Two People You Need to Invest In When Starting A Business
As an entrepreneur, you have an endless to-do list. Typical items on that list may include investing money in new equipment, technology and/or office space.
One of the most commonly overlooked budget line items new entrepreneurs don’t factor in is hiring the right CPA and business attorney to help them establish and set up their businesses properly and develop an operations strategy.
New business owners don’t even think twice about spending thousands of dollars on marketing or new technology. Yet, they fail to invest in getting great, sound advice on how to correctly and efficiently operate their businesses, develop a plan on how to efficiently manage their bookkeeping, and pay themselves in a way that reduces their taxes and legal liability.
Regardless of what industry you are in, having a CPA and business attorney at your side is generally a smart initial business investment for many reasons.
They can help you decide on the right business entity to form.
A great attorney will coordinate and work in tandem with your CPA to determine the appropriate business tax entity to form and draft the right legal documents accordingly.
According to Ronica Brown, CPA and founder of The Ronica Brown Agency, “New business owners with no legal or tax background will form an LLC (Limited Liability Corporation) because it’s the easiest thing to do. But what people don’t realize is that it may not be the best entity for tax efficiency depending on what business they are in.”
At the end of the year, people may end up owing more taxes because they simply did not form the appropriate entity for their business and end up losing out on business deductions.
For example, if you register as a C-corp and you generate losses for that year, you can’t just remove those losses from your personal taxes. Furthermore, any money that you take out of the business is considered dividends paid to yourself and you end up paying taxes on your personal income for that. That’s what we coin as “double-taxation,” as Brown explains.
Meet with your business attorney and CPA at the same time so that everyone is on the same page. A good CPA is as knowledgeable in business entity formation as the business attorney.
They can save you time and money in the long run.
Hiring a great CPA before investing your funds in any other business expenses can save you money in the long run.
According to Brown, a lot of people don't have a realistic idea of what it’s actually going to cost to make money in their business. They go out and spend money on unnecessary equipment and services.
Moreover, Brown confesses that she spends most of her time correcting business owners’ taxes because they didn’t properly file or manage their books and record keeping correctly. Had they done it right the first time, they could save thousands of dollars in taxes.
The last person you want to be on bad terms with is the IRS, so you want to make sure you’re filing as the appropriate tax entity and do proper accounting of all your business expenses and revenue.
They can help you develop a strategy for your business and operate it in an efficient manner where you can optimize your tax savings from the get-go.
One of the biggest risks that new entrepreneurs face -- and most don’t even realize is a risk -- is not knowing how much it’s going to cost to operate and make money. It’s important to know how much it’s going to cost you to do business so you don’t waste money on unnecessary purchases and items. That’s why it’s important to consult with a CPA first before you invest anything else into your business.
Hiring a good CPA and attorney doesn’t have to be expensive.
It’s a common perception that hiring an attorney will cost thousands of dollars. There are alternatives to your hourly attorney and CPA out there who will be more than happy to advocate for you. Small business owners can spend under $1,000 with an attorney who has a virtual practice and charge a monthly subscription for their services. Because their overhead is lower, they are able to be more flexible with their clients when it comes to cost.
Kim Bennett, founder of K Bennett Law, LLC, developed a unique platform in which she can cater to new business owners and startups that are on a tight budget. She suggests that new business owners should “schedule a strategy session to help you think through what you're trying to accomplish because there’s no one right answer for everyone.” During her strategy sessions, she helps her clients thoroughly think through how to operate their business, fill out the proper paperwork and contracts that need to be drafted to reduce legal liability, and draft the next steps they need to take.
Moreover, Kim admits that lawyers don’t know everything, which is a hard thing for most lawyers to admit. But a great lawyer will do everything he or she can to solve the problem for you and connect you to other attorneys who can help. Be wary of the one-size-fits-all attorney.
The Bottom Line:
Invest in professional advice at the very beginning of your business to develop a plan of action so that you can spend your dollars wisely to grow your business. Plus, having a good CPA and business attorney as advocates can help you optimize your tax savings and reduce legal liability.
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