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Tax Bill for Small Biz Can Be a Shock
4/17/2003
Tax Bill for Small Biz Can Be a Shock
Source: Associated Press
Publication date: 2003-04-17
As they finished their tax returns, many small business owners had a nasty surprise when they saw how much they owed the government, or how much in profits they had missed out on during the course of 2002.
The culprit in both cases probably was an undisciplined approach to running a business, symptoms of which include haphazard bookkeeping, a failure to monitor cash flow and, in many cases, a lack of understanding of general business principles.
Accountants and small business advisers say owners can fix these problems if they get some help, and some education. If they don't, they risk losing money and ultimately, their companies.
Some advice for business owners with common post-tax season laments:
I was totally unprepared for the amount of tax I owed
Business owners who don't have a good idea of what their taxes will be really don't have a good sense of how their companies are doing overall. It means they're not keeping an eye on the nitty-gritty of their finances.
This is a problem many new business owners face. They're so focused on making customer contacts and developing new products or services that ledger books, cash flow and other financial minutiae can be neglected. What happens is they don't have a clue about what they might owe - or how they'll pay it.
The answer, according to certified public accountant Gregg Wind, is a little discipline and some help from a professional. He suggests that business owners meet quarterly with financial planners or accountants and put together tax projections for the year. Such meetings will also give a business owner a chance to assess the health of a company.
Wind, who has a practice in Marina Del Rey, Calif., also recommended setting up a "tax account." That is, a bank account in which money to pay taxes - federal, state, local, employment, property etc. - is segregated.
Some businesses are scrambling for cash because they haven't been on top of their receivables - either they're not invoicing customers, or they're not keeping after laggard payers.
"If people are thinking that a customer who hasn't paid them is somebody who's not going to impact them at tax time, that is going to be a mistake," said Ed Paulson, a small business owner and author of "The Complete Idiot's Guide to Starting Your Own Business."
That's the sort of problem that a CPA or planner will quickly spot during a quarterly meeting. A professional can help find a way to solve it.
My company's books are in disarray
This is a complaint that stems from not keeping an eye on the business. If your books are a mess, you can't possibly know what's really going on. Obviously, you need some organization.
Wind's advice is to keep the company's financial records on a PC, using small business management software, rather than in a set of ledger books.
"Doing a set of books by hand is very error-prone," he said.
He also suggested a system that forces you to write checks on the computer, which will ensure that you have accurate records of what the business spends - and what you'll be able to deduct at tax time.
Don't set it up yourself, was Paulson's recommendation. "Make sure you have a professional helping you set up your books so a bookkeeper or one of your staff can do it in a way that's accurate."
He was adamant about the need to keep organized business records.
"It's only going to get worse year to year," he said of business owners whose books are a shambles.
I feel like I really don't know how to run a business
People who start a business after working for someone else often find - and are reminded at tax time - that they have a lot to learn. There are many avenues available to those who need to quickly grasp the basics of running a company.
Wind suggested one-night courses offered by adult education organizations such as The Learning Annex, which operates in a number of big cities. High schools and colleges also offer such courses.
The Small Business Administration's Small Business Development Centers, found in nearly 1,000 locations around the country, offer low-cost courses and advice for small business owners. Check the SBA's Web site, www.sba.gov/sbdc, for locations.
SCORE, the organization of retired executives, also offers free advice in person, over the phone, or online. Its Web site is www.score.org.
The Associated Press News Service
Copyright 2003 by The Associated Press
All Rights Reserved
The information contained in the AP News report may not be published, broadcast or redistributed without the prior written authority of The Associated Press.
Publication date: 2003-04-17
© 2003, YellowBrix, Inc.
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