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.

Boosting quality with QA-specific outlays

Another way you can take your business to higher revenue levels is to boost quality. For every bad or defective product your production system produces, you lose money. That is a product you can’t sell. By investing in Quality Assurance systems and processes, you decrease the amount of defective or bad items your system cranks out. This means you have more acceptable items that can be sold. The more of these items you have, the higher your revenue. You can spend money on consultants that can fix your current processes so they produce higher quality products or less defective products.

Basic marketing expenditures

While it is too easy to get excited about spending on marketing, don’t get carried away. Just like your operations, there are two sides to marketing: basic and targeted. Investing in the wrong marketing component will not only fail to produce significant sales improvements but you would essentially be burning precious capital. You need to separate your marketing between basic marketing and targeted marketing. Figure out the ROI of these components currently and see which is a better recipient of your business’ capital.

Basic marketing covers non-targeted, non-relationship-based marketing. This type of marketing covers product giveaways, event sponsorships, fliers, brochures, business cards, and similar marketing methods and techniques that don’t focus on building a relationship between your brand and your audience members.

Targeted marketing expenditures

The great thing about targeted marketing is that this type of marketing outreach tends to hit the people who are most likely to buy your products or services. The downside to targeted marketing is that it often takes a long time to develop the relationship enough for your customer to put money in your pocket. In some situations, relationship-based or targeted marketing might only be worth doing if you already have an established base of heavy spending loyal customers. In essence, you are increasing the amount of cash you generate from existing customers. Don’t overlook this important marketing segment. Marketing study after study consistently show that the cheapest source of new business is your collection of existing customers.

Another great area of targeted marketing you can invest in is further market research. Hire a consultant to study your target audiences and see if you can spot new opportunities. Doing this might just result in heavier revenues for your business because you expand into market segments. Also, you go a long way in protecting your business against future shocks. Why? You are diversifying your product or service offerings.

End goal: Boosting profits while maximizing tax savings

If you want to truly milk as much value from the hard-earned money you’re investing in your business operations while minimizing taxes, you have to really work both ends of the equation hard. Make sure you spend as much money on items that can be fully written off and can truly boost your company’s revenues. Not only do reduce taxes, but you are laying the groundwork for even greater sales and profits in the future.

Make no mistake about it, taxes can pack quite a punch. By operating your business in a strategic way, you can reduce your business’ tax liabilities while laying the groundwork for huge increases in output, productivity, and quality. The right spending decisions can lead to your business producing more products, producing lower-cost products, and gaining a key competitive advantage over other players in your industry. And you did all these while trying to reduce your taxes. It all boils down to solid planning.

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