We are all in a heartfelt business. I am very passionate about “Growing Better Humans Every Day,” but the key to that statement is the last word; business. We are running a business. For most of us, myself included, we came up the ranks from teaching before running our center with little to no business experience. Not only that, but we find ourselves getting pulled back into the school operations and put the business/finances on the back burner. We must remember that the business is what allows us to make the difference in these tiny humans’ lives and without it running well we cannot provide the quality care for which we strive.
So, I would like to share with you seven simple practices to help you keep your businesses on track to better serve our families:
1. Regularly review finances
Every center has a natural ebb and flow, a rhythmical pattern of income and expenses. Sometimes it’s due to the seasonality of summer programs verses fall programs. Sometimes due to staff turnover or annual raises. In any case, monthly financial reviews are an exercise in understanding the frequency and scale of your business operations and the extent to which your business may be growing or at risk due to families who pay late.
2. Maintain a budget
A budget is simply an expectation for business results and a means of tracking your financial health. At the basic level, make a budget on the first day of the month to estimate how much income you’ll receive that month and how much you’ll pay out in expenses. Then review the budget compared to actual results at the end of the month. Rinse and repeat. Over time you will become better at budgeting. And because of budgeting, you’ll make more informed decisions and identify potential problems before they occur.
3. Save an appropriate amount for taxes
Money you set aside for taxes isn’t really your money, it belongs to the government. That’s why it’s best to set it aside immediately and not get it confused with your remaining business income. For federal taxes, the safe harbor rule is your friend. Set aside at least 90 percent of your prior year’s taxes, and you’ll be penalty-free. A common practice is that 30 cents of every dollar you earn from your clients is owed to the government.
4. Proactively reduce debt
Sometimes debt is good. You take on debt in the short-term to enable longer-term health and growth for your business. However, unnecessary debt is a drain on your business. And more importantly, once you have business debt, it’s important to make consistent payments, and proactively reduce the principal amount.
5. Pay yourself a salary from business earnings
You don’t have to send yourself a regular bi-monthly paycheck. Instead, you can pull money out of your business account at regular intervals to set aside your personal income. When you pay yourself it forces you to think about your business and your personal income separately. And I always recommend talking with your CPA about what the “right amount” is.
6. Establish an optimal business structure for liability and taxes
Common business structures are sole proprietorships, partnerships and corporations. Each structure has different legal and tax requirements. While more self-employed professionals are choosing to incorporate, a corporation might not be the best structure for your business. If you’re not sure which structure is best for your business, you may want to seek professional advice because of the expense involved in changing and maintaining a business structure.
7. Maximize tax write-offs and deductions
Take advantage of every tax benefit available to your business. If you’re not doign this best practice you are doing a disservice to your business. Write-offs and deductions reduce your taxable income and therefore reduce the amount you pay the government. I know from talking to many center owners that tax planning can feel like “gaming the system,” but it’s important to remember that it’s perfectly legal and adopted by all large businesses. If you’re new to the game, you may want to seek out a tax professional as an investment in the future of your business.
I hope that you found these tips helpful and that you remember that in order to serve our families we must serve our business too.
“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.” — Steve Jobs