Watch CBS News

Managing Your Taxes & Preparing Your Business For Financial Success

For many, opening a small business is a dream come true. The Small Business Administration reports that nearly 900,000 small businesses were operating in Michigan in 2016, and more than 150,000 of those have 20 employees or fewer.

There are generally three phases of starting a business: making a business plan, deciding on how to finance the business, and then running the business. Some owners find the first two steps in this process easier than the third. Running a business not only takes manpower, it takes business know-how. For owners with no financial background, decisions regarding payroll, taxes, and facing the IRS can be confusing and costly. Popular payroll software can be a big help for owners who choose to run the day-to-day financial operations of a business, but most will eventually face a situation where they need financial advice.

Who do they turn to and when?

When seeking professional advice, realize there is a difference between an accountant and a CPA

Accountants may or may not have a college degree in accounting. Some accountants may have a college degree in a discipline other than accounting and have received on-the-job training that enables them to perform accounting work.

CPAs must have a four-year college degree majoring in accounting and successfully complete the CPA exam. They are required to meet state experience requirements and complete 150 credit hours of college education. Further, they must earn continuing professional education credits on an annual basis.

CPAs are held to a much higher standard than accountants. For example, they must adhere to a code of ethics, act with due care, and serve the public trust. Accountants not meeting these requirements cannot legally use the CPA designation.

Tax troubles

As your business grows, tax filings and tax planning become more complex. Owners who do not have a financial background can make a simple mistake or miscalculation, leading to significant IRS fines. The IRS allows extensions of up to 120 days, but the late-payment penalty plus interest will still be applied. Other options include paying in installments or by credit card when e-filing through a tax submission software. Tax credits reduce the income taxes owed. Tax credits are typically designed to motivate certain actions deemed beneficial by the government. Examples include environmental, research and development, and energy-related endeavors.

Preparing for an IRS audit

You may be audited for a variety of reasons. It's important to find out specifically why you are being audited so you can gather the relevant information. This will help you to be prepared and organized with all of the pertinent records. You should be courteous and answer the questions asked to the best of your ability. If you feel that the tax issues under review are beyond your abilities to adequately resolve with the IRS on your own, it may be beneficial to engage a tax accountant to help you.

Education is the key

For business owners with little or no financial background, the best way to prepare for, or avoid, financial troubles is to brush up on basic accounting skills. These skills can help recognize a problem early on and understand how to solve it either on their own or with the help of a professional.

Walsh College offers a series of complimentary non-credit Strunk accounting courses designed for business owners, students or employees who wish to sharpen their accounting skills. The courses assume no prior accounting experience and are an introduction for those wanting to learn how to record, organize, analyze and communicate business information from an accounting perspective. The program is named for Arthur Strunk, who graduated from the Walsh Institute in 1957. It is made possible through an endowment from the Strunk Foundation. The courses are offered during the winter semester. For more information, contact Diane Barrantes at Walsh College.

Learn more about Walsh College, Detroit's all-business school.
For more tips and inspiration for small business owners, visit Small Business Pulse Detroit

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.