When people are deciding whether they want to take the leap and become a small business owner, often they are more concerned with the personal pros and cons, and less the strategic financial and business concerns. Questions like, how will it affect my personal time? and do I have what it takes? are valid, but these questions are just a small part of the equation when it comes to making the decision about becoming a small business owner.
Before you make that decision, a consultation with a small business accountant like Kent Accounting can go a long way (and we offer these at no charge!). Consider it more of an educational session that will help you see and understand the full picture of owning your own business, both in the short-term and in the long-term. Here are some of the top benefits and challenges to consider when you are thinking about starting out on your own.
There are plenty of enticing reasons to become a small business owner – here are just a few.
Freedom to Work from Wherever You Want
Regardless of whether you obtain space for your business or decide to start from your home, as an entrepreneur you get to work where you want to. Coffee shops, your comfy chair – even the local pub can become your office. If you have a dedicated office space within your home, you can consider that square footage tax deductible, as well as some of your utilities and monthly bills. To best understand what qualifies as a deduction and what doesn’t, contact Kent Accounting.
Results and Gratification
The saying goes “Work Smarter, Not Harder.” Moreover, when you are a small business owner, the more you work, the higher your financial and personal return on investment will be. The success of your business is a direct result of the amount of energy and intellect you put into it. As an employee, success is more likely to be attributed to a team, and you might not directly benefit from your efforts. We have all experienced the fatigue of working in an underperforming team where we have equal share in the reward but end up completing the majority of the work ourselves.
Building A Company Is an Investment
When you build a successful small business, you also have the flexibility to sell your business after it has become profitable and well-established. The sale of your business can be a useful lump sum to help fund your retirement or a new venture you are passionate about. Building a successful small business starts from the beginning. Start with a strong financial plan developed with Kent Accounting.
When you’re employed by a large company, sometimes you feel like just a number. You spend hours working, and yet the majority of the rewards go to executives and/or shareholders. Working for yourself is infinitely more satisfying – the hours of hard work and relationship building pay off exponentially when, as a small business owner, you secure a new client or project. With each new partnership secured, you will feel a pride of ownership and increased confidence in your abilities and your decision. Whether it is bookkeeping or long-term financial strategies, Kent Accounting can help keep your job satisfaction high with stress-free financial planning.
While it may seem like owning your company is exciting and liberating (both financially and personally), there are some drawbacks that must be considered before taking the next step.
There are costs to starting a business that you will have to pay for before you even begin operating. Paying for the physical aspects of starting your business, like leasing space and buying inventory, supplies and computers, can be large investments. If you do not currently have enough capital saved to pay for these upfront expenses, there are avenues to borrow money to fund these startup costs. However, it is important to remember that these funds are borrowed – you do have to pay them back. Contact Kent Accounting to learn more about start-up funding opportunities and the realities of borrowing money to start your business.
Unsteady Pay Cheques
As a small business owner, you are the last person to get paid. Your suppliers, employees, and creditors all have to be paid before you are, so it is not always realistic to expect that your pay cheque will be reliable until you are well established. Even if you have a substantial project or client list, with a steady monthly net income, remember that in Alberta, your customers will often take 90 days to pay an invoice, so your cash flow can become an issue. It can take up to a year for small business owners to start seeing regular pay cheques, and sometimes longer for those pay cheques to be equal to those you might have been receiving as an employee. We recommend that you have at least 6 months living costs saved up in order to keep financial stressors manageable. Kent Accounting can help you build a monthly cash flow spreadsheet to ensure you are netting enough income to pay your bills.
If uncertainty is an emotion that you are not comfortable with, then starting your company might not be the best decision for you. How would you feel if your company lost $10,000 in a single month and you had to use your savings to cover it? It is normal for a company to have a bad month and lose that much, or more, periodically throughout its operations. As a small business owner, sometimes it can be challenging to see the forest through the trees and balance new client acquisition (i.e. activities that keep new money coming in) with running your business (i.e. activities that get you paid today). You aren’t alone in growing your business – Kent Accounting can help you build a financial strategy to keep the stress of uncertainty at bay.
Disclaimer: tax rules change frequently and can depend on your individual circumstances. The above is not to be relied upon as tax advice and is meant for information purposes only. Please consult a tax professional.