sooner, make better decisions about borrowing, or factor in the cost.
#8: How will you manage payroll?
This is a very big component of starting up since it can be troublesome for most startups to actually know how to pay employees and meet all federal and state requirements. Working with a payroll provider is often the easiest option (and most financially secure since paying an employee to do this work tends to be more expensive).
#9: How can you reduce your taxes?
Tax professionals will work with you to determine if there are any routes to reducing taxation on your business including local incentives that may be available. You’ll also want to talk about projects taxes, investments that could reduce taxes, and having all possible deductions in place.
#10: What’s the right profit margin?
Working with a financial team often comes down to this question. How much should you charge to make the best profit possible while still ensuring your company can grow? It’s not a simple question, but having the right team by your side ensures it will be clarified as much as possible.
Make an appointment with Dagley & Co. to get your business off to the right start. We are here for you for any tax, payroll or accounting questions or issues you may have for your new business.
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With the right tools, resources, and a professional by your side, you can enhance the way you do business, reduce your spend, and increase your profit margins. To get started, you need some basic information on finance. Below are 9 finance tips all business owners should follow.
#1: Recognize the Importance of Your Books
Invoices, bank statements, and even some accounting work is commonly done through software programs today. However, it’s more than just accounting for your revenue and losses that’s important. In other words, you need to turn this data into usable information. Your figures can help you know how to grow profits even further if you know how to read them properly.
#2: Stop Putting It Off
It is much harder to manage that stack of papers at the end of the month than it is to spend a few minutes each day entering details. Having a pro to do this for you makes it even easier. If you are procrastinating, though, you’re hurting your short-term and long-term financial goals.
#3: Know Your Risks
A Headway Capital study found that 57% of business owners planned to grow this year. Most companies set out to grow for the year, but they often lack attention spent on minimizing risks. What’s the worst-case scenario? What’s your break-even point? Addressing risks as a part of your financial strategy really can streamline your finances should the year not go as you planned.
#4: You Really Didn’t Budget, Did You?
Some small to medium businesses lack the time it takes to budget. It’s understandable, but that doesn’t make it okay. Budgeting helps address those risks, but it also helps you to make better buying decisions. And, when you have tools in place to help you monitor inventory, expenses, and other unforeseen costs, you can create better budgets that allow you to do more with your profits.
#5: Tax Mistakes Are Common
Small to medium businesses suffer from some of the most complicated taxes. Without having a professional to monitor and guide your taxes throughout the year, your business could suffer significantly. The IRS says that, in 2014, $1.2 billion in civil penalties were placed against small business income tax filers. Most small businesses need reliable support to ensure tax filing and reporting isn’t a secondary importance.
#6: Build from Your Strengths
You don’t have to build your business on new products or start from scratch each time. It’s best to simply build onto what you have. For example, you’ll want to pinpoint where your biggest profit margins come from. Once you understand who your moneymakers are, target them within your business. By identifying and focusing on these areas, you can build your revenue and profits faster, therefore giving you the room to expand in other areas later.
#7: Building a Business Is More Than Hours Worked
It’s very common for business owners to spend a lot of time and hard work building their business on their own. Are you putting in 80 hours a week? If so, you may be limiting your growth potential. Instead, empower professionals and employees to help you with delegated tasks. This can give you more time to spend on what’s really making you money and help you to sleep at night.
#8: Focus on Lean Practices
Less really is more. As a business owner, you’ll want to incorporate the lean philosophy of keeping less on hand so you reduce your overhead. You create more value for your customers with less.
#9: Access Capital When You Can, Not When You Need To
Having a steady stream of income on hand is important. Instead of waiting until you are desperate for funding, and having to show your investors that you are in that place, focus on planning ahead and minimizing the risk of a negative situation.
As a business owner, making wise financial decisions for your company is an ongoing process. But, you don’t have to do it alone. Allow Dagley and Co. to help you along the way to better manage your money and you could see it grow faster than you thought possible.
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At Dagley & Co. we hear a lot about the complexity of the tax code, as well as a lot of rhetoric from Washington about simplifying it. Tax codes were originally written to bring in money (taxes) to pay for government costs. But over the years, Congress has used tax codes more as a tool to manage social reform. As a result, the code has become very complex.
So with taxes becoming more complex with each passing year, why do people think they can prepare their own returns? We use software-costing thousands of dollars, so why do individuals, not educated in tax law and using low-cost computer software, think they can get their tax result right? Well, they may not, and they may miss deductions, credits, income exclusions, retirement benefits, and even more beneficial filing options just to save a few bucks on tax preparation costs.
However, paying a little more in tax than they need to should not be their biggest concern. A more troublesome situation is getting more tax refund than they are entitled to, and then a year or two later getting a letter from the IRS wanting the excess back. This is especially devastating to lower-income individuals and families that spend what they bring in just making ends meet and have no savings to fall back on when the IRS comes calling, leaving them with even a bigger financial hole.
To make matters worse, they may not even understand the IRS letter or the issue it is dealing with, and since they did their own return, they have no one to call for help in getting the tax assessment reduced or knowing how to get penalties abated.
Professional tax preparation offers more than just entering numbers into a computer program. If you usually file your own tax returns, perhaps you should consider a firm that can not only prepare your taxes properly, but also provide tax, financial and retirement guidance. We are also here to help plan for the future. Give Dagley & Co., CPA’s a call this year, we are here to help.
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Do you want to take advantage of your energy credits as a homeowner? Renewed opportunities to homeowners wanting to take advantage of energy credits and reduce their costs are possible after a recently passed legislation to two homeowners with these credits that were about to expire.
The first of the two credits is what the tax code refers to as the Residential Energy Property Credit. A more descriptive title would be an energy saving credit since it applies to improvements to the taxpayer’s existing primary home to make it more energy efficient. This credit was extended for two more years, allowing homeowners to claim the credit for qualifying energy improvements made in 2015 and 2016.
The credit generally applies to insulation, storm windows and doors, and certain types of energy-efficient roofing materials, air-conditioning and hot water systems.
The credit is 10% of the cost of the energy-saving items but does not apply to the cost of installation and is limited to a lifetime maximum of $500. So if you have taken advantage of this credit in the past and received $500 or more in credit in a prior year, you cannot claim any additional credit.
In addition to the $500 overall limitation, there are also per-item limitations on the credit; for example, qualified windows and skylights – $200, qualified hot water boiler – $150 and qualified energy-efficient equipment – $300.
The credit is nonrefundable and can only be used to offset income taxes (including the alternative minimum tax).
The second credit to be extended is called the Residential Energy Property Credit. Better known as the home solar credit, it also provides credit for wind energy systems, geothermal systems and fuel cell systems. The credit is generally 30% of the qualified property and installation costs, subject to some limitations for fuel cell and geothermal systems.
The credit, which was scheduled to expire after 2016, has been extended through 2021, but only for solar electric and solar hot water systems (excluding swimming pools). In addition, the credit percentage is phased out beginning after 2019. The following are the credit percentages allowed through 2021: 2009 through 2021: No annual limit, 2009–2019: 30%, 2020: rate reduced to 26% and only on solar-related systems, and 2021: rate reduced to 22% and only on solar-related systems.
There is no limit on the actual credit other than the credit percentage. It is a nonrefundable credit and can be used to offset income tax liability (including the AMT). However, if the credit is unused because it exceeds the income tax amount, it can be carried over to another year as long as the credit has not expired.
When considering whether or not to go to the expense of installing a solar system, you need to consider a number of issues. Is it cost effective considering your electric usage? How will you pay for it? If you finance it are the terms and interest rate reasonable for your financial situation? How will it affect your property’s value? Will you be able to benefit from the tax credits?
Installing solar is a big financial commitment and should be considered carefully. Don’t let a solar system salesperson rush you into a decision. If you need assistance analyzing the financial and tax aspects of installing a solar system, please give Dagley & Co. a call before you sign on the dotted line.
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