The 10 Most Common Money Mistakes For Businesses

There are only 2 ways to be profitable in business - create more sales or reduce expenses. The latter is easier because you're in control of what you have to pay for, but creating sales can be tougher. What if you could create profit and reduce expenses at the same time? You can! Often, a business owner is unaware of potential savings in different areas of their business because they are busy running the business. How can a physician be an expert at merchant services or tax shelters? Below are the 10 most common money mistakes that business owners make.



1. Corporate Structure - Sole Proprietor, Partnership, C Corp, S Corp, LLC, Pa are various ways to structure your business. Which one are you and why? These entities are not taxed the same. One might provide a benefit over the other. If your business isn't structured properly, how would you know? For example, sole proprietors are taxed first and spend last and Sub S Corps spend first and are taxed on what's left.



2. Banking - This one is the most pervasive. In my 15 years in business, I see many business owners take what they can get and settle for low interest and credit terms that they don't love. How you run your money can make a big difference in the fees, interest (charged and received), and credit terms that can add thousands back to the bottom line each year. Does your bank have a sweep option on your business checking? Never heard of a sweep account? Most larger banks have a sweep option which enables your cash in checking to be "swept" into a money market account (which pays higher interest than checking) overnight and then is swept back into checking when a check is presented to be paid. Additionally, interest charged on lines of credit is reduced if the sweep option is set up correctly to pay the line down overnight. Let's look at an example:



A business carries an average balance of $100,000 in checking and has a line of credit of $300,000. The business has an outstanding balance on their line of $75,000. A sweep option would pay the line of credit down to zero overnight saving the business interest charges each time money in checking was swept.



Be prepared for your bank to tell you that a sweep option wouldn't make sense for you because they are losing interest on your line and they have to pay higher interest on your checking.



3. Merchant Services - Do you take credit or debit cards? If so, then chances are that you are over paying for the merchant service. About 10 years ago, there were merchant services salespeople everywhere. The reason is that there were huge profits in swipes. Prices and charges have been drastically reduced, but the fat still remains. How would you know if you have the right fees and charges? There are basically two credit card processors in America, but there are thousands of companies that provide merchant services. The key is to find a service provider with the least middle men to one of the two main providers.



4. Employee Benefits - If you provide employee benefits, this may be your biggest profit stealer. I hear business owners constantly whine about benefits. If structured properly, providing benefits can actually add profit back to the bottom line. Your business should have a Section 125 (cafeteria plan) in place so that your employees can pay for their insurance (health, life, etc) on a pre tax basis. How will a Section 125 put money back into your pocket? Your company will save 7.65% on the FICA match otherwise known as payroll taxes. Any dollar that the employee spends on benefits will avoid taxation and you keep the FICA match. Secondly, a 401(k) can accomplish the same savings. Dollars deferred into a 401(k) are done so on a pre-tax basis thereby saving you more payroll taxes.



5. Purchasing - How do you buy stuff? How you buy can be as important as how you bank. Do you buy materials to make something? Wouldn't it be nice to have the money from the sale of your widget before you had to pay for the materials. This is known as float. A business can float (not pay) generally for 30 to 60 days. For instance, if you own a manufacturing business, the raw materials can be charged on your corporate card and not paid for 30 days. Additionally, points can be earned on purchases. If your business spends $20,000 or up buying "stuff", that is a pile of points possibly reducing other areas of cost (travel, office supplies, etc.).



Unfortunately, many business owners don't know what they don't know or like Will Rogers said - "It's not what you don't know that's the problem, it's what you know that ain't so". If you would like the other 5 key money mistakes, please send me an email request. I will send you remaining 5 which are equally as powerful as these.

Go to james.w.mewborn@ampf.com