Avoid Becoming a Small Business Failure Statistic, Find a Mentor

Entrepreneurs start new companies with a vision, a dream, a business plan, and some capital. They take risks. They reap rewards, and too often they fail.

The statistics for startups are grim—50 percent will fail after four years and 66 percent fail within 10 years. So how do small businesses increase their survival rates? Is there more to running your own business than instinct and gut feelings?

Statistical Significance With Mentorship

According to Score, the largest network of volunteer, expert business mentors, entrepreneurs are five times more likely to start a business and succeed with a mentor. In fact, a small business survey they conducted showed 87 percent were still in business after a year, compared to 75 percent for those without mentors.

Even more, MicroMentor, in their business outcomes survey, found that mentored businesses increased their revenue by 83 percent, while non-mentored businesses only increased revenue by 16 percent.

Experience Counts

Experience is different from knowledge gained from books. It’s in the trenches, get your hands dirty and learn-from-it experience, and sometimes it’s a better and more efficient teacher with lessons that stick, both the good and the bad.

Those personal experiences and lessons learned, when shared in a mentoring relationship, can help the entrepreneur avoid serious pitfalls, guide them through rough patches, and encourage risks that lead to great rewards.

This is an asset that cannot be found in books; it has to be lived.

Networking

It’s common to hear, “It’s who you know, not what you know.” If this is true, and it often seems to be, a mentor has cultivated relationships—valuable ones—over the years and they will often be happy to share with those they mentor.

This can be invaluable, not only because they might cut you a deal, but also because it saves you a lot of time looking for a company that has the qualifications you are looking for.

Confidence Boosting

Having someone in your corner who can offer reassurance based on similar experiences, guiding you and telling you not to worry, or advising what you should do is a game changer for entrepreneurs.

The bottom line is that this boosts self-confidence, something that is critical for success. A study conducted at the University of California, Berkeley Haas School of Business found, as The Telegraph reported, “Within a work environment, higher-status individuals tended to be more admired, listened to, and had more sway over group decisions.”

A Stronger EQ

Forget IQ, it’s EQ that can determine business success. Having a mature mentor can make all the difference for the young, inexperienced entrepreneur who is predisposed to making emotionally-based judgments.

Mentors will help navigate the minefield, show you how to keep emotions out of business, and encourage smart, decisive decision-making. This will help overcome hurdles that often trip up the newcomer.

Encouragement

Having someone in your corner and encouraging you when the going gets rough can make all the difference between sinking and swimming, even if it’s only a dog paddle.

It can also have a serious impact on mental health. There are reports that say entrepreneurs struggle with depression when they are unable to meet goals and expectations, but those with mentors struggle less and bounce back faster.

Klein Hall CPAs offers customized packages for start-up businesses. When utilized in addition to a mentor, small businesses find they get expert advice that helps their business avoid common pitfalls and build a solid foundation for growth. Contact us today and find out more about how we can help you.

Small Business Tax Tips

When starting up a small business—whether it is ecommerce, service-based, freelancing, etc—what owners worry about more than almost anything is taxes.

No one is an expert in all areas of a business, from accounting to sales, or HR to finance. It’s no secret that many small business owners are reluctant, even resistant, to hiring outside professionals. For some it’s a matter of pride, for others it’s an issue of finances, and for a few, ignorance is the culprit.

Don’t let any of these stop you from getting help in areas that are not your specialties. In the end, it will save you much more than it will cost. Unless you consider an unscheduled dance with the IRS a good time—and being unorganized can almost guarantee the IRS will whisk you into a slow dance.

Experts agree on a variety of tips for small business owners.

Ignoring Those Pesky Details Can Cause Migraines

Who wouldn’t prefer financial freedom over a migraine? Several suggestions can help you feel confident in the way your business is run and its ability to not only afford expenses, but pay you well, rewarding you for all those 14 hour days and working weekends.

When starting a business, make sure to choose the right business structure, whether a sole proprietorship, an LLC, or a corporation, and don’t forget to open separate business accounts, as comingling business and personal finances complicates things if you need to prove legitimate business expenses.

Other items to consider include hiring independent contractors, using form 1099, and setting up a retirement plan for that time when you are hiring employees, and not just contractors.

Keep Good Records

Keeping good records all along the way can save you a great deal of time and frustration later, especially when tax time approaches. This should include setting up a filing system for all important documents, contracts, and receipts.

Record keeping with the use of software is also critical and can be done inexpensively. The most important include accounting software to track revenue and expenses and payroll tax software. Getting payroll taxes wrong can result in penalties from the IRS, and, unfortunately, too many small businesses experience this every year.

Hire the Right CPA

Hiring the right CPA is critical for a variety of reasons, but the most compelling is their help with not only filing your taxes accurately and on-time, but helping you to understand what can and can’t be deducted, such as business-related meals, deciding which way to go on the auto deduction, and having them explain what bonus depreciation includes.

They will also help with paying estimated taxes and can explain why cash payments from customers are not tax free, but taxed at the same rate as all others and must be claimed.

These professionals are in your corner, and will save you countless hours, frustration and headaches. That leaves you free to do what you do best–develop new products, decide on a marketing strategy, and acquire new clients.

Klein Hall CPAs have the experience behind them to advise you on all of these topics and more. Get in touch and find out exactly how they can make life, and business, easy for you.

Is Applying For a Tax Extension the Good, the Bad or the Ugly?

Applying For a Tax ExtensionApplying for a tax extension may have nothing to do with Clint Eastwood, or an old western movie, but a clear understanding of what an extension does and doesn’t do, can help you avoid being charged interest (the bad) and penalties (the ugly).

The easiest and best way to make this decision is to talk with a Certified Public Accountant (CPA). They are familiar with current tax laws and can easily apply them to your situation and needs in order to recommend the best path.

In order to get a grip on what options you have, and what you’ll want to avoid, put down your pen for a minute and consider a few things.

Applying is Easy

Applying for a tax extension is easy and can be done online or by mailing form 4868 to the Internal Revenue Service (IRS). Check the address for mailing carefully as there are different ones, and yours is based on where you live.

Whether your reason for asking for an extension is due to travel, hardship, or other reasons, the request is almost always granted to any taxpayer that asks for one. The application is free, and when granted, extends the tax return deadline to Oct. 15, 2018.

An Extension Does Not Extend the Date for Paying, If You Owe

The tax extension DOES NOT change the deadline for payment of taxes. If you are thinking about the extension because you know you’ll have to pay and just want to put it off, don’t. The IRS has been onto that game for a long time, and they make you pay more if you try to play that way.

The IRS charges interest of five percent, compounded daily, and a late payment penalty of half-of-one percent for those who file a return on time or get an extension and don’t pay what they owe. Interest on the penalty is compounded daily as well. Also, claiming you didn’t know you would owe is not an excuse the IRS accepts. They ask you to estimate how much you will owe on the extension application.

The penalty charged for failing to file a return, or an extension, is 10 times more severe than filing and failing to pay. Those who fall into this category are charged five percent interest on what they owe, as well as a penalty of five percent. Interest on both are compounded daily. The IRS can increase penalties up to a maximum of 25 percent.

We Can Help Explore Options

Taxes, extensions, interest, penalties and all the decisions to be made can be not only confusing, but overwhelming. For instance, in cases where hardship can be proven, you may not be charged penalties for late payment, but what does it take to prove that?

At Klein Hall CPAs, we can explain all your options, help file all forms required by the IRS, and take the complex and turn them into the understandable for you. We will also stand by your side should the IRS have questions.

Working with an experienced CPA can save you money and turn your headache into a smile. To learn more, contact Klein Hall CPAs.

What Sales Tax Means for Your Ecommerce Business

Every company in the U.S. needs to worry about taxes at one point or another, whether that time comes throughout the year as you calculate withholdings for your employees or when your business return comes due. However, as an ecommerce company, there may be a few more details you should know about to make it through tax time unscathed.

One of the major benefits of an ecommerce business lies in its flexibility: you can sell anything to anyone at any time. While this sounds like a benefit, and in most cases it is, crossing state lines can open up challenges in the form of sales tax. Here’s what you need to know to ace tax time in your ecommerce business.

Sales Taxes: The Basics

What Sales Tax Means for Your Ecommerce Business Sales tax refers to the percentage of tax imposed on the sale of ordinary goods and services. 45 states and the District of Columbia impose sales taxes on most purchases, adding to the sticker value of a particular item. Functioning as a pass-through tax, merchants are required to collect funds for these amounts to be paid to the proper authorities on a set basis (usually monthly, quarterly, or annually). The rules on sales taxes vary greatly from one location to another, with some states charging tax on shipping and others, even in tax-free states, adding on a local tax amount.

In general, sales taxes should be collected anywhere you occupy a tax nexus. While definitions will vary, this generally refers to any location in which you have a headquarters, inventory warehouse, employee residence, or manufacturing plant. So, if your headquarters is in Illinois but you manufacture in Louisiana, both of these locations are thus considered a tax nexus.

Note that some localities are origin-based while others are destination-based. This means that some areas require a tax rate imposed at the point of origin (ex: your office location) while others take a destination-based approach (ex: the buyer’s location).

Playing By the Sales Tax Rules

In order to play by the rules and collect taxes legally and lawfully, there are a few extra steps you need to take. First, all sellers must obtain a sales tax permit – taxes cannot be collected from buyers without one. This process is relatively straightforward; most states require a basic application that covers high-level information about your company and its functions.

Once you have your permit, you’re ready to start taxing your sales. It’s important to note that not all purchases will be subject to tax; instead, you’ll only need to collect on sales that relate to your tax nexus. So, if your company is headquartered in Illinois and all of your operations occur within, you will only need to charge sales taxes to purchases shipped to an Illinois address. Most ecommerce platforms have sales tax rates built in, allowing you to levy appropriate amounts from customers automatically with every transaction.

Sales tax can be a little confusing, especially if you’re new to the wide world of running your own business. If you want to ensure you’re handling tax collection by the book, Klein Hall CPAs is happy to help. Get in touch with us today!

Achieving Financial Independence

Financial independence is a goal for millions of Americans. While some simply save arbitrarily for the future, others focus on stocking away enough to live freely without working for the remainder of life, no matter how long that may be. Financial independence is often intertwined with early retirement and generally requires consistent effort and lifestyle changes in order to adequately prepare.

Bridging the gap between the rat race and true financial freedom can be easier said than done. Here’s what you need to know about achieve financial independence.

 

Set a Goal

The first step to achieving financial independence requires defining what financial independence means for you. Different people have varying preferences, and what will sustain one person’s lifestyle won’t necessarily sustain another’s. In general, the benchmark goal for financial independence involves a minimum net worth of at least 25x annual expenses, although more is always better. Those seeking a retirement before age 40, for example, are encouraged to have in excess of 30x instead.

 

Live Frugally

The less you spend, the more you save. In order to save enough money to live without working, it’s important to put the bulk of your current income into savings. While many Americans live paycheck to paycheck or spend as needed without strictly tracking income, those pursuing financial independence budget rigidly and forgo virtually all luxury items. This means cutting things like cable packages, dinners out, expensive travel, new clothing, new cars, and other unnecessary items in favor of cooking at home, watching public TV, and commuting by bus.

Plan an Investment Strategy

While there’s always a risk in the market, most financial independence strategies assume strong potential growth in savings. Why invest your income into a low yield savings account when the market can do some of the work for you? With average annual inflation-adjusted returns of 7% over time, there are plenty of advantage in investing wisely.

Those seeking financial independence take early and aggressive steps to save, maxing out 401k and IRA contributions and investing in a standard brokerage account. Following the market isn’t for everyone, so a financial advisor may be a beneficial resource in the planning stages.

Purchase Income Generating Assets

Many assets, like cars and electronics, depreciate over time, leaving you with little to show for your investment. When pursuing financial independence, however, your goal should be to focus on assets that do the opposite. Stocks, for example, are likely to appreciate in value over time. Real property is also considered a strong investment, especially when passive income can be generated through use as a rental property. Robust real estate holdings are often highly desired by those seeking financial independence, adding an extra layer of diversity to a portfolio.

If financial independence is a goal for you and your family, the support you need is just a phone call away. From planning to investing, the Klein Hall CPAs team can help you create a strategy that’s right for you. Contact us today to learn more!

The Expense Reporting Nightmare Eases

Many small businesses have one major priority: making money. While revenue tends to be the focus of operations, expenses are inevitable in the course of doing business and expense tracking is more important than you may realize.

The invoices sent from vendors are critically important to internal operations, and mismanaging expenses can mean mistakes, missed deadlines, and lower profits. When you want to master the art of expense reporting, here’s what you need to know.

The Current State of Expense Tracking

Expense tracking refers to the practices used by businesses to monitor and organize the everyday expenses that occur as a part of doing business. While larger, more established businesses often utilize finance software to manage this process, small to mid-size businesses are still resorting to the basics: Excel spreadsheets and paper invoices.

While fine in the early days of business, these practices can hamper growth, requiring manual inputs that demand an increasing amount of energy as expenses grow over time. Entries take longer, putting busy work in the hands of a finance manager rather than using their skills and knowledge to analyze and strategize.

Getting Expense Tracking Right

In the modern age of business, there’s no need to use pen and paper, or even Excel, to keep an eye on where your money is going. With automated options that can populate line items based on purchase data, it’s significantly simpler to track expenses, organize invoices, manage payments, and analyze trends. Instead of wasting time on data entry, finance team members can focus on the bigger picture, offering analysis that can be extremely valuable in making future decisions.

Automated expense tracking takes place in many forms, from small business platforms like QuickBooks to larger options like Oracle’s business intelligence tools. There are also many expense tracking tools and apps that integrate with accounting software programs and sync with mobile devices. While the implementation costs may exceed that of Excel, the opportunities available through a streamlined approach to expense management can do wonders for the trajectory of your operations.

A proper method of expense tracking offers numerous benefits to your business, providing an efficient and effective way to monitor and track costs. These advantages include:

  • Reduction in the workforce needed to catalog and organize expenses, lowering human capital costs
  • Simplified scaling, making it easier to manage increased invoices without additional resources
  • More accurate reporting
  • Better access to analytics for comparison and analysis purposes
  • Easier detection of problem areas and red flags
  • Greater policy enforcement

Getting a handle on expenses can be deceptively challenging, especially for new businesses still developing best practices. If Excel is all your company knows, it can be hard to fully shift direction and take on a completely new way to handle invoices and record transactions. When you need assistance finding the best possible way to move forward, Klein Hall CPAs is here to help. As a comprehensive resource for area businesses, we’re prepared to help you create an infrastructure that can support the growing demands of your company. Get in touch to learn more!

How Family Businesses Can Plan for the Future

In many ways, family-owned businesses operate in a separate sphere from the rest of the corporate world. With the emphasis on family ownership and a tight-knit leadership circle, it’s easy to assume succession planning is handled for you. However, the reality may not be quite as simple as you anticipate. Children, nieces, and nephews aren’t always interested in running the family company, spouses may want to get involved, and, as time progresses so does your vision for your company.

Despite the likelihood of these shifts, many family businesses don’t plan for these possibilities. In fact, a PwC Family Business survey in 2017 found that only 45% of family businesses have a strategy suitable for the digital age while even fewer – 23% – admitted the development of a thorough, robust succession plan. An additional 46% are reluctant to hand their businesses over to the next generation, while 30% plan to sell to an outside buyer.

When you want to preserve the legacy of your business, proper planning now can make a big difference down the road. With these tips, you’ll be ready for what the future has in store.

Focus on Goals

In a sound business strategy, it’s most important to prioritize the objectives you have in mind rather than the path you’re going to take to get there. As things change, the road you have chosen may not be as smooth as you envisioned, so sticking to one particular methodology may get you lost along the way. By taking a broader approach and brainstorming alternatives before getting started, it’s much more likely you’ll see success.

Ask for Input

As the adage goes, two heads are better than one. Instead of sticking stalwartly to your own ideas on the business, don’t be afraid to ask for help. From independent consultants to up-and-comers in your company, those around you likely have beneficial and varying ideas that can help you stay competitive in an ever-changing market.

Assign Responsibilities

As business objectives change and develop with time, it’s important to stay organized through it all. This means delegation, ensuring all members of your management team are involved and engaged with your plans for the future. While the executive team will ultimately make all strategic decisions, your managers need to be on board to keep the ship afloat, and no one steers well when left in the dark.

Prepare for Change

Few things in business go exactly as anticipated, from your performance versus budget to the attitudes of the market around you. Instead of assuming everything will stay the course, prepare for change with strategic plans targeted at a variety of situations. For example, you may not expect a key family member to quit, but keeping an alternative strategy waiting in the wings should this sort of situation arise can help you mitigate losses when circumstances throw a wrench in your plans.

Planning a strong path forward can raise issues for any business, but family businesses intent on keeping things related can face unique challenges. When you would like a business partner you can trust to help you move ahead with confidence, our team is prepared to help. Contact Klein Hall CPAs today to learn more about how we can help you prepare for the future.

Naperville Accounting

As a small business owner, you’re probably doing the heavy lifting yourself as your business begins to take off, but if you plan to grow and develop you likely won’t be on your own for long. As such, hiring decisions will soon come into play, opening the door for staffing choices designed to guide your business forward.

Naperville AccountingIf you have your sights set on the future, a few key professionals will be crucial to your success. An attorney can help you ensure your decisions are all on the up-and-up, while an HR and recruiting professional can make sure all employment, employee management, and hiring policies are aligned with the law. Most importantly, a qualified accountant can help you take your business from a start-up to a solid brand. Offering the financial knowledge you need to make wise business decisions, file taxes on time, track income and expenses, and manage cash inflows and outflows, the accountant you choose can have a lasting impact on what your business has in store.

The Role of an Accountant

Accountants have a significant role in business that goes far beyond tracking debits and credits. With the right accounting professional by your side, you can handle every aspect of your organization’s financials.

In a new start-up or small business focused on gaining momentum, accountants have a lot to offer. In many cases, their services can include:

  • Tax filing and planning, ensuring full compliance with tax law in addition to securing the largest possible savings
  • Handling day-to-day bookkeeping, including tracking transactions, generating invoices, and producing financial statements
  • Financial planning and analysis functions, including budgeting and forecasting
  • Tracking financial performance in search of red flags and efficiencies to improve
  • Payroll management, including direct deposit payments, payroll tax requirements, and adherence to local laws

The Benefits of Professional Assistance

For those without a business background, choosing the right accountant can seem like an uphill battle. After all, how can you know you’re making the right decision for the future of your operations?

Instead of going with your gut and hiring employees blindly, the power of a professional Naperville accounting firm can ensure you have access to all of the resources you need. Unlike a singular accountant, a CPA firm has access to an extensive breadth of resources, including tax accountants, payroll professionals, bookkeepers, business advisory services, and so much more. If you have questions, a team of area experts can help you find appropriate answers, keeping you focused on the assets you’ll need to continue to grow.

Without a competent, capable accountant by your side, you may miss some of the solutions necessary to get your business up and running. When you’re seeking a Naperville accounting firm to serve your Chicagoland organization, Klein Hall CPAs is proud to serve as your perfect fit. With decades of combined experience and practice in all areas of small business, we’ll provide assistance with everything from payroll implementation to filing your first Form 1120. Contact us today to learn more about what we can do for you!

 

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Why Your Startup Needs an Experienced Accountant

Why Your Startup Needs an Experienced AccountantThe early days of a startup are exhilarating and exhausting. The thrill of finally living your dream is intensely exciting, but the demands on your time will be immense, especially as you start to scale operations for long-term growth. Most entrepreneurs choose to go at it alone in these first vital days, believing that support staff is unnecessary until revenue can cover the expense of additional salaries. However, this can be a critical mistake.

In order to create a solid foundation for ongoing success, hiring an accountant is crucial. But not just any accountant – an accountant who knows the ins and outs of what it takes to operate a startup. Here’s why an experienced CPA can keep you on the right track.

You Will Be Very Busy

First-time entrepreneurs often underestimate the demands that come with a new business, especially before settling into a routine. Processing orders, handling fulfillment, answering inquiries, and more can take up countless hours each week, leaving little time left for the more mundane parts of operating a business, like tracking income and expenses. An accountant can provide the peace of mind you need, handling the behind the scenes work while you focus on moving forward.

Taxes Can Be a Challenge

Filing business taxes is often new territory for business owners, even for those with experience in personal taxes. The intricacies of a Schedule C, Form 1120 or 1120S, or Form 1065 can be exceedingly complex with plenty of room for error. If you want to make sure your returns are mistake-free while maximizing all possible deductions and savings, an accountant is an invaluable resource.

Investors Like Accountants

If you’re considering seeking outside funding for your business, whether from a business partner, an angel investor, or a private equity group, an accountant can give you a big leg up. Most investors see the presence of an accountant as a plus, indicating that you understand the value in properly maintained records and are capable of generating complete, accurate financial statements. Accountants can also help create reliable financial projections, helping investors to see a realistic picture of the future of your company.

Growth Is Easier

Can you afford to hire new staff members? Is there room in the budget for new equipment or a bigger office? Will an investment in higher performing software break your bottom line? Instead of guessing on the answer an accountant can help you understand exactly how your business is doing financially, including when it’s okay to take risks versus when you need to hold assets in reserve. Most entrepreneurs tend to go with their guts, but an accountant can ensure your instincts are on the right track.

If your startup needs a professional accountant to support the early days of your business, Klein Hall CPAs is here to help. As a full-service CPA firm with extensive experience in working with startups, our experts are happy to help you start your new business on the right foot. With assistance in everything from budgeting and financial projections to taxes, there’s nothing we can’t do to help your company succeed. Contact Klein Hall CPAs to learn more!

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Is an IRA Rollover Right for You?

If you’re like many people, you may have an old 401k or other defined-benefit retirement plan sitting with a former employer and you may be wondering whether an IRA rollover is right for you. While you’re likely to get a lot of opinions about what to do, it’s not always as clear-cut as it seems.

Should you rollover your plan?

If your balance is small, you may not have a choice. If you have less than $5,000 in your account, your former employer can force you to rollover the plan. If your balance is less than $1,000, the plan is allowed to send you a check, creating a taxable event. If either of these scenarios apply to you, you will want to proactively manage what happens to avoid triggering a taxable event and potentially an early withdrawal penalty.

If your balance is greater than $5,000, you have options. Here are some things to consider to help you make your decision.

Available Investment Options

IRA RolloverWith employer-based retirement plans, the available investment options are selected by the employer. While employers do have a fiduciary responsibility to ensure there is a proper mix of investment options available to allow diversification, you’re limited to choosing from the available selections. Rolling over your account would allow access to a wider choice of investment options.

Fees

Fees can eat into your investment returns. Even if you leave your account with your former employer, you will be subjected to fees for managing your account. Would the fees be less if you rolled over the account?

Rollover Balance

Does your balance limit your rollover options?

Many fee-based financial advisors require a certain investment level before they will work with you, such as $100,000. Some financial companies will not even allow an advisor to take a client whose account balance is less than $50,000. They require these accounts to be serviced by call-center employees only.

If you don’t already have an established relationship with an advisor, is your balance high enough to be able to work with a fee-based advisor, or will you have to pay an up-front commission or be subject to contingent deferred sales charges?

Should you consider not rolling over your plan

If your account has an outstanding loan balance, if you rollover your account, the outstanding loan balance will be declared income, and would be subject to taxes and potentially early withdrawal penalties.

There are other factors that also need to be considered, which is why it’s a good idea to review your options with a qualified tax professional before making any decisions. Let us help you with your decision. Contact us for more information.