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1. PURCHASE DEPRECIABLE ASSESTS TO REDUCE YOUR COMPANY’S TAXABLE INCOME: This is a common tax savings "strategy" doled out by seemingly savvy tax return preparers to their unknowing taxpayer clients. The idea is that the allowable accelerated depreciation expense taken on the newly purchased asset decreases taxable income and taxes paid by the company (or by shareholder owners). Owners, please think twice before going down this path. What your tax preparer is telling you to do is decrease your company’s working capital and liquidity to fund an expense that will lower your company’s taxable profits. Ask yourself the following: A) Will this new equipment be used immediately and at full capacity very soon after the day of purchase? B) Would this equipment have been purchased otherwise? C) Should the money or credit to purchase the equipment be utilized for more necessary items such as inventory and supplies? If you answered "NO" to A and B, and "YES" to C, you may want to rethink your expenditure.
2.MAINTAIN A DEBT-FREE BUSINESS: While this seems to make sense from a practical standpoint it does not in the operational and financial business worlds. A debt-free business can signal a number of things, including the business doesn’t have good credit or cannot qualify for credit. However, taking advantage of low interest rates and managing debt effectively positions the company positively with lenders, suppliers, vendors and potential buyers. Owners should utilize lines of credit to fund inventory purchases. Mortgages and loans should be utilized to fund equipment, real estate and acquisition transactions. Why use cash to make a big purchase when you can fund that asset acquisition with a loan? Your company will realize the benefits three-fold: Be sure to write off the loan interest for a tax break, free up cash to increase the company’s liquidity, and increase the company’s creditworthiness by making timely loan payments.
3.DON’T KEEP UP WITH (OR DON’T KEEP A WATCHFUL EYE ON) CHANGES IN INDUSTRY TECHNOGLOGY AND TRENDS: Beware of antiquation and obsolescence. Read trade magazines, attend industry trade conferences and become a member of, and get involved in, associations to stay abreast of the industry’s current performance. Get to know other industry participants; network with participants upstream and downstream of your industry specialization. In general, network with those who have their finger on the pulse of the future direction of the industry.
4.DON’T HAVE THE BUSINESS VALUED REGULARLY: Knowing the value of your business keeps an owner in control of his or her largest most valuable asset. If the value outcome isn’t what is desired, the owner is now in a position of control and can therefore make strategic changes to increase the value. Just because a company’s sales or gross profit are increasing doesn’t necessarily mean its value is increasing. Regular business valuations provide owners with a real-time "report card," tracking changes in business value to identify and eliminate value inhibiting and destructive behaviors that often appear to be "business as usual." As a general rule, a valuation should be updated approximately every one to two years, or under the following conditions: A) When a significant change in assets occurs (e.g., the company makes a substantial investment in equipment or other tangible assets, or sales change notably); B) When tax laws change; and C) When intentions change— either for personal reasons (marriage, divorce) or for professional reasons (bringing in new shareholders, or buying out or rewarding key employees). Business owners should engage only a credentialed and unbiased valuation expert who has extensive experience valuing companies within the particular industry.
5.IGNORE THE COMPETITION: If you are not watching what competitors are doing wrong and what they are doing successfully, then you are not learning from their mistakes and conquests. Learning vicariously is a beautiful thing that can save you time, aggravation and money. But be careful: this is not a "‘monkey see, monkey do" strategy. An owner must judge what is most appropriate for his or her company by making the best decisions based on all available information, which includes keeping an eye on the activities-on of the competition.
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1. PURCHASE DEPRECIABLE ASSESTS TO REDUCE YOUR COMPANY’S TAXABLE INCOME: This is a common tax savings "strategy" doled out by seemingly savvy tax return preparers to their unknowing taxpayer clients. The idea is that the allowable accelerated depreciation expense taken on the newly purchased asset decreases taxable income and taxes paid by the company (or by shareholder owners). Owners, please think twice before going down this path. What your tax preparer is telling you to do is decrease your company’s working capital and liquidity to fund an expense that will lower your company’s taxable profits. Ask yourself the following: A) Will this new equipment be used immediately and at full capacity very soon after the day of purchase? B) Would this equipment have been purchased otherwise? C) Should the money or credit to purchase the equipment be utilized for more necessary items such as inventory and supplies? If you answered "NO" to A and B, and "YES" to C, you may want to rethink your expenditure.
2.MAINTAIN A DEBT-FREE BUSINESS: While this seems to make sense from a practical standpoint it does not in the operational and financial business worlds. A debt-free business can signal a number of things, including the business doesn’t have good credit or cannot qualify for credit. However, taking advantage of low interest rates and managing debt effectively positions the company positively with lenders, suppliers, vendors and potential buyers. Owners should utilize lines of credit to fund inventory purchases. Mortgages and loans should be utilized to fund equipment, real estate and acquisition transactions. Why use cash to make a big purchase when you can fund that asset acquisition with a loan? Your company will realize the benefits three-fold: Be sure to write off the loan interest for a tax break, free up cash to increase the company’s liquidity, and increase the company’s creditworthiness by making timely loan payments.
3.DON’T KEEP UP WITH (OR DON’T KEEP A WATCHFUL EYE ON) CHANGES IN INDUSTRY TECHNOGLOGY AND TRENDS: Beware of antiquation and obsolescence. Read trade magazines, attend industry trade conferences and become a member of, and get involved in, associations to stay abreast of the industry’s current performance. Get to know other industry participants; network with participants upstream and downstream of your industry specialization. In general, network with those who have their finger on the pulse of the future direction of the industry.
4.DON’T HAVE THE BUSINESS VALUED REGULARLY: Knowing the value of your business keeps an owner in control of his or her largest most valuable asset. If the value outcome isn’t what is desired, the owner is now in a position of control and can therefore make strategic changes to increase the value. Just because a company’s sales or gross profit are increasing doesn’t necessarily mean its value is increasing. Regular business valuations provide owners with a real-time "report card," tracking changes in business value to identify and eliminate value inhibiting and destructive behaviors that often appear to be "business as usual." As a general rule, a valuation should be updated approximately every one to two years, or under the following conditions: A) When a significant change in assets occurs (e.g., the company makes a substantial investment in equipment or other tangible assets, or sales change notably); B) When tax laws change; and C) When intentions change— either for personal reasons (marriage, divorce) or for professional reasons (bringing in new shareholders, or buying out or rewarding key employees). Business owners should engage only a credentialed and unbiased valuation expert who has extensive experience valuing companies within the particular industry.
5.IGNORE THE COMPETITION: If you are not watching what competitors are doing wrong and what they are doing successfully, then you are not learning from their mistakes and conquests. Learning vicariously is a beautiful thing that can save you time, aggravation and money. But be careful: this is not a "‘monkey see, monkey do" strategy. An owner must judge what is most appropriate for his or her company by making the best decisions based on all available information, which includes keeping an eye on the activities-on of the competition.
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