Get a free quote

Can you pay an unexpected bill and still meet expenses?
YOU MIGHT BE PREPARED FOR THE monthly mortgage payment or Uncle Sam’s April 15 tax deadline, but businesses tend to gobble up cash at other, inconvenient moments (for instance, the quarterly estimated tax payment date of January 15). While a specific expense might come as a surprise, you shouldn’t be caught so short that you can’t repair equipment or pay your assistants. In other words, you should expect (to pay for) the unexpected.
Financial Input “The need for individual cash reserves is three to six months” says Dan Candura, a certified financial planner with American Express Financial Services in Braintree, Mass. “For business you need more–six months’ minimum is better. Everything isn’t normal all the time, and in times of trouble, cash is important.
“Businesses need to establish a line of credit before the need arises” Candura continues, “so it’s there for downturns. If you wait until after the need arises, it’s difficult because of time frames–for example, no time to choose between lenders or get past quarterly information together. To eliminate surprises, small businesses need quarterly reviews to determine where they’re going and [to] spot trends in their cash flow.
One place to look for a line of credit is a business financing Web site such as LiveCapital (livecapital.com), which offers comparison shopping for secure term loans, equipment leases, and other resources from some five dozen financial institutions. “Many small-business owners d6n’t start to build business credit [early enough]; they’re under the radar,” says LiveCapital vice president Anthony Ruebner–who adds that, while each lender has its own definition of small business, there are “a tremendous number of [loans] transacted below $100,000.”
Planning Advice The U.S. Small – Business Administration (www.sba.gov) provides ample assistance to help Americans run their businesses. Invaluable help is available from the Service Corps of Retired Executives (www.score.org), whose more than 12,400 volunteers provide free one-on-one counseling.
The SCORE advisors we contacted cite two common reasons for a small company’s failure to meet payroll or other obligations–the firm is not yet profitable and it fails to recognize, at an early stage, that a shortfall of funds is likely.
In addition to enough cash on hand to cover a minimum of two months’ operation, it’s best to set aside a reserve for unplanned expenses such as equipment breakdowns. Careful records–including annual cash flow statements that delineate cash on hand, expenses, and income–and a detailed business plan can help you avoid digging yourself into a high-interest hole with credit cards or other borrowing.
Legal Matters According to attorney Bob Pinzur of Pinzur & Hartstein Ltd. in Long Grove, III., the majority of homebased businesses prefer to structure employment agreements with independent contractors, so “there’s no sense in having a [formal] payroll. That type of business should set up as a limited liability; company or a corporation.”
Pinzur, who conducts seminars on payroll-related topics, strongly favors sheltering the entrepreneur from liability. While employees in some states may be terminated for any reason, other states use different guidelines. It’s advisable to talk with an attorney before hiring your first employee.
“Though this varies by state, employers should retain records for up to one year after employment is terminated. Don’t hire anyone for an indefinite term. It’s not a good idea from the employer’s perspective to sign a contract,” says Pinzur.
If a home-based employer can’t meet payroll, the first recourse is to try to schedule an acceptable payment plan with the employee. If you’re sued for payment for work performed, seek legal assistance right away. Though state laws vary, small-claims court recoveries for wage claims may range from $500 to $2,500, and employers may be held responsible for workers’ legal fees.
By contrast, independent contractors pay their own social security, Medicare, and taxes. All you need to do, assuming you pay them more than $600 annually, is issue a Form 1099 and file payment information with the Internal Revenue Service. Pinzur says to be certain that an independent contractor is an American citizen, then make sure you meet other IRS guidelines. If you dictate the work-place, work product, and effort, the IRS might perceive your arrangement as an employer/employee relationship.
Written by Barbara Axelson.
Source: lumiverse.com

Comments are closed.