Managing a Small Business and Uncle Sam

Regardless of what type of business you run, there are two main ways you can boost capacity: you can hire more people or you can buy the right machinery or equipment. Spending more on people is pretty straightforward-you simply put out an ad (online or offline), interview people, and hire them on. All these steps require money and count as business expenses. Saving money on taxes through increased headcount and personnel costs is also helped by the training costs of additional staff. Also, you can buy machinery or equipment that supplements or enhances your staff’s production. Eventually, you might want to go the whole nine yards and automate your production and reassign your staff to quality control. Machinery expenditures is no different from software expenditures. Saving money on taxes through software or machinery expenditures aren’t as easy as you think though.

Quick note on equipment outlays

You might think you will be saving money on taxes if you dump money on new machinery. Not so. The write-off value of the equipment you buy is calculated using a schedule. This schedule is called a depreciation schedule. You can’t simply write off the full amount of the machinery or equipment you bought. Usually, the write-off schedule spans several years. Saving money on taxes by buying items that are on a depreciation schedule might not help you reach your tax savings goals.

Besides hiring more warm bodies and investing in machinery, your business can also boost capacity by spending money on process enhancement systems like Six Sigma. This, of course, requires consultants. Consultants can cost quite a bit of money. Consulting fees are completely legitimate business expenses.

The problem with spending money on consultants is that too many business owners think their business is already benefiting by simply having a consultant coach them on what to do. This is not the case. Your consultant might come up with an awesome report but that report isn’t going to do your business much good if you don’t implement it. Don’t waste money on consultants by hiring them and then never getting around to implementing their recommendations. You won’t be taking your business to a higher level this way. Indeed, you’re just burning money if you do this.

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