Penny wise but pound foolish

So it is the end of the year and you have this big pile of cash sitting in your account. You fear that if you do not spend it you will have to pay huge taxes on this cash.

 

This problem is typical of most successful small businesses. The only way most business owners feel they can advert this tax is by making a huge purchase which by the way is not really necessary. So now this business owner has spent $20,000 to avoid an additional $5,000 in taxes. I call this penny wise and pound foolish for while he/ she has adverted $5,000 in taxes he is out of an extra $15,000. It is never a wise purchase to buy things you do not need to “save money”.  So what happens next year, there is not enough money to cover inventory and now the business has to go into debt to cover expenses and this vicious cycle goes on year after year.

Be sure to hire a professional if you do not understand how to evaluate how your business is really doing.