Running a Business: The Biggest Financial Factors Involved
Running a business can seem to be a difficult endeavor at first. Keeping track of the biggest financial factors involved in running a business can simplify affairs and facilitate the smooth management of the business. Here are a few of the most significant financial factors that impact a business’s health and success:
Expenses
Every business has operating expenses. Operating expenses include recurrent costs, such as rent, salaries, utilities, and procurement; one-time costs and establishment costs, such as purchasing office equipment. Tracking expenses gives business owners a chance to improve their small business money management skills and develop a more acute awareness of the timing of each expense. Consequently, the wise business owner will adjust his income to maintain profit margins during months with exceptionally high expenses. One method of expense-tracking is to separate ordinary expenses from tax-deductible expenses. Business owners who itemize every tax-deductible expense receive more money back on their tax returns. From a success standpoint, calculating your expenses can show you where your biggest liabilities are. Then you can make sourcing adjustments or reduce the workforce to reach a higher level of profitability.
Financing
Business owners must distinguish between collateralized and uncollateralized loans. Uncollateralized loans like those offered by LendingClub.com don’t have to be secured with fungible items. However, the tradeoff is typically higher interest. If a loan requires collateral, then the business owner must guarantee the loan with a valuable piece of property such as a vehicle or real estate. A common mistake made by many business owners is to put invaluable personal property as collateral for a business loan, such as the value of a primary residence. Collateral property should always be selected knowing that the possibility of loan default always exists. Other financing methods include crowdfunding, attracting investors, and forgoing a personal salary until the business achieves suitable profit margins.
Pricing
It’s crucial to start pricing from a position of strength. Researching competitor prices is valuable information for new business owners to prevent pricing themselves out of their consumer market or setting prices too low to achieve any reasonable profit margin. The savvy business owner is always conscientious, maintaining awareness of consumer confidence and buying patterns and the availability of the relevant products. When market availability is low, businesses can charge premium prices for scarce products. It’s also important to consider all relevant costs before pricing, such as storage costs, maintenance costs, and cleaning costs. Otherwise, business owners can incur losses even when selling significant quantities of inventory.
Taxes
Lastly, small business owners have to consider taxes. Business taxes and personal taxes are separate. As a business owner, you must designate some of your income towards your estimated tax payment. Your estimated tax payment is calculated according to either the entirety of your previous year’s income or 90% of your projected income for the following year. It’s easier to pay taxes based on 100% of the prior year’s income unless that year was an exceptional year and successive years will not be as successful. Federal taxes must be paid on a quarterly basis, and they can be paid either online or by sending a check in the mail. Businesses are obligated to pay state taxes as well, and state tax deadlines may differ from federal tax deadlines.