So you think you know how to make money. But do you know how to prevent your company from losing money? Here's expert advice to protect your company's assets.

By Jerry Silberman

When you’re an employee, you can always look for another job. But when you’re a business owner, your fate is tied to your business, and you can’t walk away so easily. You’ve probably signed dozens of contracts with banks, vendors, landlords, and finance companies just to open your door. Some of these contracts may hold you personally liable if you default. As the former owner of a collection agency, I didn’t believe that all debtors were “deadbeats.” To me, a deadbeat is a person that can afford to pay but won’t pay unless they are forced to. In reality, most debtors are actually the opposite; they can’t afford to pay but would if they could. So I developed a way for smaller honorable business owners to satisfy their creditors based on what they could afford rather than on what their creditors were demanding.

Since then, I’ve had the privilege of helping thousands of businesses recover from almost impossible odds. Yet there is still much work to be done. Over half a million businesses closed their doors in 2005 according to the Small Business Administration. Most new businesses won’t make it past five years. Business failure has reached epidemic proportions.

As a business owner, you probably wear many hats: salesperson, accountant, cleanup crew, customer service, marketing, human resources, etc. If you stretch yourself too thin, you’re bound to miss important details. If you spend too long pitching your product or services, you probably don’t have a lot of time to keep track of your finances. You might use credit cards to buy inventory thinking you can pay it off the next month. When next month comes around, if you don’t have the money to pay the full balance, you‘re forced to pay interest, which effects the true cost of your purchase. An item bought wholesale with a credit card could cost a lot more than you thought it would.

While there are many ways for businesses to make money, there are just as many ways to lose money. I can’t promise you that your business will be invincible if you follow these tips. I can say that this will put in place some protections that many business owners ignore until it’s too late.

1. Monitor Cash Flow
Cash flow is not the same as profit. Your business may be profitable, yet you may face a serious cash-flow problem. Cash flow is the cycle of cash going in and out of your company. You should be able to know at all times how much cash you have on hand and what the business needs to operate.

One helpful tool is “MyBizHomePage” a computer desktop tool that extracts your financial information from your computer and puts it on your screen to see in real time. You can get it for free at BizHomePage.biz.

Another invaluable business resource that costs nothing is SCORE (ScoreCounseling.org). SCORE provides free business counseling and advice as a public service to all types of businesses, in all stages of development. Its counselors can help you improve your budgeting and financial management skills. SCORE is a resource partner of the U.S. Small Business Administration.

Slow-paying customers can be a big part of a cash-flow problem. Collecting from them can eat up time and efforts that could better be spent making sales and growing your business. If you can’t collect what you’re owed, you may want to use a collection agency. NCO, America’s largest, can help with just about every type of collection problem you may encounter. (NCOGroup.com)

2. Turn to Experts
It is a good idea to develop long-term relationships with experts you can turn to when issues arise and you need help. Include in your contact list at least one of each of the following experts: an attorney; an accountant; a banker or finance broker; an insurance agent or broker; an IT (computer) consultant.

Try to develop an association with each of these professionals, even if you do not have any immediate or pressing need for their services now. This will enable you to call upon them when problems arise and you need prompt assistance.

Your Attorney
For most small businesses, legal advice and assistance is not needed regularly. Rather, you use an attorney for specific issues that you may face in the life of your business—from start-up to your exit strategy.
It’s a good idea to use an attorney for all of the following: to set up your company’s legal framework; to protect your intellectual property; to review your leases and contracts; to represent you in the event of a lawsuit; to structure the sale of the business.

Your Accountant
The IRS says that 80 percent of small businesses use outside accountants. There is a good reason for using this type of expert. The tax laws—federal, state, and local—are constantly changing. The business tax rules you learned this year may not be applicable the coming year. You need someone knowledgeable in the latest rules to help you take advantage of every opportunity in the tax law to save money. You also need an accountant to make sure you do not overlook any tax responsibilities. An accountant can also audit your books.

You can also save money by having an outside company review your past returns for free to see if you are owed a refund. One such company that does that is Taxback (www.TaxBack.com).

Your Banker or Finance Broker
Lack of sufficient capital is the number-one reason why businesses fail. That’s why you should create a banking relationship you can depend on when you need additional funds. Be sure to pick the right bank; it may not necessarily be the one with the lowest checking fees or longest banking hours. You want to find a bank that has the most liberal lending policies.

Ask your prospective banker how many small-business loans have been made in the past 12 months to discern the bank’s attitude toward small-business lending. You also want to establish a personal relationship so that the banker views you as a partner and won’t call your loan at the first sign of financial trouble.

It is often said that a bank will only loan you money when you don’t need it. A finance broker can show you types of financing that may be more suitable for smaller businesses, especially if you run into financial problems. Corporate Turnaround (BusinessFreshStart.com) specializes in finding financing for small businesses.

Your Insurance Agent
According to the National Federation of Independent Business (NFIB), being sued is one of the biggest fears of small-business owners. And there’s good reason for this fear: even fighting frivolous lawsuits that you ultimately win can cost thousands of dollars. The best defense against lawsuits is adequate insurance coverage so the insurance company must defend you if you are sued and will pay any damages that may result (up to the limits of the policy).

IT Consultant
If you’ve ever had your computer freeze or lost an important file, you know how frustrating a computer can be. An IT consultant is someone who has certification in various types of computer software. They should not be confused with your friend “the computer guy.” If you use a computer to store valuable information on your customers, track revenue or process transactions, an IT consultant is critical.

Imagine losing all your data or being unable to process a sale because the computer is down on a busy night. Even worse, imagine your computer being broken into through your internet connection. These common scenarios make it easier to see the value of their services.

3. Meet Your Tax Obligations
Whether your business is profitable or not, you may be liable for taxes. Whether this obligation is imposed on you or on the company depends on how the company is structured. You may owe taxes to the federal government as well as the state (or states) in which you do business. The rules on income taxes vary between the federal government and the states.

Your Obligation
As the owner of a business, you have a responsibility to see that the company files a tax return. A return is required whether the business makes or loses money. It must be filed each year, even if no tax is due.

State Income Taxes
In addition to federal income taxes, there may also be state income tax obligations. Your state tax obligations do not depend on where the business is set up, but rather on where you do business. For instance, if you incorporated in Ohio but operate solely in Illinois, you owe income taxes to Illinois. You may also owe a tax or fee to Ohio.

Keep Accurate Books and Records
You must be able to prove any positions you take on your tax returns. No matter how careful you are, there is always an audit risk. But having required receipts and other substantiation for deductions claimed on a return can minimize the effects if any examination should occur.

File on time
File your tax returns on time, including any extensions you may require. Late-filed returns may receive greater scrutiny from the taxing authority. Also by filing late, you may be subject to penalties and interest.

4. Use Legal Protections for Your Business

Business Structure
The way in which you set up your company can affect your personal exposure for business debts. For instance, if you are unable to pay your bills, are you personally liable? The answer depends on how you’ve structured your business from a legal standpoint.
If a business is a partnership or sole-proprietorship, the owners remain personally liable for their business debts. This means that creditors may be able to take your home, seize your business and personal bank accounts and other assets in order to satisfy their claims if you don’t pay them. In limited liability types of businesses, such as corporations, LLCs or LLPs, creditors can look only to business assets to satisfy their claims unless you sign a personal guarantee to pay the debt. A helpful resource to learn more about your options is The Company Corporation (www.CompanyCorporation.com).

Contracts and Agreements
In the old days, a handshake and a person’s word were enough for even the biggest transactions. In today’s commercial arena, we rely on written agreements. The purpose of having a contract is to set forth the terms and conditions of a deal clearly, concisely, and completely so that both parties know what’s expected. Basic information to be included in any contract is a description of the parties—legal names and addresses, a description of the goods or services to be provided, and the price and payment terms (e.g., on delivery).

A contract does not have to be written in complicated legalese or contain pages and pages of boilerplate clauses (although some of these clauses are helpful) to be an effective binding agreement.

5. Stay in Communication
Whether it’s the IRS, your vendors, or your bank, not responding to an inquiry or audit of any kind can lead to trouble for your business. You may not have the funds a vendor seeks, but if you don’t respond, they may escalate their collection activities. A bank may call in a loan. The IRS may seize assets. When you owe money and lack the means to pay it, staying in communication helps you buy time while you decide your best course of action.

Jerry Silberman is CEO and Founder of Corporate Turnaround. He has pioneered the debt restructuring industry for small businesses. In 1990, he started Interstate Department Services, a nationwide collection agency. He went on to found Commercial Credit Counseling Services, now Corporate Turn-around (www.BusinessFreshStart.com) in 1998. Some parts of this article are excerpted from “Small Business Survival Book,” Published by John Wiley & Sons, Inc., copyright 2006.