5 Financial Decisions to Help You Earn Major Edge In Business
As an entrepreneur or new business owner, you can run from talking business, but you cannot run from running a business. There are certain things that can make your venture stand out in the market and have an edge over other similar businesses. What these things are, let us find out.
Planning Tax Meticulously
Every business, big or small, should pay taxes on the profit earned according to the taxation laws of the country. However, many businesses cut corners, find ways to minimize their tax obligation to the government. There are two things that businesses normally do when it comes to paying tax. Some pay less tax than they actually owe and others lessen the tax by some means. While the latter is completely legal, the former action can land you in jail. In other words, there is a big difference between tax avoidance and tax evasion. In tax avoidance, you are finding legal ways to save on tax. Tax evasion is where the amount of tax owed is avoided which can lead to steep penalties or imprisonment of the business owner or employees.
Tax planning is about dealing with taxes through skills, knowledge and expertise and retaining more cash for the future growth of the business. This can be achieved by taking advantage of the taxation system for a particular type of business and making sure that the amount of tax paid is as minimum as possible. Maybe you do your own taxes or hire someone to do it. No matter what, it is important to get familiar with the nuts and bolts of tax to ensure that you won’t miss out on money-saving elements meant for businesses.
Protection Against Price Fluctuation
Although keeping a tab on price changes in a fluctuating market isn’t anyone’s idea of a good time, having this knowledge can pay off in the long run. For example, if a business purchases a certain set of commodities for half the price now, which is predicted to rise in the near future to double the amount, it can save a lot of money for the rainy day. The purchase such as this is usually made with a year derivative agreement that allows the business to protect its sale while gaining profit when the price goes up. Similar derivatives can be applied to protect the business’s transactions in various currencies as well.
It is typical for some businesses to start on their own with the available fund, either through savings, debtor finance or conventional loan. However, most startups spread financial obligations among various funding sources. If the business owner is not taking responsibility by owning 100% of the firm outright, it is spread among partners and shareholders while spreading risk accordingly. Businesses can procure fund through shares where shareholders are allowed to purchase ownership in exchange for dividends and capital gains or equity. This will allow the business to raise enough funds for operation and growth. When the business makes a profit, shareholders share the good news. Should the business valuation decrease or experience decline in profit, shareholders will absorb the loss. Additionally, this gives the business an edge over other privately held firms in the sense, shares have the tendency to attract talents and retain existing employees thus decreasing employee turnover.
Cash Flow Analysis
Doing a thorough cash flow analysis is one of the crucial components of a business that has to affect every dollar earned. When this analysis is done, it is easier to pinpoint drawbacks and problems surrounding cash flow and find remedies to plug the money leak. Cash flow analysis also involves comparing total unpaid purchase against sales over a period of time. It is particularly important to startups, businesses that are undergoing major overhaul or expanding, facing high labor cost or other expenses.
If you are running a business – that includes anyone who is an entrepreneur launching a startup or have an established business – you may have to face some form of risk at all stages. Risk management is about finding a big upside in the market that requires little risk which can be handled easily. It is about balancing the risk and reward and making sure that the business will succeed in the long run. It is a driving force between running a successful business versus barely making it in the business. Every business that has been successful has had some form of financial risk management in place. It could be anything related to funding, interest rate, liquidity, market fluctuation, credit or operation. The strategies surrounding this management are devised to curb high risk and make it tolerable to promote the growth of the business. It is the point where investors, managers and executives feel confident that the business would grow. Applying those strategies will give you a head start on activities that are profitable.
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