Business Tips

Tax Tips for Small Business Owners

A business needs to have good cash flow to be successful: it flows in and out of your accounts. In addition, a business needs money going out in expenses: so, out through sales or inventory, and into your bank account. So, in the best case scenario, you always have more money coming out than going out. That means you’ve got positive cash flow.

Positive Cash Flow

However, that positive cash flow can be affected by a variety of factors, some of which may be outside of your control. For example, staff levels at your company can affect your cash flow cycle. If you’re operating at a high staff rate, your profit margins will probably be higher, but your expenses will be lower. If you hire new staff members, you will have to pay for their training and benefits, which can put a strain on your cash flow cycle. It’s therefore important to balance your staff growth strategy with your budget to make sure you don’t run up debt.

Size of Your Business

The size of your business is another factor that can affect your cash flow – and this, in turn, can have a major impact on your profits. If you need to buy large amounts of equipment, your business cash flow suffers. However, if you’re just starting out, your needs for inventory are usually fairly small, so your profits will be modest, unless your sales volume increases significantly. This means that it’s possible to buy small batches of goods and have higher profit margins than you would if you’re buying larger quantities of goods with higher inventory costs.

In smaller batches, however, you do risk having larger items go out of stock quicker than they can be replaced. If you’re relying on a small number of large orders to keep your cash flow cycle on track, you could find that you exceed your inventory holding capacity. So a great way to make sure that your company is able to keep operating at levels close to breakeven is to make sure you only order in larger batches when you know you’ll have sufficient stock to fulfill all of your customers’ orders within a specific time period. That way you won’t find yourself constantly short of cash and running out of stock – and it will mean you can keep your cash flow cycle running smoothly, which can help you avoid financial problems.

Getting Paid

You might think that getting paid faster is an attractive proposition – but keep in mind that this isn’t always the case. Paying employees more money doesn’t always lead to an improved work environment or better relations between staff and management. Indeed, many studies show that companies that pay their employees higher salaries also have less staff-to-employee communication than companies who pay salaries lower. So while having a nice salary can be a great motivating factor, it may not necessarily lead to a better work culture or better relations between management and staff.

So what should you do? Instead, focus on increasing cash flow by using smaller batches, which have many advantages. For one thing, these are less expensive to produce. Smaller batches cost less per batch because there aren’t as many items being manufactured, so they are cheaper to produce. In a cash flow cycle where every dollar counts, every extra dollar counts, so paying employees more money to increase production is a waste of money.

Outsourcing Clerical Duties

Also, small business owners should consider outsourcing some (if not most) of their clerical duties to an outside company. Outsourcing has long been seen as a great way for a small business owner to increase production and profits. But did you know that by doing so, you could actually increase your business cash flow while cutting expenses on your bottom line? Many outsourcing experts say that businesses that outsource clerical and administrative tasks to another company often save up to 30% per year on payroll costs and this alone can be considered a savings in the short and long term. If you are thinking about filing taxes, now might be the perfect time to consider outsourcing as a part of your business plan.

Now that we’ve discussed the basics of tax planning, let’s talk about some quick tax tips for small business owners. One of the most important tax tips for small business owners is to start planning early. The IRS, which you can visit online, offers many useful resources for planning. You may also want to consult with a certified public accountant or tax consultant. These professional services offer expert advice on how best to structure your businesses’ tax return, so it is in your best interest to get professional advice when tax season comes around.