Buying or Leasing a Car

Should I buy or lease my next car?

Before you decide to buy or lease your next car, you should ask yourself these questions first:

  • How many miles will I drive annually?
  • How will I primarily use the car?
  • What kind of deals are auto dealerships currently offering?
  • What will be the total costs of leasing vs. owning my vehicle?
  • Can I deduct any of the costs for business purposes?

What are the different types of car leases?

There two different types of car leases:  closed-end lease and open-end.

  • Closed-end leases are also known as a “walk-away” They are the most common one for consumers.  At the end of the vehicle lease when the vehicle is returned, the consumer has no obligations except for the possible payment of excessive damage or mileage overage charges.At the beginning of this type of lease, the leasing company estimates the vehicle’s residual value at the end of the lease, which is based on the expected miles driven.  If at the end of the lease, the vehicle is less than its residual value then the leasing company absorbs the financial hit.  However, if it is worth more than the residual value, the consumer will have the option to purchase the vehicle and keep it.  The consumer can keep driving it or sometimes may just sell it at a profit.
  • Open-end leases are used mainly for commercial business leasing. With this type of lease, the lessee takes all the financial risks.  However, this is not an issue for commercial businesses, which can expense these costs.  The annual mileage is usually much greater and less predictable than the average 12,000 miles-per-year, which is typical for a non-business lease.

Employee Benefits

As a small business employer, what should I know about employee benefits?

No matter what size business, every employer must pay for Social Security unemployment insurance and worker’s compensation.  However, to provide a  comprehensive and competitive benefits package, employers may also include health insurance, disability insurance, life insurance, a retirement plan (commonly known as a 401K), and PTO (paid time off).  There are many other less common benefits you may want to offer too.  These include reimbursement of educational expenses, bonuses, company matching 401K contributions, and a health savings account.


How can I raise money for my business?

When starting a new business, there are many different sources of capital to consider.  First, you can use savings and other personal resources.  Next, family and friends are often willing to invest in your new business.  They may provide funds at a lower interest rate than more traditional sources, such as banks.  Also, you can offer them equity in the company in exchange for their investment.  Venture capital firms will provide capital in exchange for company equity too.  Finally, your bank or credit union can provide a loan.  These financial institutions often have business bankers who can guide you through the process.

What types of loans are available?

There are two types of loans – short-term and long-term:

  • Short-term loans mature within one year.
  • Long-term loans can last as long as 40 years. However, a typical long-term loan is more than one year, but less than seven years.

To receive a loan, a business plan will be required.

What is my responsibility if I co-sign for a loan?

The co-signer is responsible for repayment of the loan if the borrower defaults.  Co-signing for a loan means you have the same legal responsibility as the borrower and any late payments will affect your credit score as well.

Small Business Basics

How can I prepare my business for the next generation?

Passing a family company to the next generation is not always an easy task.  More than 30 percent of all family-owned businesses transition to the second generation. However, only 12 percent are still be viable into the third generation.  And, only three percent of all family businesses operate at the fourth-generation level and beyond.

To help ensure your business is successfully passed to the next generation you should:

  • Have a strategy in place
  • Keep the business dynamic
  • Motivate future generations to work in the business
  • Be open to business change

Note:  A lack of a strategy is the main reason that businesses close.

How do I know if I am ready to launch and manage my own business?

First, list out the reasons why you want to be a business owner.  Second, think about the type of business you would like to start. Ask your yourself the following questions:

  • How will it use my talents and experience?
  • How much will I enjoy working in this new business?

Next, consider the time commitment needed to turn it into a success.  Furthermore, think about its profitability.  Research the competition and develop a niche for your company that sets itself apart from others in the industry.  Finally, consider the market’s demand for your offering.

How can I successfully manage my cash flow?

To successfully manage your cash flow, you should learn basic accounting principles.  First, you should consider how much money to have readily available either in cash or in a bank account to pay bills, provide for emergencies, and supply investment capital.  Next, think about your operating cycle, which starts with inventory purchases and ends with payment for the inventory.  The operating cycle follows the conversion of your assets or inventory into cash.  With an analysis of your cash flow, you will be able to determine if your inflows and outflows are resulting in a positive cash flow or a net loss.  These should be tracked over a period of time to discover any important changes.  Ultimately, you should develop a strategy, which results in a positive cash flow.

What types of business records should I keep?

You should maintain a journal that records transactions, payroll, accounts payable, accounts receivable, inventory, and petty cash.  These items will feed important financial statements such as your income statement, cash flow projection, and profit and loss statement.  They will also be used in preparing your tax returns.

Business Taxes

What is the “corporate double tax” and how can I avoid it?

A “corporate double tax” occurs when an entity is taxed on end of year profits.  In a C corporation, a business that has profits (remaining income after deductible expenses are paid) will pay a corporate federal tax.  Currently, the lowest federal tax rate is 21 percent.  After paying this federal tax, which is not a business deduction, any remaining profits withdrawn from your bank account must be classified as either additional W-2 income or dividends.  Both these items will be taxable a second time on your personal tax return, which results in the corporate double tax.

To avoid the corporate double tax, you should consider incorporating your business as an S corporation.  This still means your business is a corporation, but it is taxed differently.  Any remaining business profits flow directly to your personal tax return without the 21 percent federal tax occurring prior to being taxed at the individual tax rate as additional W-2 wages.