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6 Critical Money Mistakes IT Consultants May Be Making

6 Critical Money Mistakes IT Consultants May Be Making

Monday, February 5, 2018/Categories: business-tips

Though you may live, sleep, and breathe tech, balancing your business's budget may not be your forte. Find out if you're making these six common money mistakes and learn how to get your finances in order once and for all.

1. You didn't fully consider your business structure. "When you start a business, it is important you select an entity structure that offers liability protection and provides relevant tax benefits," says Thomas Walsh, a certified financial planner with . "A sole proprietorship is the simplest to create. However, it leaves the business owner personally exposed to any liability claims against the company." 

Walsh recommends solo business owners consider forming an LLC instead. "A limited liability company is very flexible, provides liability protection, and allows profits and losses to flow directly through to the owner's tax return, without being taxed at the entity level."

2. You set your prices too low. "One of the biggest mistakes small business owners make is undervaluing themselves," says Amy Flores, owner of virtual accounting firm . "They price themselves way too low. Study the market, and don't be afraid to be competitive but fair with your pricing."

3. You haven’t created a budget. "Most business owners have not drawn up any kind of budget or cash flow report," says Adrienne Zimbro, owner of . "This means they do not have a true representation of their baseline monthly operating expenses. Budgets can tremendously help business owners analyze their profitability and expense trends. A bare-bones budget can also help save for a business emergency fund and for taxes."

Read "How to Manage Cash Flow as an IT Consultant" for more tips on setting budgets.

4. You spent too much in the early years. "It's important to remember that you should stay as lean as possible during your startup phase," says Nate Masterson, director of finance for natural-beauty products company . "This means avoiding the minor costs that add up over time, like investing in an office water cooler, coffeemaker, or business lunches. Money like this would be better spent on a business or financial expert to help give you ideas and strategies that could aid the growth of your business."

5. You neglect your credit. "A mistake business owners make is they fail to build and monitor business credit," says Gerri Detweiler, education director for , which helps business owners build and monitor strong business credit, and matches them to financing. 

According to Nav's American Dream Gap Report, 45 percent of business owners don't even know they have a business credit score. Detweiler says that business owners who are aware of their score are 41 percent more likely to get approved for a business loan. 

6. You wrote off everything your first year in business. "If you started a new business in 2017, you may think you can deduct everything that went into getting the business of the ground," says Priya Mishra, a managing attorney at , a back tax resolution firm. "However, only $5,000 can be deducted. The rest depreciates over the next 15 years of the business. Many people rent offices, buy computers, hire lawyers, and more, thinking it can be written off – but startup expenses are treated differently by the IRS."

In the first year of your business, the IRS allows you to deduct $5,000 in startup costs and $5,000 in organizational costs if your total startup costs are $50,000 or less. If your total startup costs are higher, the amount of your allowable deduction will be reduced by that dollar amount. For more tax tips, check out "Get Your IT Business Ready for Tax Season.”

Another money mistake is not protecting your business with insurance. Fill out an application today to compare quotes from top-rated U.S. carriers.

About the Contributors

 

Gerri Detweiler is education director for Nav, which gives small business owners free personal and business credit scores and guidance, and helps match them to financing. Her articles have been widely syndicated, and she is the author or coauthor of five books, including Finance Your Own Business: Get on the Financing Fast Track.


Amy Flores, owner of Aspyn Accounting Services has been in the finance and accounting industry for more than 20 years. Using her love of all things spreadsheets and her passion for helping others, Amy started a virtual accounting firm to help small business owners with the day-to-day numbers game that can make or break a small operation.

 

Nate Masterson is the director of finance for Maple Holistics, an organic and natural-beauty products company headquartered in Farmingdale, New Jersey. In addition to overseeing the finances for Maple Holistics, Nate is also a freelance financial consultant working primarily with families to assist them with their financial needs.

 

Priya Mishra is a tax attorney at Top Tax Defenders, a company with a primary focus of representing clients before the Internal Revenue Service. Priya graduated from Houston Baptist University where she earned her Bachelor of Science degree in Biology and Business Administration. She then went on to attend law school at South Texas College of Law, where she earned her Juris Doctor.

 

Thomas Walsh joined Palisades Hudson Financial Group's Atlanta office in 2011 as a client service associate and became a portfolio and client service manager in 2015. He is a CERTIFIED FINANCIAL PLANNER™ certificant and serves clients through his involvement in all areas of the practice, including financial planning, asset management, and tax preparation.

 

Adrienne Zimbro received her bachelor's degree in accounting and has worked in both small business and corporate industries with companies that generate over $5 million in revenue before starting InLine Accounting. Her company offers virtual bookkeeping and financial strategy services with the goal of tackling cash flow in a modern, efficient, and straightforward way.

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