Small businesses are privately held corporations, partnerships, or singular ownership that have fewer employees and less yearly revenue than a typical large corporation or firm. Unlike large companies, many small businesses are focused on marketing their products or services directly to the customer and rely on word of mouth publicity. While it is true that some small businesses fail because they don’t “market” themselves, the vast majority will endure because they stick to the basics: good values, good service, and good luck. Unfortunately, for many new business owners, economics can be one of the most important factors in determining whether a small business will survive or not. The following are some tips for surviving the economic challenges that face most small businesses today.
First, it’s important to understand that economics do indeed affect every aspect of life, as it has done throughout human history. For this reason, the small business owner needs to consider the “microeconomics” of his or her company, including such things as employee turnover, government contracts, and product demand. To survive, a small business owner must find ways to increase profits while reducing expenses. One of the easiest ways to do this is through government contracts. The U.S. federal government offers a wide variety of contract types, ranging from consumer protection to financial services, and each contract can bring in thousands of dollars of revenue for the small business owner.
For those who are unaware, the U.S. government has developed a specific definition of the size definition used in the Society for Marketing Research (SMR). The SMR definition classifies business as either a sole proprietorship partnership, or corporation. Many small businesses classify themselves under the sole proprietorship model because of its lower cost of ownership, as well as other advantages such as limited liability protection. Although the SMR size definition can help small businesses plan appropriately for future needs, it doesn’t always provide enough information for a business owner who is struggling to stay within the size limitations set forth by the definition.
In order to determine whether or not their business is a sole proprietorship or otherwise categorized as an independent organization, a small business owner should research the classification system that the United States Commerce Department uses. The United States Department of Commerce, which is responsible for administering all United States federal agencies, provides a list of six categories of organizations that are classified as small businesses for tax purposes. The six categories are: cooperative companies, corporations, cooperatives, joint-stock or multiple-stock companies, unincorporated organizations, and independent organizations. This general classification system allows a small business owner to determine whether he or she owns a business that may be categorized as an independent or cooperative company. By doing so, the business owner can determine whether his or her company will be eligible for any federal grants or other programs based upon its size, location, and other individual characteristics.
In addition to the United States government’s list of six general size categories, many states use a similar classification system. In certain states, small businesses may be considered a sole proprietor if the owners have fewer than fifty employees during a one-year period. However, some states have a statutory requirement that all small businesses retain at least one employee representatives. Regardless of the statutory requirement, each state’s small business definition contains language that clearly describes the requirements that must be met in order for a business to be considered a sole proprietorship. Because every state has different definitions, it is important to review the statutes in detail in order to determine which of the specific definition for your state applies.
In order to ascertain which small business size standards apply to your company, you should contact a qualified Certified Accounting Specialist (CAs). CAs can provide advice on which classification would be best for your business depending upon its characteristics. For instance, the United States Bureau of Labor Statistics (BLS) defines small businesses as those whose annual revenue is less than a million dollars or whose annual sales are less than a million dollars. The IRS defines a small business as any company engaged in a substantial business activity. While both of these sizes would qualify as sole proprietors under applicable standards, the CAs can more accurately identify specific business requirements for a small business as compared to other types of businesses.
The next question that you need to ask yourself is whether or not you will be able to deduct the cost of your small business equipment and supplies against your income taxes. If you have a business phone line, you will need to itemize your telephone operating expenses on your personal tax return. The same is true when you deduct business travel as part of your income tax obligation. If you have employees, you will need to determine which employees are sole proprietors and which are employed in a corporation, partnership, or other entity. Each employee will need to file his or her own tax return and each of these individual tax returns will need to be itemized in order to meet the size standards for the state in which the small business resides.
The next question that you need to ask yourself is whether your business qualifies as a privately owned enterprise. The IRS has published an outline of what it regards as qualified businesses in its tax code. Under the general tax guidelines contained within this code section, a private firm is defined as any firm or corporation that has fewer than one thousand shareholders. A private or domestic partnership must have at least two shareholders in order to be treated as a private or domestic business. If your company meets the criteria set forth in this section, then you may be able to deduct your share of the cost of operating your small business as well as your share of assets associated with the company.