Some small business owners are resigned to the idea that tax season has to be stressful, while others know there are better ways to manage their taxes. Some business owners wait until March or April and are able to avoid tax penalties, while others are far less fortunate.
Despite misconceptions, there’s no reason you have to stress tax season or suffer tax penalties. With an advisor who provides all of the support you need and has the right qualities, you won’t struggle through these issues.
For one owner of a print and copy shop, his last tax surprise was the final straw – he was tired of receiving a hefty bill that he needed to pay each year. A smart businessperson, he wanted to have a better grasp on his tax and business needs to eliminate these kinds of surprises, and he needed to work out a plan with the IRS to pay his tax debt.
It was time to move on from the tax accountant he met with once a year. He found a local small business and tax advisor to work with him and help streamline his company.
Uncovering The True Cause Of His Tax Penalties
Like many small business owners, the man running this print shop had multiple tax penalties over the life of his business. After all, he hadn’t received the support he needed. Each year, tax season came and brought similar results: He owed taxes he couldn’t afford to pay.
While there were certainly issues with him not managing his tax needs throughout the year, his inability to pay his taxes also resulted from a lack of cash flow planning.
The owner once had a partner with decent finance and accounting knowledge who handled these kinds of responsibilities. But without this partner, he developed a cash flow problem and didn’t have a plan to pay for his taxes.
Upon reviewing his financials and meeting with the owner, his advisor learned that he had bought his partner out and was paying him each month. He also was paying an outside sales consultant to help him, despite a lack of results. The combination of these two problems had a huge impact on his cash flow.
Teaching The Owner Cash And Financial Fundamentals
Like many small business owners, this owner needed plenty of coaching to truly understand the financial flow of his company.
His new business advisor saw their relationship as an ongoing teaching opportunity. First and foremost, they reviewed the difference between sales/revenue and profits/bottom-line numbers. They also discussed cash flow best practices and the difference between making a sale and getting a cash inflow into his business.
And, of course, his advisor helped him learn to estimate how much taxes he’ll owe so there are no other surprises. They review the company’s financials on a monthly basis, looking at what the business made and how much the owner should set aside for taxes.
Over the few years the owner has been working with his tax and small business advisor, his company’s cash flow has slowly improved. They are currently working out a tax plan with the IRS so the owner can pay his debt down over the course of several years. In addition, his advisor uncovered an error in the state’s sales tax reporting and recouped almost $10,000 for his business.
By working with a knowledgeable professional throughout the year, the owner now has much better insight into his business, and especially what taxes he’ll owe. He no longer needs to deal with the stress of coming up with money he doesn’t have to pay tax bills he didn’t expect.