09 Jul / Small Business Owner Problems
A small business owner can 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 them. Their business was primarily service based although about 10% of their annual sales is derived from resale. The companies annual revenue was right at one million. They are taxed as a sole proprietorship.
After a long decision which included many inquirers of the business owners we made note of the following facts:
• The business did not have any debt of its own.
• The owners used the business as a bank; taking money whenever they need it.
• The was not a set schedule for the owners to take a fixed distribution of profits.
• The bookkeeping records were 5 months behind.
• While they had a budget in place for the business they were not holding themselves to it.
• The owners did not have a personal budget.
• The owners had $20,000 in personal debt.
• The sole proprietorship no longer made sense for where they were in the evolution of their business.
During 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 of plan that would provide structure while providing information on which to make “good” decisions on.
The company’s tax designation was changed, and would go forward being taxed as a S Corporation. This allow 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 meeting 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. And 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 growth need to pay back their debt within a five year period was attainable. They 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.