Tips for Buying a Small Business and Creating Cash Flow

Andy Anderson

Buying a small business and running it well doesn’t necessarily mean you will get rich quick, especially in this economy, but there are some ways to be smart about the way you manage cash flow.  Depending on the type of business you buy, your cash resources will constantly be sucked into a vortex of growth-related expenditures.  For example, as the company grows, you will need to finance new hires, buy more inventory, lease better equipment and purchase more real estate.  To top it off, you will then have to pay taxes.  

Many small business owners have become so cash-poor that they’ve had to take out a loan just to pay their taxes.  But fortunately, there are several things that can be done to minimize your company’s tax bill.  Rather than waiting until April 14th of next year to think of them, it is a good idea to implement a tax-saving strategy right away. 

Tip for buying a small business, minimizing taxes and buying a new truck –

If you expect your business to turn a profit this year, you may already be wondering how much of that profit will go to Uncle Sam.  Rather than putting money away for taxes that could otherwise be used for growth, why not use Section 179 of the U.S. Tax Code to your advantage?  This is the tax law that allows businesses to deduct the full sales price of any qualified property purchases right away, up to a maximum of $250,000 per year.  Instead of depreciating purchases over 5 to 7 years, business owners are given the full credit immediately.  This is especially helpful if your business needs a new truck or other expensive piece of equipment.

Essentially, with Section 179 your business could buy a used truck worth $30,000 with no money down, finance the purchase with a 48 month auto loan, and write off the entire purchase price this year, thereby reducing taxable income and increasing cash flow. 

This tip for buying a small business vehicle and reducing your company’s tax burden is nothing new, but it is something that small business owners often forget about.  To learn more about this tactic, read How “Buying a Truck Can Create Cash Flow” from the New York Times column, The Art of Running a Small Business (April 7, 2010). 

Find a small business that matches your interests and budget by viewing the business for sale by owner directory at BizSale.com.  Here you will find a wealth of information and tips for buying a small business

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