Business Doctor

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What should a business owner do if the state or federal government raises his tax liability?

A company’s mission should be weighted in return on investment. Therefore, being true to company mission requires proactively addressing changes to tax law to minimize tax liability. Most accountants are not as proficient as tax attorneys. It would be reasonable to assume that most business owners are not proficient enough to tax plan. Accountants and executive management should rely on highly skilled tax attorneys to help them navigate changes in tax liability. It is amazing how many executives lose sight of the ROI in tax planning with professionals. There is nothing frugal about tripping over pennies in the way of dollars.

What is the first thing a business owner should do if he can’t maintain his revenue?

The first thing a company should do with down-turning revenues is heighten awareness of financial controls. An evaluation of which costs are absolutely fixed and which are potentially variable should be determined. The next step is to determine which variable costs can be approached more aggressively. There needs to be an analysis of cash reserves to determine how long the company’s cash flow will sustain the company at current operations with declining revenues. Executive management can reverse engineer survival and, in many instances, profitability with the aformentioned analysis. Ironically, companies often becomes more competitive when a business’ revenue diminishes because it forces better cost controls. Competitive pricing can create more revenue-producing increased profits when cost controls are improved in conjunction with allowing gross profits to overtake fixed overhead.

There needs to be an analysis of cash reserves to determine how long the company’s cash flow will sustain the company at current operations with declining revenues.

What is depreciation, and what are you supposed to do with it?

Depreciation can be thought of as spending a consumable at a predetermined rate over a period of time determined by the IRS. These predetermined timeframes are called depreciation schedules. A good example would be when a trucking company purchases large trucks; the IRS provides a seven-year deprecation life for the trucks at the end of which the predetermined value will be zero. The company may deduct the truck’s depreciation as an operating expense until the deprecation reaches the seven-year deprecation conclusion. Depreciation is a real expense because the trucks are getting used up. The company needs to plan for purchasing new trucks to take the place of the “spent” trucks.

What should you do when your supplier raises their prices for materials?

There are some basic steps to consider when a vendor significantly raises their price. The first consideration is: How valued is the relationship between your organizations? Is the vendor struggling to make ends meet? Are most vendors in this industry raising prices in order to survive? How difficult will it be to pass the costs on to your customer base and how will that affect revenue generation? Ask yourself if there are other vendors that can be solicited for competitive pricing. What are the risks of changing vendors? The most important step to take when you value the vendor relationship is to call or meet with the vendor. There often is room to negotiate an acceptable compromise. There is nothing wrong with a business’ intention to acquire an honest profit or survive. It is only improper when a vendor is taking advantage. There is a great saying in the business world: hogs get slaughtered…

We encourage you to continue sending in questions anonymously to jp@abomagazine.com

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