Which Little Pig Are You?

When the stock market fell in 2008 and panic ruled the land, Dave Ramsey wondered what was wrong with him that he just wasn’t afraid. “I was not vulnerable to the mess that seemed to be looming,” he says. “I was like the little pig who built his house of brick, not hay or sticks.”

In his new bestselling book EntreLeadership, Ramsey assures home-based and other small business opportunity start-up entrepreneurs that they too can enjoy an equal measure of confidence by following some key “bulletproof” principles for finding financial peace.

“Start-up home-based businesses often forget to do even the most basic and primitive proper accounting,” Ramsey warns. Because these smaller ventures often get their start out of your garage or slowly take over your living room, it’s all too easy for you to mix your business funds with your personal funds. Where you end up as a result is “effectively embezzling from yourself,” according to Ramsey. This haphazard approach to small business accounting signals the death knell for all too many well-intentioned entrepreneurial endeavors.

To ensure you don’t fall prey to this problem, Ramsey recommends taking a number of critical yet simple steps:

1. First and foremost, you need to open a completely separate checking account for your business, which is not hard. In fact, you don’t even need to incorporate or obtain a tax ID number before doing so, he says. Rather, all you need to do is “open a simple sole proprietorship account in the DBA (doing business as) form using your Social Security number.” Then you can manage the account using a simple checkbook similar to the one you would use for a personal checking account.

2. You must get in the habit of depositing every single penny you make from your business endeavors into this account.

3. Never pay your business expenses with anything other than the funds in this account.

4. Understand that your checkbook is now a simple P&L statement and that your checkbook balance at any given time is your profit, plain and simple.

In addition to keeping a completely separate business checking account, home-based and other small business owners must get real when it comes to paying their taxes. As Ramsey states so clearly, like them or not (and most people don’t), “If you don’t keep up with your taxes, that alone will close you down.” Ramsey’s advice? “Open a ‘tax’ savings account that you deposit money in every time you write yourself a check (from your business account),” he says. Setting aside roughly 25% of everything you make so you can pay your quarterly estimated taxes as required by the IRS is just plain smart. It’s a means of withholding taxes from your own profits before the money somehow disappears and you’ve destroyed yourself before you even know it.

Ever the realist, Ramsey asserts that true entrepreneurs oftentimes aren’t detail-oriented and therefore dislike accounting, so they either do a very sloppy job or avoid it altogether―especially in the earliest stages of business when doing things correctly is most critical. Messy or non-existent just isn’t an option if you want to be successful in business. As Ramsey so ably sums it up, “Those who do not follow commonsense, conservative money principles leave themselves and their businesses vulnerable to the whims of their competitors, every little ripple in the market, and certainly, to big shifts in the economy.”

So what will it be? Hay, sticks or bricks? It’s entirely up to you.

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