The case depicts the cash flow problems faced by small business owners. It also focuses on monitoring system which needs to be installed in the small businesses to identify the problems related to cash at an early stage. Many business owners find it quite complex to track the minute details of financial activities.
The key areas which require monitoring in the business are cash balances, account receivable turnover, accounts payable balance, interest payments and percentages, worker productivity, excessive expenses, obsolete assets and inventory, and employees' efficiency of handling cash.
Quantified refers to those areas which can be measured in numbers and figures. From the above-mentioned areas, the ones which can be quantified are accounts receivable and accounts payable, interest payments, excessive expenses, and obsolete assets and inventory. Obsolete inventory refers to the inventory or asset which is no longer used by the company but a numerical figure can be calculated as its current market price.
It can be concluded that more than half of the key factors of financial activities can be quantified. The need is to monitor each factor closely. Taking effective measures can control unnecessary expenses thereby increasing business's profit.
Budget is planning of expenses in advance. Making a budget is important not only for businesses but for household activities as well. It manages the finances and restricts unnecessary expenditure. The importance of a planned budget can't be determined verbally. It carries many practical benefits.
Budgetary control is the system of budgets used to control a firm's financial activities. It involves careful planning and tracking of all the financial activities going on in a firm. The poor performance areas of the firm are frequently monitored and controlled by this system. Finance is the most powerful element in a business. All the financial transactions and financial statements are made to reflect the firm's status of finances. Budgetary control helps in proper analysis of all the financial statements so as to provide the exact financial status of the firm.
Budgetary control system is a useful tool for small business. It is exclusively designed to keep a control on financial affairs. Using this system, all the details of financial statements are checked on a frequent basis to avoid any mismatch of business transactions. This system provides emphasis on the impacts of poor performance on the company and finds out the corrective measures to rectify those impacts. Costs and utilities are checked with the help of this system. Small businesses often make mistakes while calculating profit, expenses, additional costs, inflation, and sales. It is quite common to get confuse or to get a wrong calculation as many figures are involved in the process at the same time. Hence, a proper budgetary system is useful to correct all the flaws which may occur due to any unavoidable circumstances.
Businesses and taxes go hand in hand. While planning for business strategies, the business owners are also responsible for their tax planning. No businessman wants his/her money to go in vain. Each entrepreneur struggles to make his/her business successful. The similar struggle he/she faces while choosing the form of business as business's form affects the taxes in multiple ways.
The amounts and the ways of handling income taxes affect the selection of business an entrepreneur wishes to operate. This is the reason why many entrepreneurs choose partnership or proprietorship rather than paying high taxes on both corporate income and individual taxes on dividends.
The government allows some corporations to seek the status of S corporation. The shareholders of S corporation which include individuals, estates, and certain trusts are taxed at individual rates which are comparatively lower than actual corporate rates. The members of S corporations enjoy the same benefits as corporate members but they have restrictions on benefits of benefit plans and a limit of 100 shareholders.
The concept of LLC (Limited Liability Company) which combines the benefits of both partnership and corporation is the suitable alternative for the business owner to save additional taxes. Employee Stock Ownership Plans (ESOPs) are also helpful in cash flow and tax advantages.
Hence, it can be concluded that the form of a business affects its taxes directly or indirectly. Multiple measurers are there to reduce the burden of taxes but not many entrepreneurs know how to use these measures in their favor.