It goes without saying at this point that the entirety of 2020 was pretty rough on most of us. However, there was an unexpected surge in start-ups in the midst of the pandemic. This means more small business owners and more opportunities to make financial mistakes. If you are one of these new enterprises (or are planning to launch in 2021), keep reading for a few quick tricks to help you make the most out of your money.

Stay ahead of business

Your first task as a small business owner is to keep ahead of trends in the business and financial realms. HintonBurdick’s blog is a great place to start your knowledge base as it contains resources on everything from paycheck protection to how to understand your financial statements. You’ll also want to keep a close watch on your competitors so you know who’s selling what, to who, and for how much. This will help you better price your products and target the unmet needs of your shared market.

Form an LLC

If you’re just starting out, take the time to structure as an LLC now so that you won’t have to later on. An LLC offers a few tax advantages for small business owners, and the most important of these is personal asset protection. Restructuring as an LLC isn’t a complicated process, but it’s one that can cost you significantly if you use an attorney. To save cash, do your own research and use a formation service. You will want to ensure that you are following all of your local regulations. The Small Business Administration lists sole proprietorship, partnership, corporation, and cooperative as other options. However, an LLC is perhaps the most flexible and lets you take advantage of both corporate and partnership structures.

Cut unnecessary expenses

Unnecessary expenses are one of the greatest threats to small businesses. It is very easy to throw money down the drain when profits are high. Before you outsource tasks, invest in technology, or attend a tradeshow, evaluate your profit and loss potential. One example here would be hiring a virtual assistant, which can set you back up to $75 per hour. Although a VA is a great way to save money if you need someone part-time, it’s an expense you can avoid if you have current employees with little to do. In this example, you could pull one of your $15 per hour employees to do the same tasks as a dedicated assistant. Similarly, you can save money by switching to a free cloud service instead of paying for document storage each month.

Understand What’s Ordinary and Necessary

When it comes time to pay taxes, you may be tempted to write off everything. Unfortunately, the IRS has other plans. As a startup, you will have ordinary and necessary expenses (O & NE) that may be written off, either immediately or spread out over years. These include things like employee compensation, rental expenses, federal and foreign taxes, and insurance. You may also deduct marketing, business equipment, and travel expenses. Keep in mind, however, that the latter must be business-related, and there are limitations. FOr example, you cannot deduct the cost of transporting your family when your business travel will also serve as a pleasure trip.

Hire From Within

If you already have a great team and you want to add to it, it makes financial sense to promote from within. You’ll save on advertising costs, and may be able to insert existing talent into a higher role for less than the expected salary of a new employee. The one caveat here is that you will need to backfill the open position or redistribute their former responsibilities between other existing staff members.

There are many ways to save money as a small business owner. Those listed above are just a few, but they can keep you from making a major money mistake. If you have additional questions, contact your financial advisor or tax professional for guidance.

HintonBurdick CPAs & Advisors has been helping clients navigate the financial world for the last four decades. Contact us today for payroll or bookkeeping services or audit assistance.