Small Business Idea Essay

1380 words - 6 pages

Small Business Idea

April 29, 2013
Charles Royes Jr.

Small Business Idea
In an attempt to stimulate the economy and create jobs, the government appropriated resources for individuals willing for launch a small business concept. After acquiring government subsidizing, the entrepreneur with a unique idea suited for their disposition needs to determine which business form best fits the small business. Moreover, it is vital for the owner of the small business to understand the consequences of legal, tax, and accounting issues related to the type of business form they choose. The goal of this analysis is to illuminate possible advantages and disadvantages related to four ...view middle of the document...

The critical financial analysis for the owner is the cash flow statement, becasue cash is so critical to a small business. The use of the cash flow statement allows the owner to review cash payments and receipts within in a particular time frame and is important for creditors in review of free cash flow from the business. The statement of cash flows will also determine the credit limit and interest rate for loans, when needed. Because the owner is ultimately responsible for everything in the business, there is an advantage when filing taxes. The business profit or loss flow through the owner’s individual tax return and thus experience a significantly lower tax rate.
“Partnerships are a business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business” (Investopedia, 2013). Partners share business profits, losses, and debts within their individual income tax return. Each principle is equally liable for actions of the related partners and each partnership must have at least one general partner. One drawback of forming a partnership lies in the retirement of partners that can lead to issues amid the remaining partners. There is uncertainty as well as tension between customers, vendors, lenders, and employees. In a partnership, there is no need of paying taxes by the organization because each partner files his own return and absorbs any profit or loss in their individual tax return. The main financial statements for partnerships are the statement of retained earnings and income statement. The organization’s profits and losses are reported in the income statement throughout a particular period. The cash amounts and reasons of alterations in retained earnings for a particular time frame demonstrate within the statement of retained earnings (WileyPLUS, 2013). These financial statements are significant for partnerships because they evaluate the organization’s dividend payments and show the value of owner’s equity. Additionally, the reports can entice new investors into the business and assist in setting up credit accounts or establishing credit limits with vendors.
Defined, a C-corporation is a “legal structure that businesses can choose to organize themselves under in order to limit the owners' legal and financial liabilities. C-corporations are legally considered separate entities from their owners” (Investopedia, 2013). In a C-corporation, the organization’s shareholders have the protection of the limited liability umbrella and freedom of choice over the profits distributed or retained by them (IRS, 2013). An obvious benefit of creating this form of business is the company stands as its own distinct entity. There are taxes for the company of the business and taxes shareholders report on their individual tax return. In calculating taxable income, a corporation normally takes the...

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