How to Financially Bulletproof Your Service-Based Business
“I'm bulletproof nothing to lose
Fire away, fire away”
You want your small business to be financially bulletproof. And not because you have nothing to lose because you actually have everything to lose.
8 out of 10, yes that’s 80%, of small businesses fail in the first 18 months.
A HUGE driver of that failure?
They run out of cash.
Yikes.
To avoid that fate here are some key ways to make your service business financially bulletproof.
Pay your taxes
We’re starting with this one simply because the IRS is powerful.
They can take your home or business if you fail to pay your taxes.
If you are operating as a sole proprietor or a single owner LLC use Form 1040 ES to calculate your estimated quarterly tax payments and make the estimated payments.
Seriously, this is super important.
If you do nothing else on this list, do this. (but please, do everything on this list).
Make sure you’re saving money from every sale to be able to make this estimated payment and make the payments on time. Penalties and interest add up quickly.
You can get the latest version of the form from the IRS website.
If you operate a business other than a sole proprietorship or single-owner LLC talk with your tax preparer about how to make tax payments during the year.
Keep your books up to date
How can you manage your business finances if you don’t even know what they are?
Keep your business’s financial records up to date and it’ll be easier to see where the money is draining from your business, where your spending has increased, to prepare your financial statements, and file your taxes.
It’s also easier to see where spending on things like advertising has positively impacted your bottom line.
Keep your books up to date to keep a pulse on how your business is doing in real time.
Have an emergency fund
If businesses fail because they run out of cash, then part of the solution is to have a stockpile of cash.
An emergency fund protects you from being wiped out due to a few unexpected expenses.
Start by looking at your monthly expenses and build up an emergency fund that can keep your business running for a while if all your income suddenly dried up.
The amount is up to you, your business type, and your personal risk tolerance.
Insurance
Depending on the service you provide for your clients you should consider protecting your business with some type of insurance.
Be it a general liability or a professional liability policy (also known as errors and omission insurance) have something to cover you in the case of a mistake, problem, or a client who just doesn’t know how to act right.
Talk to an insurance professional to make sure you get the right coverage.
Business structure
Last, but not least, make sure your business is set up correctly.
Consider forming an LLC or some type of corporate structure if your industry is litigious (that means people like to sue each other).
Someone offering complex financial services is more likely to be sued that someone selling hair bows.
These structures have tax implications as well so be sure to work with a lawyer and tax professional to ensure you select the best structure for your unique business.
Making your business financially bulletproof doesn’t have to be complicated or expensive.
Taking these few steps will set you up to win financially and help you to be part of the 20% of small businesses that make it.
Which step are you going to start with?
Comment below and tell us how you’re going to bulletproof your service business this year.
