Whatever we may think about the last two years, there has certainly been an increase in the number of entrepreneurs. This is rather exciting! Starting and running your own business comes with a great deal of freedom and independence. It can also come with a significant amount of responsibility.
As an office which focuses heavily on tax planning, we have seen quite a few startup businesses. We hope they are able to succeed! However, one trouble spot which has become a recurring theme is profitability.
Many of the startup businesses we have seen spend large amounts of money on subscriptions they think they will need, educational seminars, and exploring target markets. While these items are not inappropriate, profitability tends to take a back seat. This does not plant seeds of success for the long haul.
A large number of entrepreneurs started a side business while working for another employer. Engineers may pick up side jobs, automotive mechanics may take jobs at their home, and carpenters may pick up weekend work. As the demand for their services grows outside of their day jobs, it can be a smooth transition into a full-time entrepreneur.
Our best opportunity for success as an entrepreneur comes from a focus on profitability. After all, if you have no other source of income, paying your household bills depends entirely upon your profits. This requires a conscious minimizing of business expenses only on those items which are essential to run the business. Unfortunately, we have seen a high number of new entrepreneurs lose a focus on profitability and acquire things which are not essential to earning income.
You can set yourself apart from the pack and position your new business for success by being consciously aware of your finances. Perhaps the number one method of achieving success is good bookkeeping, paying attention to how income and expenses are categorized, and ensuring that bank statements are reconciled.
While we may not often think of budgets as important for businesses, a good budget can help an entrepreneur focus on the most important goals and minimize unnecessary expenses. Budgeting can also help to plan for major financial decisions, such as renting a bigger office or purchasing new equipment.
R. Joseph Ritter, Jr. CFP® EA is the Executive Director of Zacchaeus Financial Counseling, Inc., a 501(c)(3) non-profit organization based in Lake Junaluska, NC which specializes in tax services and financial counseling and planning for low and middle income households.