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18 Sep / Accounting and Tax Planning Saves A Business

The Story

green hosuesA husband and wife who own a small business came in for a consultation. They felt they were unprofitable and were considering closing their doors. The husband and wife owned the company jointly and relied on it for their sole source of income. The company employed ten full time staff including themselves. Their business is primarily service based although about 10% of their annual sales is derived from resale. The company’s annual revenue was right at one million. They are taxed as a sole proprietorship.

The Problems

After a long discussion which included many inquiries of the business owners, we made note of the following facts:

1. The business did not have any debt of its own.

2. The owners used the business as a bank; taking money whenever they needed it.

3. There was not a set schedule for the owners to take a fixed distribution of profits.

4. The bookkeeping records were 5 months behind.

5. While they had a budget in place for the business they were not holding themselves to it.

6. The owners did not have a personal budget.

7. The owners had $20,000 in personal debt.

8. The sole proprietorship no longer made sense for their business.

The Resolution

Dental Practice AccountingDuring the consultation it was clear that there just was not enough “good” information available to determine whether or not the business should shut its doors. It was instead decided to address many of the problems and implement a plan that would provide structure while providing information on which to make “good” decisions.

The company’s tax designation was changed, and would go forward being taxed as a S Corporation. This allowed the owners to begin taking a fixed weekly salary. The owners were asked to put together a household budget. The budget helped determine what the salaries would be. The business bookkeeping was brought up to date and kept current. Business budgets were formed as well. Monthly meetings took place to compare the actual results to the budgets. The budgets were adjusted as the information became more reliable.

After some cutbacks the business owners finally came to a personal budget that did not completely change their lifestyle. They came to the conclusion that growth in the business would be necessary in order to pay down their $20,000 in old debt. After four months of implementing a plan, owners concluded that the growth needed to pay back their debt within a five year period was attainable. The owners have kept their doors open and today have a very strong and thriving business.

Tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used for the purpose of (I) avoiding tax related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

Jeffrey Schultz is a Certified Public Accountant. He has ran his own firm since 2004. He writes on his taxes are hard blog. Mr. Schultz can be reached at 496 W. Ann Arbor Trail, Ste 205, Plymouth, Michigan. His Email is jschultz@schultz-cpa.com and telephone is 734-354-2380. The firm’s website is http://www.schultz-cpa.com

Article Source: http://EzineArticles.com/?expert=Jeffrey_W_Schultz Accounting and Tax Planning Saves a Business

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By Jschultz in Accounting, Tax, Tax-Preparation
The Story A husband and wife who own a small business came in for a consultation. They felt they were unprofitable and were considering closing their doors. The husband and wife owned the company jointly and relied on it for their sole source of income....
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