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Five Biggest Mistakes of New Business Owners

Mistakes of New Business Owners

 

A new business is typically an endeavor that comes with many challenges. Businesses are usually started by people, entrepreneurs, who have come across a great idea or provide an excellent service. This venture entails many working parts and has many risks/rewards. According to the Small Business Association (SBA) Office of Advocacy’s2018 Frequently Asked Questions, eighty percent of small business will survive the first year and about half will survive beyond five years. Only about one third of businesses will survive to celebrate their ten year mark.

Taking a mathematical look at this, these numbers are quite discouraging and one must think why this is the case. In our view, there are five key things that have a tendency to get overlooked by new business owners. Those new business owners that focus on these five areas will have a higher level of long term success for their companies.

  • Not having a plan comes in at number one and is the largest contributor to company failure. Would you ever think about driving cross country to a specific destination without a roadmap or Waze by your side? I think it would be extremely difficult to hop in the car and start driving West (we are located on the East coast) without any tools to guide your trip. Essentially, starting a business without a plan is the same thing. As Benjamin Franklin said, “By failing to prepare, you are preparing to fail.”
  • Having a great advisory team in place is paramount to the success of your business. Your advisory team should include a CPA, attorney, banker, insurance advisor and financial advisor. This would be the bare minimum I would start with on your team. As the business grows in size and success there will be a need to add additional professionals to the team. This core group will be sufficient to ensure you get off to the right start, have people in place to turn to for advice and rely on those that have been successful helping people and companies like yours.
  • You will want to have goals and metrics to benchmark your success against. These metrics may be very different from one company to the next and will change over time as well. The key is to have a direction in place to keep you on track while running the day-to-day of the business. You will want to make sure that you have SMART goals (Specific Measurable Attainable Relevant Time-Based). Using the SMART process will allow you to then break the goals down into bite size pieces to track your progress and success.
  • Being impatient in a new business can be deadly and comes in as one of our biggest mistakes. New business owners have a tendency to think and want things to happen much more quickly than they do, everything takes time. Our optimism and vision will typically allow us to envision the business moving forward far more quickly than it will in reality, and that is fine. Optimism is typically a common trait found embedded in the entrepreneur. This is a new business and it will take time and effort to get the word out there about your product or service. A new business owner will need to be patient and have the ability to wait for their success to arrive.
  • Keeping a cash safety net is key to the success of any business. There are always events that can take place while owning a business and they typically cost money. You will want to make sure that you have a sufficient emergency fund for these instances. Many new business owners find themselves with their back against the wall if a financial event takes place and they do not have a sufficient cash reserve. This may cause the owner to get a loan, borrow money from friends and family, utilize credit cards or even give away significant equity in their growing business for an insignificant amount of capital. Making sure that you have a cash reserve will be paramount to your success.

Beginning a new business is a rewarding experience and can be a life changing event. It is imperative to make sure that you are doing everything in your power to ensure your success. We have included what we believe are the top five mistakes of new business owners and this is by no means and exhaustive list. Having a handle on these items will put you in a position to be far more successful than if you had not addressed them. We encourage you to contact us if you are considering beginning a new business or are already in business, but have questions about where you may be overlooking important concerns. We would be more than happy to have a discussion to see if we can be of assistance and help you towards being one of the businesses that passes the ten year mark!

Feel free to contact us, Mitlin Financial, at (844) 4-MITLIN x12 if you or someone you know needs assistance in this area.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Mid-Year Financial Check

Mid Year Financial Check

 

Almost three quarters of the year is now behind us and before you know it the holidays and New Year will be here. I am not trying to rush things, but at the same time, we want to make sure that you are prepared for what the year will bring in terms of your tax situation. It is important to take a look at your financial situation for the year thus far and make sure you are positioned properly for your 2019 tax filing. You do not want to wait until the last week of 2019 or even April to learn of potential issues you may encounter.

It would be a great idea to reach out to your financial team to discuss any financial events so far this year that were out of the norm. The financial events that have taken place may, or may not, have an impact on your tax standing, but it is easier to review, guide, plan, and protect if they are discussed well before the end of the year. Once your team is aware, of what has happened, they can advise you on your options and propose the best course of action. You are much better off planning for this on October 15th than March 15th when some of your available planning options may no longer exist

As a firm, Mitlin Financial makes it a habit to ask our clients on a regular basis, at least two times a year, if there has been anything in their financial life that would warrant us to make any changes or adjustments to their plan. You would be amazed at some of the things we have been informed of at these meetings. Everything from, “I lost my job three months ago” to “I sold my house and we are moving across the country” have come out of this simple question. You would think these would be things they would be calling us right away to discuss and review the impact on their financial standing; but, unfortunately, life gets in the way sometimes. This simple question has allowed us to review, correct, and advise our clients to the best course of action knowing this new information.

Asking this simple question during our review meeting with clients has had a positive impact on our practice and our ability to help our clients. In many cases, it has allowed us to address potential issues that may have been unintended, but life just got in the way. This will also provide you with peace of mind knowing you have addressed the issues and will not need to wait until the last minute to come up with a solution. This would also be a good time to review year-to-date capital gains and interest income from your portfolio to make sure it is in line with previous years. Should there be a significant discrepancy from the prior year, this is something that should be addressed so you are not surprised with a larger than normal tax bill. This will save you significant time when it comes to the end of the year because you will be able to have a good idea of your current standing and then plan accordingly.

The last thing I want to leave you with, as we enter the end of the year, is to be careful purchasing mutual funds in non-qualified accounts. This has been something that has really caused many clients, and their accounting professionals, a lot of grief. As mutual funds begin to announce capital gains distributions for the year-end it is important to know what the distribution is and when it will be taking place. We have seen clients purchase mutual funds in late October, November, and December and receive huge capital gains distributions, which are taxable because they purchased a fund just prior to the distribution. Imagine owning a fund for a couple of weeks and getting a $10,000 capital gains distribution. This is not a surprise that you want to have, so just be cognizant of any mutual fund purchases before the end of the year that you are making in a non-qualified account. It may be ideal for you to hold off on investing new funds or use an ETF until the distribution has been completed.

The importance of having a review with your financial team is to make sure that you both are on the same page and no surprises will come at tax time. The year-end is crazy enough for most, you might as well make things as easy and problem-free as you can. It goes back to the old adage, an ounce of prevention is worth a pound of cure. 

I would highly suggest that you hold a mid-year check-in with your financial team. This could save you hours of grief towards the end of the year or at tax time next year. Be sure to contact us, Mitlin Financial, at (844) 4-MITLIN x12 to schedule a time if you are not having these reviews with your current financial team. Be sure to share this article with friends, family and business acquaintances who might be experiencing this too. We look forward to helping you, and them, get on the right path and stay there.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Tax Planning Is a Year Round Concern

 Tax Planning Is A Year Round Concern

 

Income tax planning is something you need to be aware of year-round and should continuously evaluate.  Although your tax returns are not due until April 15th each year, without extensions, it is important to make sure you are aware of your tax situation all year.  Decisions made over the course of the year that have a financial impact could hinder or improve your tax liability and a little extra work during the year can save you hours of review and alleviate your tax burden too.

When it comes to taxes, it is important to have the right financial team in place. You need to have your wealth management firm, CPA and other advisors on the same page working in your best interest. While you are in the process of, or shortly after, filing your most recent tax return there are several things you can review to make sure you are making the most tax efficient use of your investable assets.

One of the easiest ways for you to alleviate your income tax burden would be to take advantage of investment accounts that can provide a tax deduction. It is easy to see from your previous year’s W-2 how much you took advantage of your company’s retirement plan, be sure to read2019 IRS Limits Affecting Qualified Plans and IRA’s for specific limits. It may make sense for you to consider increasing your contributions in order to lower your income tax liability and concurrently help you increase your retirement savings. Should your company not have a 401(k) or company retirement plan be sure to explore the possibility of using an IRA in a similar manner.

Utilizing different types of retirement savings vehicles would make sense too. It is important for you to understand that all of the money that is being saved on a tax-deferred basis towards retirement will be taxable in the future when you withdraw it. It may make sense for you to utilize a Roth 401(k) option, if available, or a Roth IRA which would enable access to funds in retirement that would not be taxable. By taking advantage of both forms of savings, it will allow you flexibility down the road to have more control over your income taxes.

In addition to retirement accounts, it is also important to have investment accounts that will allow you access to your money at any time without penalty, unlike most of the retirement accounts mentioned thus far. Investment accounts can generate different forms of taxable income, such as dividend income, short term capital gains and long-term capital gains, and you should have a basic understanding of what they are and how they work. Simple things like holding investments for at least 12 months and one day will turn a short term capital gain into a long one, which can mean a significant tax savings. Have you ever sold an investment only a few days prior to the one-year mark only to pay short term capital gains instead of long term, when there was no imminent need to sell? Mutual Funds should be reviewed carefully as they can produce taxable income and capital gains. It is especially important to know when mutual funds will be distributing their capital gains. We have seen clients purchase funds in early November, only to receive a significant capital gain distribution after only owning it for a few weeks. In these cases, it may make sense to wait to make the purchase or purchase an equivalent investment that has no distribution scheduled.

You will also want to make sure that you have the right investments in the right accounts. It would be ideal for you to place investments that would have the highest tax implications in your tax deferred accounts. Simply placing the highest income producing investments or those you plan to hold short term in the most ideal accounts could save you quite a bit in taxes. When making investments, it is best to place them in the type of account that will help your tax situation based upon their propensity to produce taxable income.

Lastly, you should be reviewing your accounts on an annual basis, around November, to see if there are any opportunities to harvest tax losses. As the end of the year approaches it is important to see if there are ways to mitigate your income tax liability for the year. We know most people do not necessarily like taking losses, but many times it will make sense to take the loss and reduce your tax liability. Should you feel really convicted about the holding, you can always double up the position thirty plus days before the end of the year and on day thirty one sell the initial lot for the loss. This will provide you the opportunity to capture the loss and still own the position, while participating in the upside potential of the holding.

This type of planning is how we assist our clients regularly. In many cases we will coordinate with their CPA to make sure everyone is on the same page and the portfolio changes will indeed be of help to the client. Having an open dialogue between your financial team is important to make sure everything is being done to put you in the best position possible.

Please feel free to contact us, Mitlin Financial, at (844) 4-MITLIN x12 if you or someone you know has encountered tax issues with regards to their investments or simply does not feel their CPA and advisor are on the same page. We look forward to helping you, and them, make the decision that is best for all.

 

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

What you should know about Investment Accounts, Capital Gains, Income

 What you should know about Investment Accounts Capital Gains and Income

Investing is a complicated topic that many do not fully understand and they rely on their advisors to assist them through the process of investing and becoming retirement ready. Taxes are an area that cause significant confusion and the fact that they have a tendency to change over time adds to the confusion.

Taxes on investment accounts can come in several forms and we will discuss some of the most common types along with strategies to help you over time. We touched on this topic in a recent article,Tax Planning Is A Year Round Concern, and we will expand on it here.

Income from investments can come in several forms, such as dividends and interest. The best type of income, especially for high net worth clients, is tax free income. This income will not be taxed, assuming it is tax free on both the Federal and State level. There are investments that will pay tax free income that will only be federally tax free and it is important to be aware of this, especially if you live in a State that has a high income tax bracket. The majority of interest and dividends will be taxed as ordinary income, unless they are a qualified dividend. This will typically be your highest taxed form of income generated from your investments. In these cases, unless you are in need of this income to live on or are in low tax bracket, it would make the most sense to try and place these types of assets in a qualified account. This would allow you to own the asset and not pay taxes on the income.

Capital gains are another consideration when it comes to taxes on investments. These types of gains are broken down into short term, less than twelve months, and long term, longer that twelve months. Depending on your income, the taxes owed could vary widely. The higher the tax bracket you are in, the larger the difference. Short term capital gains are taxed as ordinary income and will be taxed at your normal tax bracket. However, if you hold the asset for twelve months and a day the capital gain becomes long term providing a maximum tax of twenty percent (depending on your income tax bracket) on the Federal return, plus the State tax owed. This could amount to a significant difference in tax and you will want to make sure you are holding assets, if you can, for the long term in order to maximize your tax position. In the instance that you are looking to purchase an investment with the intention of only holding it on a short term basis, we would recommend placing this asset in a Qualified account and avoid the capital gain altogether.

We know that clients do not like to take losses, but sometimes it makes sense for you to bite the bullet. We recommend that you, along with your advisor, review your portfolio each November to evaluate gains and losses for the year. Long term and short term gains and losses will net out each year and you can develop a picture of what your capital gains will be for the year. Based upon the review, it may make a lot of sense to sell an asset at a loss and negate some of your overall capital gain. At times, we have seen clients that understand they need to do this in order to mitigate their tax liability, but at the same time are still confident the asset will work out long term. In these cases, you can double up the position thirty plus days before the end of the year and on day thirty one, in order to avoid a wash sale, sell the initial lot for the loss. This will provide you with the opportunity to capture the loss and still own the position, while participating in the upside potential of the holding.

Planning like this is an important aspect of working with the right advisory team. This type of review should take place with you, your wealth advisor and your CPA annually to make sure things are being done in your best interest. It is key to have your CPA and wealth management firm on the same page with a good working relationship. This is why we always look to build relationships with our clients’ tax advisors. Please feel free to contact us, Mitlin Financial, at (844) 4-MITLIN x12 if you or someone you know has encountered tax issues with regards to their investments, has questions about how taxes like these will affect them or simply does not feel their CPA and advisor are on the same page. We look forward to helping you, and them, make the decision that is best for all. 

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.