We all know that 2020 was a rough year for a lot of people. Small businesses were hit especially hard by the effects of the COVID-19 pandemic. Even companies that were doing well at the beginning of the year found themselves having to adjust their business models. But, some business owners made mistakes that made 2020 harder than it needed to be. We all make mistakes, but the important thing is to learn from them. While there may not be another pandemic soon (knock on wood!) there will always be surprises. Morningstar.com’s contributor, CPA Carter Cofield, has a list of mistakes business owners made, and how we can learn from them. These are the three we think will help you out the most:
- Not Keeping Good Business Records – “Last year, when the Small Business Administration announced its loans and grants, thousands, if not millions, of business owners missed opportunities to get funding. Why? Because they didn’t have adequate bookkeeping records to show they qualified for funding.
Recordkeeping is a pain point for most small business owners. When you’re spending so much time running your business, the critical administrative tasks can get overlooked. But don’t let recordkeeping cost you money.
Stay organized and create record-keeping systems that help you file your taxes on time. Then you’ll always be ready if an emergency pops up and you need to apply for available funding for your business quickly.” VersaTel Solutions bookkeepers and virtual administrative assistants can help you with your organization tasks. It’s time-consuming, and outsourcing bookkeeping and record-keeping can free you up for more important jobs.
- Not Having Cash Reserves – “Business credit is a hot commodity, but cash is still king.
In 2020, businesses without enough cash on hand for unexpected expenses or their bills when revenue was down were forced to cut back costs and furlough employees. Or worse, they had to close their doors. Unfortunately for them, when the revenue was low or nonexistent, the business bills kept rolling in as usual.
Everyone needs cash reserves for when life happens, even your business. Open a savings account for your business and save in this account often.”
Cofield recommends keeping at least 5 times your monthly business expenses in your business savings account. If yours is a new business, it will probably take you a while to hit the 5 times goal, but start now and keep saving.
- Not Saving Enough Money For Tax Bills – CPA Cofield says, “I help my clients deduct as many expenses as possible to maximize their business income and minimize their taxes. However, that doesn’t mean you can avoid taxes altogether.
One of the first things I require my clients to do is open separate business savings account for taxes. Unfortunately, many small businesses don’t do this and fail to save for their tax bills. This causes year-round anxiety and massive stress when the tax bill arrives.
I recommend that business owners set aside about 25% of all earnings for taxes throughout the year.”
Cofield has one final recommendation, “Don’t let the fear of this pandemic stop you from building your business. Learn from these lessons, and surround yourself with a strong team that can do the tasks you don’t like to do, don’t want to do, or don’t have the skillset for.” That’s where we come in. VersaTel Solutions is ready, willing, and able to be a part of your team. Reach out to us to find out how we can help you bounce back from 2020.