Popular Business Misconceptions Cost You Money! -Part 2

Faulty information costs you money! Which of these
popular business misconceptions do you believe?

Popular Misconception #5:
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"Since we're not seeking financing,
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we don't need a business plan."
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Do You REALLY Need a Business Plan?
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To obtain financing, many persons will prepare a business plan. Although
entrepreneurs will go to great lengths to get their loan or capital, these
same business persons will not bother to plan ahead very far or analyse
their business. Even if you required no additional money, preparing a
business plan can help you to succeed in your business.

Running a business without a plan is like going on a trip without a map,
sufficient gas, money, or even a destination. Just as you wouldn't go on
a vacation without some planning, no business can be successful without
it. Putting that plan in writing helps you to think out a strategy for
successfully operating and growing your business.

Where is your business today? Where will it be tomorrow? What is your
mission statement? What product lines are profitable? Which ones aren't?
What business do you think you are in? What business do your clients
think you are in? Should you be in a different business? Is your product
or service less attractive to your clients? How are competition, global
commerce, technological and social changes affecting your company? What
is your competitive strength? What are your weaknesses? Who are your
biggest competitors? What are their weaknesses and strengths? What is
your marketing strategy?

What are your projected income and expenses and cashflow for the next
year? How about the next five years? Do you have a capital budget? What
determines whether you buy an asset or not? Do you have an exit strategy?
How will you manage growth? Do you have a financial plan? Do you have an
operations plan? What definite sales and net profit targets have you set
for this year and the next five years? What factors could interfere with
the attaining of these goals? What contingency plans have you made to deal
with such problems?

The purpose of these questions is to get you thinking and planning.
If you fail to plan, you plan to fail. Although your accountant or
business advisor can help you prepare your business plan, only you can set
the appropriate goals and follow through on them. Yes, you definitely
need a business plan, not just for obtaining capital, but as a roadmap for
your business.

Popular Misconception #6:
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"I like bartering with clients
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because it saves paperwork and taxes."
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Are You Reporting Barter Transactions?
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Bartering is an excellent way of doing business. However, contrary to
popular belief, some barter transactions are taxable, both for income and
sales tax purposes.

Legally, you must maintain adequate financial records for your business.
Barter transactions made by your business must be reported to the
appropriate taxation authorities and taxes paid. However, transactions
between friends not engaging in business with each other may not be
taxable.

If you are an auto mechanic and I am an accountant and I swap accounting
services for your car repair services, the transaction in this case is
most likely taxable, even if we are friends. However, your accounting
fees should be deductible as a business expense and so should the business
portion of my car expenses. Note also that sales and similar taxes may
apply on this transaction.

On the other hand, if I trade accounting services for a vacation for my
family, I should really declare the value of such services as income. The
firm supplying the vacation would be able to deduct that value as
accounting fees. Any sales or similar taxes would have to be paid on
such transaction.

Many persons don't record such transactions. For some, it may be a
matter of wanting to believe that you don't need to be bothered with the
extra paperwork or taxes. Remember, though, that ignorance of the law is
no excuse. Legally, you must keep proper records and pay all taxes due.

Popular Misconception #7:
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"All My Workers Are Self-Employed, So I Don't Need
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To Bother With Payroll Or Workers' Compensation."
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Do You Need To Pay Payroll Taxes?
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To save on payroll taxes and workers' compensation premiums, many
employers arrange their affairs in such a way that those working for them
are self-employed, independent contractors. This is good tax planning.

On the other hand, some employers take the position that all those working
for them are self-employed, whether they are or not. Although it is
tempting to eliminate payroll taxes and workers' compensation premiums,
care should be taken to do so legally.

Whether those working for you are employed or self-employed is a question
of fact (which can be determined by the Courts). Do you supply the tools
and vehicles? Do you determine the working hours? Do you have the right
to control how the job will be done? Do you pay a flat-rate or
by-the-hour or a salary? Does your worker have other clients?

By asking several such questions, a pattern will emerge as to whether
your worker is employed or self-employed. If it turns out that your
worker fits all the criteria of an employee, don't say he's self-employed.
On audit, you would still be responsible for the payroll taxes (and
penalties and interest as well).

Even if your workers are considered independent contractors by the Income
Tax Department, it is still possible that they will be considered to be
"workers" for purposes of Workers' Compensation legislation. Thus, it is
the responsibility of the employer to determine whether such coverage is
necessary or not. Failure to obtain proper coverage could subject you to
substantial (and unnecessary) costs.

In review, calling someone self-employed, doesn't necessarily make them
self-employed. If you have a dog, call it a dog. Your position that your
dog is really a cat will not be successful. Likewise, make sure that your
position regarding your workers is legally correct.

Popular Misconception #8:
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"My Accountant Charges Too Much.
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I Can't Afford It Anymore."
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Is Your Accountant Worth His Fee?
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Many business persons view bookkeeping, accounting, and tax preparation as
necessary evils. In their view, accounting fees are an expense to be
reduced, deferred or even completely eliminated.

A good accountant, however, can give you benefits far in excess of the
fees charged. Well-designed accounting systems will enable you to extract
meaningful financial information for your business that will help you to
manage it properly, avoid business failure, and alert you to declining
sales, excessive expenses, tax opportunities, cashflow problems, and many
other vital concerns for your business.

Your accountant can save you lots of money with the advice you receive
on tax and other business matters. As well, a competent accountant can be
a valuable resource in discussing business problems and opportunities with
you.

Popular Misconception #9:
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"Nobody Makes Money On The Internet."
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Can You REALLY Profit From The Internet?
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Many people feel that the internet is all hype. Many others feel that it
is overrated. Still others are of the opinion that it may be good for
some types of business, but not theirs.

Typical comments heard include: "I've lost money on the internet...Major
corporations have lost millions...Do you personally know anyone who has
made money from the internet?"

However, if you check out the list of recent billionaires, a high
proportion of these are internet-related, and many of them under
forty years of age. As well as the very rich, you can find many cases of
more modest financial prosperity resulting from internet commerce.

It is true that many are losing money on the internet. It is also true
that many don't know what they're doing. However, with the proper
assistance, you, too, could profit from the net.