A recent survey of 1,700 small business owners in the United States yielded seven financial practices that were consistent among the most successful of these entrepreneurs. The folks who followed many of these routines reported higher levels of annual revenue and expressed higher levels of satisfaction with their decision to become small business owners. Here are the financial habits that were revealed in the survey:

1. Regularly review financial results

Every business has its ups and downs. Sometimes this is due to the seasonal nature of the business, or economic influences of the area. Consistent review of financial reports will help the business owner to understand these changes, and to assess if the changes are normal, or indicative of true growth (or decline) in the operation.

2. Work with a budget

Realize that a budget is an expectation of business results—a plan for the amount of revenue that will be generated, and the corresponding expenses. Regularly compare the actual financial results with the budget to identify areas for improvement; perhaps product or service pricing needs to be adjusted to cover all expenses and generate a profit for the owners.

3. Save the appropriate amount for taxes

The most common tax entity for small business is non-corporate. This covers sole proprietors, partners in partnerships, and members of limited liability companies. Experience shows that approximately 33% of profit will be required for Federal and state taxes. Setting aside this amount of money in a savings account specifically for taxes will help to remind the business owner that this amount of money belongs to the government, NOT to the owner. If the business has employees, a similar strategy could be used by depositing employee withholdings into a separate savings account so that employment tax obligations can be met in a timely manner.

4. Work to reduce debt

Debt is not a bad business option: small business owners take on debt to purchase equipment or invest in the growth of the business. Have a plan to repay the debt when it is incurred. Regular and consistent payments will reduce the debt obligation and strengthen the credit rating of the business.

5. Pay a “salary” to the owner

Withdrawing a regular amount from the business will help the owner to keep personal and business finances separate. Keep in mind that the amount withdrawn is not an expense to the business, merely a withdrawal of profits. Read item 3 again so that the taxes are set aside before the withdrawal.

6. Establish the best business structure for taxes and liability

Each form of business, from sole proprietor to partner to corporation, has its own benefits and limitations for tax and legal purposes. It is a good idea to ask for professional advice when organizing the business so that the best fit can be found.

7. Maximize tax benefits of the business

Keeping track of all expenses and deductions can seem like a lot of unnecessary work, but the realization of tax deductions and credits can reduce your tax bill. Consultation with a professional tax preparer can help the business owner understand how to take advantage of every deduction and tax benefit available.

Adopting these financial habits will help the business owner to be better informed, and increase the chances of success and happiness with this career path. It is important to seek out professional help when questions arise. Develop a good relationship with an attorney. Find software providers that can assist with the growth of the business. Contact us at Mierendorf and Co. for assistance with these and other decisions.