Friday, June 27, 2014

Cash business

     Free daily tips, information and advice for people in small business
     from personal experience founding, operating and growing several small businesses.

     Some people like to run cash businesses--pocketing most of the money received. It is short-sighted and can be downright dangerous.

     The IRS can get creative in going after people who pocket the cash received. Keep in mind that your own records can indicate that cash is being taken from the business.

     A good example is the restaurant that regularly sends tablecloths out to a laundry--this can indicate just how many meals have been served, and, hence, an indication of what the bank account balance should be. Bakeries and other businesses can be hard-pressed to explain discrepancies between raw materials bought and goods sold. Think carefully about your own situation. 

     Example: Robert ran a one-man delivery service for a variety of clients. He picked up groceries from the supermarket and delivered to a customer who paid him in cash. He expanded to deliver auto parts to garages, restaurant meals to shut-ins, and had an arrangement with a couple of pizza shops. The payments and tips went into his pocket until the IRS caught up with him. Robert might have grown his delivery service into a bigger business, but he fell into the trap of spending all the cash.

     Example: Bill ran a small printing business. Frequently, he was paid in cash, and he always deposited the cash into the business bank account. This practice kept the records in perfect order, and the paper trail was clean when the IRS came calling.

     There are many legitimate ways to get funds out of a business. It is tempting to pocket the cash received from a customer. The more prudent reaction is to deposit the cash in the business account at the bank. 

     Still active after a lifetime in business--founding, operating, growing several. Nowadays, I provide free daily tips and advice to people in small business. If you have a question, email me and put BLOG in the subject line. I'm not selling anything, and you privacy is always respected.  

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