As a small business owner, it’s important to understand how the decisions you make in managing your business impact how much tax you’ll owe each period. But, it’s unrealistic to think that you’ll have the time to research every possible tax problem and understand the root causes.
You need the support of a partner who specializes in small business tax preparation or consulting. A tax consultant can flag existing and potential tax problems, as well as help you identify the source of such issues.
Even so, the onus is ultimately on you to take action. After all, it is you who must pay the tax that you owe, and what if you don’t have the cash to do so? Cash flow problems have far-reaching implications, and the risk of facing future tax issues is one of them.
No Budget? No Guarantee You’ll Have Cash To Pay Your Taxes
Forget taxes for a second. The small business owners who have the most cash flow problems are the ones who make purchases without thinking about how those expenses fit into their budget. Of course, you need to create a budget in the first place.
Especially if you’re already battling cash flow problems, you should sit down and outline a budget, one that ensures you have the money on hand to cover all of your expenses, especially your taxes.
Consider the retailer managing his or her own business. Small retailers tend to buy what they see and think they need rather than what products they actually need. Larger retailers, on the other hand, plan according to their needs.
When creating a budget, you need to take into account:
- How many weeks of inventory you should have on hand
- How many weeks of revenue you need to have on hand today
Purchasing too much inventory could leave you short on cash – cash you may need for additional expenses. Purchasing too little could lead to lost sales opportunities, which means less cash in your pocket. That’s why budgeting with inventory in mind is a crucial first step.
After Cost of Goods Sold, you must track your payroll expenses and ensure that you’re staffing the right number of people. Excessive payroll obligations eat into your cash, which puts you at greater risk of experiencing tax problems and missed deadlines.
How To Ensure You Have Cash For Taxes
The easiest and most effective way to ensure that you have the necessary cash to pay your taxes is to estimate your tax expenses and set the funds aside:
- Open a savings account specifically for your taxes
- Do not touch it under any circumstance
- Find out how much you should set aside each month
- Always set aside this estimated tax expense on the first of the month
- Withdraw this cash to pay for your taxes upon your due date
Remember, the highest interest you will ever pay is on tax penalties from the government. The interest they charge could be 18% or greater, in addition to the late-filing penalty that is typically in the thousands.
Should you receive notifications from the government to file your taxes, it is a clear sign that you’ve been flagged and will soon be receiving calls from collection agencies.
Do yourself a favor and address your cash flow problems today to steer clear of costly tax problems tomorrow.
Talk to a small business consultant to streamline your cash flow and save more of your hard-earned money.