Preparation can help prevent tax shock
By Joyce M. Rosenberg
Associated Press
NEW YORK — As they finished their tax returns, many small business owners had a nasty surprise when they saw how much they owed the government, or how much in profits they had missed out on during the course of 2002.
The culprit in both cases probably was an undisciplined approach to running a business, symptoms of which include haphazard bookkeeping, a failure to monitor cash flow and, in many cases, poor understanding of business principles.
Accountants and small-business advisers say owners can fix these problems if they get some help, and some education. If they don't, they risk losing money and ultimately, their companies.
Advice for business owners with common post-tax season laments:
• I was totally unprepared for the amount of tax I owed.
Business owners who don't have a good idea of what their taxes will be really don't have a good sense of how their companies are doing overall. It means they're not keeping an eye on the nitty-gritty of their finances.
This is a problem many new business owners face. They're so focused on making customer contacts and developing new products or services that ledger books, cash flow and other financial minutiae can be neglected.
The answer, says certified public accountant Gregg Wind, is a little discipline and some help from a professional. He suggests that business owners meet quarterly with financial planners or accountants and put together tax projections for the year. Such meetings will also give a business owner a chance to assess the health of a company.
Wind, who has a practice in Marina Del Rey, Calif., also recommended setting up a "tax account." That is, a bank account in which money to pay taxes — federal, state, local, employment, property etc. — is segregated.
• My company's books are in disarray.
This is a complaint that stems from not keeping an eye on the business. If your books are a mess, you can't possibly know what's really going on. Obviously, you need some organization.
Wind's advice is to keep the company's financial records on a PC, using small-business management software, rather than in a set of ledger books for more accuracy.
He also suggested a system that forces you to write checks on the computer, which will ensure you have accurate records of what the business spends — and what you'll be able to deduct at tax time. Paulson recommends getting professional help setting up your books.
• I feel like I really don't know how to run a business.
People who start a business after working for someone else often find that they have a lot to learn. There are many avenues available to those who need to quickly grasp the basics of running a company.
Wind suggested courses offered by adult education organizations. The Small Business Administration's Small Business Development Centers offer low-cost courses and advice for small businesses. Check www.sba.gov/sbdc, for locations.
