How to prepare your business for 2021

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Dear Business Banter,

I made it through my first major holiday! But now what do I do? I’ve been in business for six months and I’m trying to construct some New Year’s resolutions for my business. Any advice? – Sarah

Dear Sarah,

Congratulations! That is a major milestone. Now to keep your success going so you can continue to celebrate for as many years as you would like to remain in business. Here are seven ways to help ensure that you keep your doors open in the future.

Have a business question for Erica? Drop her a line at the Ask Bankrate Experts page.

Know where you stand

The end of the year is the ideal time to assess your financial picture in detail. By creating a profit and loss (P&L) statement, you will have a clear understanding of your revenue (the total of your sales), expenses (all costs associated with conducting your business) and your net income (the amount of money that remains after subtracting the total of your expenses from your revenue).

To stay aware, you will want to create a P&L monthly, quarterly and annually. While you can create your own P&L spreadsheet, by far the easiest way is to invest in accounting software developed specifically for small-business owners, such as QuickBooks Online and FreshBooks.

Pinpoint what worked

Step back and look at not just everything you’ve spent and earned over these past six months, but the business decisions you have made—such as people you may have hired, the look of the website and your marketing strategy.

When you see all of these details laid out, you should be able to identify everything you like and what has been worth the money you spent. Make a note of all the decisions that are paying off and maintain them for now. Business is not static, so you’ll want to remain flexible.

Acknowledge the “failures”

This is crucial. Odds are you spent money on something—or perhaps many things—that were unsuccessful. That’s OK; it’s all part of the learning curve (that never stops). However, do not get emotionally attached to anything. This is business, not personal.

For example, if the publicist you hired to drum up social media attention didn’t result in the promised financial effect, reassess and consider parting ways. Pare down unnecessary expenses and try to operate as leanly as possible, without sacrificing the desired outcome.

Check your credit

This is the perfect time to pull your consumer credit reports and review your credit scores. You’ll want to make sure that everything you see is accurate and the numbers are high. As the country—and the rest of the world—is still immersed in the coronavirus pandemic, ensuring that your credit remains attractive will be crucial to protecting your upcoming financing opportunities.

If your business credit history is already established, check your business credit scores from Dun & Bradstreet, Experian or Equifax to see where you stand. Business credit scoring models input such information as your company’s ownership structure, liens, bankruptcies, company background, banking and credit history, so they are different from consumer credit scores (that only focus on your credit activity).

Be aware, though, that if you’re a sole proprietor, your personal and business credit health are intertwined—which means you need to keep both in a healthy place by paying all obligations on time and maintaining a low debt-to-credit limit ratio.

Plan for financing

If you don’t already have a business credit card, explore what is currently available. Credit cards are essential tools because their credit lines will give you the flexibility necessary to manage routine costs, as well as pay for the surprise expenses that inevitably arise.

Just about all of these accounts are equipped with generous rewards programs, too, so you can earn cash, points or miles as you charge, and many offer 0 percent APRs for a year or more. Read over many offers and apply for the card that you’re both eligible for and that matches your business needs.

On the other hand, you may want to spend especially large sums all at once on such things as research and development, heavy equipment or electronics. That’s where business loans come in. They’re excellent for the large costs you want to pay off over time (often three or five years) and in fixed installments.

Learn more: Business Loan Calculator

Be tax savvy

One downside of being a business owner is that you have to manage your taxes carefully, so you don’t over- or underpay. As you probably know by now, rather than just having the money deducted from your paycheck, you’ll have to estimate and plan ahead for quarterly taxes. There is some good news, though, if you use a credit card for business expenses and roll over the balance from month to month. You may get a break on your income taxes.

If you use the card for qualified business purchases only, the interest is tax deductible, which is all the more reason to get a business credit card and use it exclusively for your venture. (It also keeps those expenses nice and organized.)

Regarding the cash, points or miles you earn when purchasing items and services for the business, you don’t have to worry about having to pay taxes on their value, since the IRS considers credit card rewards as a rebate, not income.

Dare to dream

What is your vision for your business? Does it involve expansion into different locations or rolling out new products? If you haven’t allowed yourself the luxury of dreaming of what you really want, stop and do so.

If you’re like many business owners, you may be wrapped up in what you must do this week or month. Your mid- and long-term goals are vital, so think about what they are and write them down, with dates that you hope to achieve them.

Without question, 2020 has been a wild year, full of unique challenges that no one could have predicted. That you have not only started a business during this tumultuous time but weathered the storm is an achievement worthy of praise. Well done!