Is Sole Proprietorship the best choice for start-up entrepreneurs and small business?

When launching a new business owners must decide which tax structure will best suit their venture today and in the future. There is no right answer for each type of business because each entrepreneur has unique goals and plans to achieve those goals. In this post we will examine the pros and cons of Sole Proprietorships to help you decide if it’s the right choice for your new venture.

The Pros of Sole Proprietorship

Sole Proprietorship is an unincorporated classification and by far the most popular for small business just getting off the ground. Organizing as a Sole Proprietor is simple and inexpensive.

• Income from your Sole Proprietorship is reported on your individual tax return form 1040 schedule C.
• Sole Proprietorship allows for the entrepreneur to start and stop business activities at any time.
• Choosing a Sole Proprietorship allows the entrepreneur to avoid the traditionally higher corporate tax rates, while still being able to report most business losses on their personal income tax return and possibly lowering their overall business and personal tax burden.
• Sole Proprietorship is advantageous for independent contractors, freelancers and those who experience periods of underemployment or unemployment.

The Cons of Sole Proprietorship

The main problem with Sole Proprietorship is that your personal assets are not protected. If in the course of doing business you are unable to pay any debts or liabilities with funds from the business, creditors can go after your home and or any other personal assets to settle the debt. 

• If your new venture involves producing heavily regulated consumer goods like food, medicine and toys or if you provide professional advice in your service, these are considered high-risk enterprises for Sole Proprietorship. In addition to the regulations these are highly litigious business arenas. Therefore, your business must have the financial resources to cover the many potential liabilities.
• It is also important to consider where you want to take your new venture. If you are planning on seeking outside investment, most venture capitalist will only deal with incorporated start-ups.

Beyond Sole Proprietorship there are several tax structures to examine when deciding on how to organize your business. Tom Bulger CPA can help you decide which model is best for your new or existing business. Contact Tom Bulger today. 

Do you operate a small business under the Sole Proprietor classification and wonder about protection of your assets? Share your questions and concerns below. Check back for our next post on the pros and cons of organizing as a Limited Liability Corporation (LLC).
 

Is getting a big tax refund the best use of your money?

The majority of American taxpayers get a refund. In fact The IRS estimates 75% of federal filings in 2013 will result in refunds. The average amount for 2012 was approximately $2,800. A nice little chunk of change for a vacation, which is what a quarter of the population does with its tax refunds.

What can you do with your money?

Getting that big check in the mail is a nice way to start the summer for sure, but there is a case to be made that keeping that money as long as you can makes financial sense. Interest rates being what they are, $2,800 won't offer much return in a standard savings account. However, history shows that Americans overpay regardless of interest rates being high or low. If you have credit card debt even at low interest rates it should be paid off as quickly as possible. Having that $2800 in your pocket translates to an extra $107 each two-week paycheck, and that can mean the difference between just paying minimum balances and making a real dent in that debt. In addition due to the cost of inflation the $107 you paid in taxes last January doesn't have the same buying power as the $107 you receive as a refund the following year. 

Why do we choose to overpay? 

In light of the clear financial benefits of paying the tax you actually owe each pay period and keeping that $107 for yourself, why do most Americans opt to overpay? One obvious answer is taxes are confusing, even scary, and figuring out how to pay the right amount so you owe nothing and are refunded nothing requires a lot of math. This is where a good tax preparer comes in. A qualified CPA can advise you on how to properly adjust your withholding to pay what you actually owe. 

But beyond the dollars and cents there is an emotional reward tied to refunds that Americans really like. According to The Wall Street Journal (WSJ) respondents to a study who knew they could accurately adjust their withholding to "zero out" their tax refund were hesitant to do so. For some reason emotionally we feel better giving Uncle Sam a free loan than Uncle Sam giving us a free loan.

Knowing you're overpaying and getting a refund takes the worry out of taxes and no one likes writing the government a big check. Furthermore, most people don't trust themselves to set aside money to pay their taxes. They would rather participate in a forced savings account in the form of overpaying through the year and getting it back in a lump sum. And not trusting ourselves is typically a smart move as only one-quarter of those surveyed who owed taxes had set any cash aside to cover their liability.

According to a WSJ interview with Donna Bobek Schmitt of the University of Central Florida, who's studied the overpay phenomenon "we enjoy getting a tax refund more than having the extra money in our paychecks because we are more likely to spend the refund on a vacation or a new TV, but more likely to use the extra money each week to pay bills." The former is fun the latter not so much and this helps to explain why we continually overpay. 

Avoid Tax Fraud

One additional reason to not be tempted by a refund is the uptick in tax fraud. Criminals claiming your refund before you can get to it. Eliminating a refund will eliminate the theft potential.

So we Americans traditionally overpay and we like it, it is comfortable if not practical. However, we are all capable of making smart changes and Tom Bulger can help. Whether its adjusting your withholding to keep your money now and owe nothing later or making sure you get the biggest return possible, the dedicated team at Tom Bulger, CPA is here for you and your business. 

Happy Employees Bring a Good Return on Investment

Small business owners are always looking for a good return on investment to help grow their business. Is a new POS system worth the cost? Should we increase our advertising budgets? What demographics are we missing in our social networking campaigns.

However, one of the most important assets in any business is human resources. Business owners often overlook the incredible ROI that can be achieved by creating a happy, healthy workplace.

According to a study by SHRM, the Society for Human Resource Management, when factoring in all costs like reduced productivity, recruiting, interviewing, hiring and training it costs an average of $3,500.00 to replace one $8.00 per hour employee.

Many business owners don't realize the high cost of employee turnover on their bottom line...

• Replacing an entry-level employee cost your business 30-50% of that employee's annual salary
• For mid-level employees its 150% of their salary
• High level or specialized worker replacement costs a whopping 400% of their salary

Some employee turnover is inevitable and even desirable to bring in fresh energy and new perspectives or replace under performing employees with more skilled and productive ones. But beyond the normal flow of unavoidable turnover there are many simple solutions to ensure a high rate of good employee retention.

Design a comprehensive employee training structure

Business owners can't expect employees to carry out the duties of their job with out proper training. In addition, ongoing education via seminars, webinars conferences and workshops increase the skills of your current employees instead of having to hire more talent. From the employee's perspective this demonstrates your commitment to them as a valued member of the team.

Know what your employees face on a daily basis

Small Business owners are busy and often away from their sales or production floor and have no idea of the challenges their employees have in day-to-day operations. Make yourself aware of all aspects of their job, in other words take a walk in their shoes. This practice will not only foment loyalty among staff but may alert you to issues that need your attention.

Recognize and reward even the routine and mundane

Everyone from the cleaning crew to your VP in charge needs to be recognized and rewarded for his or her good work. Employees are much more content when they can see the impact they have on the success of your business. No one wants to feel like their contributions are meaningless or unrecognized by their organization.

Provide incentives that matter

Perks are great, so long as your employees desire those perks. You may think offering a discount on merchandise is nice, but ultimately it benefits you as part of your employee's salary is going right back into your pocket. In addition to things like discounts try to offer incentives that are purely about rewarding them for their good work.

Be a good role model

Strong leadership is key to retaining your top performers and keeping them happy. When an employee goes above and beyond put them in a mentorship or supervisory role. In this capacity they help to create a culture of the behaviors you desire. They lead by example and have a positive effect on the entire workforce. Conversely, toxic or negative speech and attitudes from co-workers can send a top performer out the door. Take swift action to correct the undesired behavior before it creates a hostile work environment.

Think of your employees as valuable assets. Your investment in them will bring solid returns through increased productivity, and avoiding the high cost of turnover. Tom Bulger, CPA specializes in helping small business owners create leadership platforms that foster a strong happy workforce. Contact Tom for advice on how to successfully implement these practices into your small business.

Are you a small business owner or manager with high employee retention rates? What measures have you put in place to keep your staff happy? Share you comments below or post them on our Facebook page.