|April 2012 Topic:
Common sense isn’t so common; and stupid is very, very expensive.
Common sense would dictate that daily business decisions are always made with the financial health of the company in mind. Not so. Every day, I am face-to-face with CEO’s that have compiled reason after reason for maintaining expenses that do not, in fact, have much to do with the health of a company at all. Rather, these are obligations that they have emotionally bound themselves to that now drive their decisions—and the company ends up picking up the tab. Believe me, I see the following items occur everyday.
Be discerning. Don’t listen to every Tom, Dick and Harry that has something to say. Listen to your heart first. Listen to those people who have done what you’re trying to do. Learn from their success and failures. Experience teaches people understanding, patience and wisdom. If they haven’t been involved in your situation, stop listening. This only causes you more insanity. In the meantime, dive into Rettig’s April “Do’s and Don’ts” and get a grip!
DON’T borrow money until you know how to manage the money you have.
DO put a cash reporting system in place that will tell you what the business can afford.
Personal vs. Business Expenses:
DON’T use the company credit card to pay for all your dinners, outings, fuel, clothes, furniture or any other personal expenses. The price you will pay is more than just the charge plus interest. You are eliminating the cash flow a company needs to survive. This does not allow for a forecast budget or savings. This will ultimately drive your business into the ground. These expenses are not tax deductible unless you lie to your accountant. Believe me, the IRS Agent handling your audit will not be amused or easily deceived.
DO keep separate and accurate records of your personal and business expenses. Make certain that when you buy items for personal use and for your home that it is paid for through personal and already taxed income. Take advantage of those items that are tax deductible by keeping impeccable records. IRS audits drain your strength and resources.
DON’T keep relatives on the payroll if, clearly, they are not working for the company.
DO hire a family member only if their expertise is more beneficial than all other candidates you’ve interviewed. If you do hire a family member, be certain that the terms of employment are in writing.
Paying Your Spouse Through the Company:
DON’T pay your spouse a salary when he/she doesn’t work for the company. If you do employ a spouse, only pay the fair market rate. In any lawsuit or bankruptcy court, this would be considered fraud.
DO properly evaluate whether the company can afford to, or should grant you a raise, so that you don’t put the company in jeopardy.