By the time many small-business owners see me, they have exhausted any way to stay out of money trouble. But, life happens, and businesses can run into problems along the way. Small business owners may end up getting lawsuits, bill collectors calling, or tax problems. It can get so bad that the IRS can seize business bank accounts. A While back, I wrote about the Top 5 Warning Signs for Small Business owners that financial problems are on their way.
Over the 23 plus years that I’ve been counseling small business owners, I have seen the traps that are out there. Here are ways to try to avoid the money traps, and try to keep control over your small business.
- Set up a separate business bank account. This allows you to keep track of exactly which expenses are for the business and which are for your family’s living expenses. Why, you ask, because the money just goes to me anyway? You need to keep track because, when you do your tax returns, you can only deduct pure “business expenses” to show your net income. And, if you are not incorporated, just a “d/b/a” (doing business as), you get taxed on your net income. This is in addition to your personal account. It can be at the same bank, and you can just transfer money over when you need it.
- Use a money program to keep track of your business expenses. This will help you keep records, see how you are doing each month, and add up all of the expenses. And, you can give the reports to your tax preparer before April 15th, which makes it a snap to get your tax information prepared. Programs like Quicken or Quickbooks even can download all of the transactions from your bank account, so all you have to do is label them with the right category! Again, another way to make it easier to keep track of what is going on in your business.
- Have separate credit and debit cards for business and personal use. You need to keep a tight leash on your spending for the business, so that you don’t run huge balances. But, having a separate business card will, again, help track those expenses.
- Consider incorporating. Talk to a lawyer. There are certain advantages to having your business as a corporation. But, there are more costs, such as the cost of filing a business and a personal tax return, and incorporation fees to the State, and renewal fees. There are advantages, though, if you do decide to take out loans, because you might be able to get a loan just in the corporate name. If that is the case, you might not be personally liable on those loans. Many business owners have to sign personally on loans anyway, but it is worth a try to get loans without personal guarantees.
- Pay your taxes! This is the single-biggest problem that small businesses run into. First off, you have to pay all of your “trust fund” taxes. Those are taxes that business owners are required to withhold from employees’ paychecks. Also called 941 taxes, because of the form you are required to file, these taxes are never dischargeable in bankruptcy. You also need to be sure to pay your income taxes quarterly. Otherwise, you’ll spend all of the money you made, and, at the end of the year, you’ll have a huge bill to Uncle Sam that you won’t be able to pay. If you don’t pay your income taxes, the IRS or State can seize your bank accounts, and suspend any professional licenses.
If you have problems with any of these things, have debt problems, tax problems, or lawsuits, you should contact us. We help many business owners deal with financial problems, and get back on track. Chapter 7 or Chapter 13 bankruptcy might be an option to help. Possibly bankruptcy for the business or for the owners might be necessary.
If you are a small business owner, you are running on a limited amount of cash. Make your money count. Keep track of how your business is doing. Call us if you have money management questions. We can answer the questions, or point you in the right direction.
Daniel J. Winter
BankruptcyLawChicago.com
312-789-9999
Offices in Chicago, Gurnee, Oak Lawn, and Skokie, Illinois.
