When Dan Terrico pulled up to his cabinet-making shop one very hot morning a few summers ago, he saw two men in suits and knew something was up. It was mid-July in Florida. There is no air conditioning in his shop or in any of the other warehouse operations in the complex. People in suits didn’t make casual visits there. This was serious business and the padlock on his front door confirmed it. “IRS,” he told himself, and he was right. The tax man cometh, even to workplaces with only three employees.
Entrepreneurs like Terrico are good at coming up with terrific ideas to start a business, but don’t always back it up with the skills to run that business, including money management — the one talent that will keep guys in suits away from your front door.
Money Management Tips for Business and Personal Finance
Money management for a small business means budgeting, spending or investing your company’s cash in a responsible way. If your product or service is good enough to find an audience, good money management is the key to keeping the business profitable and expanding it when the opportunities arise. In other words, money management should help grow your business, while keeping the IRS off your doorstep.
It is very similar to the things you should be doing with personal finances, though the two should never overlap. Every expert in the field warns that keeping the two distinctly apart – personal bills and income in one room, business bills and income in another room – is the first step toward making either side a success.
Part of that separation would be to determine how much money you need to live on in your personal life, assuming you expect to take that amount from the business income. Be cautious with this. Instead of adding another room to your house when your business makes an extra $75,000, hire an employee for your company.
That is why the next step should be to buy accounting software, or better yet, hire a reputable accountant. You can’t manage money effectively if you don’t know where it’s coming from and where it’s headed. A good accountant’s numbers don’t lie. They are invaluable in helping you execute a business plan, whether it’s repairing the damage from a downturn in the economy or riding the success of an upswing to grow your business.
A smart money manager also will monitor his customers’ business, especially in a volatile economy. Many small business owners went under when the housing industry bottomed out because they over spent on equipment or supplies that sat around unused.
Good money managers keep a close eye on the emergency fund. Not all changes in business are predictable. Some are completely unexpected, like a mid-July visit from IRS agents intent on shutting your business down.
Turns out Terrico’s brother, who operated a separate business, hired a new accountant to take care of both businesses and the new guy didn’t keep up with the 941 payments to the IRS for Terrico’s three employees. IRS officials were not happy. “They gave me two days to come up with $10,000 or they would start selling off my assets until they came up with enough to cover the bill,” Terrico said. He didn’t have an emergency fund, but a friend bailed him out.
The incident prompted Terrico to look at the money management suggestions above and offer this comment: “The first thing I’d suggest is pay your taxes. Do what you want with the rest of your money, but first, pay your taxes.”
About the Author:
Bill Fay is a writer for Debt.org, focused mainly on news stories about the spending habits of families and government. He spent 21 years in the newspaper business and eight more in television and radio, dealing with college and professional sports, then seven forgettable years writing speeches and marketing materials for a government agency.
photo credit: JD Hancock via photopin cc