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Running a small business profitably requires prudence

Posted On : Jul-20-2009 | seen (1405) times | Article Word Count : 454 |

Businesses, big or small are run with a profit motive. Small businesses are prone to face difficulties because of their size, as they are mostly dependant upon the attitude, skills and decision making powers of an individual.
Businesses, big or small are run with a profit motive. Small businesses are prone to face difficulties because of their size, as they are mostly dependant upon the attitude, skills and decision making powers of an individual. We can define a small business as a company that, according to the US norms, does not employ more than 100 people; typically privately held partnerships or corporations.
To achieve profitability, the financial activities of the Small Business must be streamlined. Small business accounting should be entrusted to a competent person right from the start. A Certified Public Accountant well-versed with the bookkeeping methods best suited for Small Business is essential for running the business effectively and producing results. There are two types of Small Business Accounting– the Cash Basis Method and the Accrual Basis Method – and depending upon the nature of Small Business, the selection of either one can be adopted. For example most service businesses operate on the simple Cash Basis Method and most manufacturing businesses involving Inventory Control and Accounts Receivable use the Accrual Method.
Small business tax planning is a year-round exercise, with the object of eliminating or reducing the taxes. Broadly, Small Business tax planning has 6 goals – reducing the amount of taxable income; reducing the tax rate; controlling the time when the tax must be paid; claiming any available tax credits; controlling the effects of the Alternative Minimum Tax and avoiding the most common tax planning mistakes.
The tax planning strategies for Small Businesses are countless. They cannot be fixed into a particular frame and the owner’s prudence is the key to devise a strategy most suited for that particular Small Business. It is essential that the small business owner estimates his personal and business income for the next few years for tax planning purposes. Some tax planning strategies may save tax dollars at one income level, but will end up producing a larger tax bill at another level. The same holds true time-wise, a dollar of tax saved this year could create a two dollar tax bill next year. So it is necessary to plan the tax liability that may accrue over the next few years.
Tto achieve success with your tax planning strategy, the projection of sales revenue, income and cash flow are necessary to be as accurate as possible at all times.
As for Small Business Taxes, the Tax Law is complex. The tax code contains more than 14,000 pages. As such, only a professional consultant can guide you through the intricacies involved in preparing your Small Business Tax Return in order to minimize the tax burden at the end of the financial year.




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