Questions: I have recently retired from the corporate world and was planning to start a small business. Hopefully, the income from the business can help supplement my current income from retirement. What are the things that I need to watch out for when managing a business? – Russell K by email
Answers: Starting up a business can be challenging especially if you are coming from a corporate environment and do not have enough entrepreneurial experience. While you may eventually learn the nuts and bolts of managing a business along the way, there will be mistakes that may prove too costly for you to pay.
Here are some mistakes business owners commonly make that you can avoid at all costs:
1. Failure to properly register your business
Let us start with incorporating the business. You may be so excited with the idea of owning your business and you got your business registered with the SEC right away without carefully planning the scope of your business and timing of your operations.
You may have restricted your registration to offering services only when you intend to go into retail also in the future. When that happens, you will have to amend the scope of your business, which may possibly take days to be corrected resulting in possible loss of revenue opportunities.
You may only want to register the company first but no plans yet of operating it in the immediate future. By law, following the registration of your company with the Securities and Exchange Commission (SEC), you have to pay certain taxes to the Bureau of Internal Revenue (BIR). Failure to pay on deadline will earn you penalties.
Setting up a business is more than just paper work registration. You have to understand the process and plan it properly. It is common nowadays to simply hire an agent to do the incorporation for you so you can focus on other more important matters in your business. This is great, but you still have to know the rules and regulations so you can plan your business set up well and execute smoothly.
2. Failure to comply with BIR requirements
If you have recently incorporated your business and registered it with the BIR, you are mandated to submit various returns to the BIR even if you are not yet operating. For example, you are required to file value added tax (VAT) returns monthly even if you do not have any sales to report. You are also required to file withholding tax on compensation monthly even if you do not have employees yet in your business.
Again, failure to file will earn you penalty monthly for each type of return. In this case, if you miss to file both VAT and withholding tax because you assume that you are not obliged to report anything since you have not started operating your business, your penalties will be for both returns.
These penalties will accumulate monthly for as long as you have not settled with the BIR. You can choose to ignore this for a while but sooner or later, when you need to close down your business or sell to investors, you will still end up paying these outstanding liabilities because you will be required to settle this before you can be issued tax clearance.
This is one of the most common headaches among startup businesses. It may be easy to put up and register any business but may not be that fast to close down if you missed to comply with regulations.
Very often, many business owners simply outsource this function to an agent who does all the filing to the BIR. This may sound so convenient but be careful not to hire the wrong agent. Make sure that your agent will faithfully comply with all the requirements on your behalf. You do not want to find out one day that your agent did not do the job well and you end up paying all the penalties just the same.
3. Failure to do proper accounting
Most entrepreneurs are sales-driven. There is nothing wrong in spending a lot of efforts in marketing and promoting the business for after all, the reason why you are in business is to generate sales so you can make it profitable and earn some good income. The problem is because you are so passionate in selling your services, you tend to neglect doing the bookkeeping part of the business.
Many businesses when they are starting, they do not invest so much in their accounting department. Accounting is more than doing profit and loss on spreadsheet. It is a process that involves documentation, controls, and generation of complete financial statements that help you manage your finances.
Oftentimes, when the business is just starting, little attention is given to setting up proper accounting system because you want to save money until such time when the business has grown so much, you start to realize you need to have strong accounting team because you begin to have problems with cash flows, unpaid payables, bad debts, and other financial related concerns.
Start your business right with proper accounting set up. In this way, you will be guided with making the right financial decisions as you grow your business.