The Top Five Accounting Issues That Cause Small Businesses To Fail
Last November Chicago Score hosted a seminar titled "The Top Five Accounting Issues That Cause Small Businesses to Fail". This seminar was presented by myself as Founder of CFO 4 Small Biz™, and E. Pete Lewis, of Lewis & Associates Tax Planning Inc. In this article I will provide an overview of the content of the seminar. I covered the operational accounting issues while Pete covered the tax related issues. Pete's firm specializes in tax planning strategies.
We defined the top five issues as follows:
- Business Formation Issues
- Cash Liquidity Issues
- Failure to use Financial & Tax Information to Maximize Profits
- Pricing and Margin Issues
- Tax Issues Often Overlooked
In the first failure Pete discussed selecting the right business structure for the business. How do you match a legal business structure with a certain type of business? Pete covered the various types of business entities and the advantages and disadvantages of each. He examined taxes, required capital, ease of transition, and asset protection issues related to each type of entity.
The second failure covered cash and liquidity issues. Why do most businesses go out of business? Because they don't have enough cash for the long term. I presented "How to avoid Cash Surprises".
The benefits of using an operational cash flow forecast include:
- Avoidance of cash surprises;
- Allowing time to proactively address cash shortfalls before it happens;
- Ability to see cash borrowing requirements or repayments;
- Managing cash resources.
I taught the seminar attendees how to create a cash flow forecast using Microsoft Excel.
The third failure was covered in two sections:
- The failure to use financial information to maximize profits, and
- The failure to use tax information to maximize profits.
In presenting the "Failure to Use Financial Information to Maximize Profits", I examined:
- Using monthly financial information to run your business;
- Benefits of budgeting and using an "Annual Operating Plan";
- Benefits of having a Strategic Plan; and
- Benefits of dynamic forecasting.
In presenting the "Failure to Use Tax Information to Maximize Profits, Pete examined:
- The difference between cash and accrual accounting for both book and tax purposes;
- Recognition of deferrals;
- Restructuring benefits; and
- Fiscal year-end tax planning.
The fourth failure covered "Pricing and Margin Issues". Many businesses fail because management doesn't:
- Properly price the product or services; and
- Know their cost and margins.
Pete covered the fifth failure "Tax Issues Often Overlooked". The issues covered included:
- Your payroll tax system;
- How to survive an IRS audit; and
- Loan to shareholders.
The seminar was very well received providing a wealth of knowledge to small business owners.
As a small business owner do you have any of these issues?
If you have tax related issues you can contact E. Pete Lewis at plewis@lewisandassoc.com.
Is your financial guidance exceptional?
If not, contact me.
