Managing Risks Within a Small Business


65098_459966747372285_785023941_n

Darin Bradshaw has recently opened a ceramic tile sales and installation business. Darin has organized the business as a sole proprietorship with six employees whom are not any relation to Darin. Darin knows that the business must have some type of insurance to cover the employees but is unsure of the various types of insurance that are available for this type of business. Darin would like an investigation done to conclude on which insurance would be beneficial to his business.
Elaborating on the small business requirements, analyzing the internal and external threats that the business must identify to minimize the possible litigation, and identify the insurance strategy that would best fit the business needs for the future growth of the business. Because of the simplicity of this business structure and that, the taxes are not paid from the business but by the owner, there is no requirement for extensive financial statements to be created (Tiwary, 2008). However, it is wise to keep accurate records in case something were to happen to Darin’s small business.
In elaborating the various types of insurance, that is available to small business
With any business, there are risks involved just to operate the business. Depending on the sizes and type of the business would need to be considered when obtaining insurance for the small or large business. Property, liability, health, disability, and worker’s compensation are all types of insurance that may be required for any type of business. Although, some small businesses like Darin’s will not have to obtain certain types of insurance because of the type of business it is. Darin’s business should be insured to the full potential just in case something happens. The risks of not having insurance would certainly not help the business if something bad were to happen. The most important insurance to have with any business is the property insurance that would cover damages, and other things that the business would need. Following OSHA guidelines such as its regulations regarding aisles and passageways will help prevent people from being injured during a visit to the company’s property (OSHA, 2009).
Darin finds that two important features of worker’s compensation are that the employer is required to pay specified benefits for economic loss to injured employees without regard to employer fault or negligence, and employees are not allowed to sue employers for injuries under tort law (Harrington, 2004). Since Darin has six employee’s he would need to invest in workman’s compensation so that his business is covered if an employee is injured. A tort is a civil wrong that affects a person or property and injuries result (Jennings, 2006). If Darin has these employee’s listed under independent contractor’s based on his profile of the business and the services that he provides. Darin may require that these independent contractors have their own type of liability insurance.
Four main types of insurance contracts that a business can choose from to protect their business in a variety of ways. Instead, policies usually require the policyholder to bear some risk. The first is coverage for policyholders’ losses from property damage and associated loss of income due to the unforeseen events. Secondly, liability covers the liability and related coverage’s of injury to third parties. Darin needs to think about his small business. If something should happen at this point he would not be covered, and would lose his business. Another type of contract would include surety bonds, and financial guarantees.
The type of business and the type of product or service will determine the factors that go into insurance decisions based on the type of business. The employee’s working for Darin could possibly get hurt on the job if Darin does not have the right type of insurance it could end up costing the business. The amount of coverage will be assessed based off the extent at which possible injuries harm, or liability issues could occur. Because of the complex liabilities, that Darin can be faced with, the type and structure of an insurance policy will determine the rate of premium paid on policies in order to limit the amount of deductible payment that would have to be paid out in the event of a lawsuit settlement. This type of contingency can diminish the growth of a business because of the necessary precautions needed for Darin’s business. In some cases, many different insurance policies are needed in many layers because of the vulnerability of risk from such lawsuits.
Although internal environment could be affected by, the benefit coverage and morale could go up or down depending on how much/less coverage an employee receives. The external environment could look for loopholes and coverage lapses in the business’ coverage and offer additional coverage to the businesses employees. Some factors that govern a small business’s insurance decisions are pricing- benefits, costs, and advantages. They have less discretion on terms of coverage and price. Small businesses are also easier to place tighter regulatory controls for business’s like Darin’s. Darin can see that there is a correlation among the level of internal risk a small business may incur and its external environment because if the external environment is aware of any malpractice or fraud going on within a company they may not patronize that business.
Furthermore, the internal risks are minimized through proper contingencies such as insurance policies that cover liability or loss of income due to accidents or legal matters within the small business. For commercial property, insurance serves as first-party coverage, which protects the business from such issues as property damage, theft, the commercial building, the business’ contents, and loss of income due to such damages. Furthermore, Commercial General Liability Insurance policies is the main form of protection that insures the business outside of what other typical policies are designed to cover. This includes injuries or damages on the business premises or from the products that Darin has within his business. Because the risk is minimized, the value of the company is protected along with its ability to conduct normal business with reassurance of liability protection.
In conclusion, for Darin’s to minimize risk further, the company can buy into surety bonds as a form of protection form contractors to insure a guarantee of a completed contracted deal. A business can also take an insurance policy on high-ranking employees or specialized employees who are of great value to the company. These methods will protect the interests of Darin’s small business in the event a legal situation arises. In any type of small business, there will be a considerable amount of risks involved with having your own business. Keeping the business safe and insured will keep the risks to a minimum.

References
Jennings, M. M. (2006). Business: Its legal, ethical, and global environment (7th ed.). Mason, OH: Thomson/West.
OSHA. (2009). General Requirements – 1910.22. Retrieved 18 July 2011 from: http://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=STANDARDS&p_id=9714
Tiwary, R.S. (2008). Types of Business Organizations — Research Starters Business (p. 1). Great Neck Publishing. Retrieved 18 July 2011 from http://ehis.ebscohost.com/ehost/pdfviewer/pdfviewer?hid=23&sid=a7b65ea0-07e6-479a-a8df-ceae86298b93%40sessionmgr113&vid=7

Taxable Income Paper


1362594783472

While researching the methods of cash basis versus accrual basis of accounting within The Michele Corporation to determine on which one would work better for the Corporation. By discussing the advantages and disadvantages of both methods will give The Michele Corporation a better understanding of which method would work the best for the business. In defining, the Constructive Receipt role within the corporation and how it pertains to The Michele Corporation. Cash basis and Accrual basis methods will both be considered for this corporation so that a decision about the corporations standing.
The cash method of the Michele Corporation happens when the sales are recorded when they are paid. About the only time, a business can record cash when passed through the hands of the business owner or it is an expense. Unlike the accrual basis in which the credits are recorded instead of when the cash was received. The debits of the business are owed instead of when they are paid by the company. By using, the cash accounting method simplifies the Michele Corporation, which allows the Michele Corporation to reduce the bookkeeping costs, and takes less time than the accrual method of accounting. The cash basis accounting allows the Michele Corporation to determine their current profitability by keeping the balance sheet so that the business owner can assess the information concerning the financial situation of the Michele Corporation. The Michele Corporation’s advantage to using the cash is that the corporation would not have to pay taxes on the monies that have not been received by the corporation. According to Jones R and Pendlebury (2000, p. 143), cash-based accounting is a major accounting method that recognizes revenues and expenses at the time physical cash received or paid out, and justified on the grounds that the government budgetary, and control process is an annual.
One of the disadvantages of the cash method is that for small businesses and individuals the cash flows could be restricted during certain times. This is something that would to be looked at during this research process. In the first place, the receipt of non-cash forms of payment creates revenue equal to the value of the payment (Jones, 2011). Many companies that deal with cash business from consumers the cash basis of accounting would be simply better and convenient along with reliability for the corporation. Unlike accrual basis, “income and expenses are recorded when they occur in a fiscal period instead of when the company receives or pays cash.” (Horngren, 2008. p. 687). The Michele Corporation would be able to track expenses and cash, which would not require a bookkeeper. Another disadvantage of the cash method is that if records are not kept the company may not make their payments in a timely fashion because they will not know what they have made if the transactions are not kept in order or written down in a journal or ledger. Because the cash method could be manipulated to defer income and accelerate deductions, the tax law limits its use by large corporations (Jones, 2011).
The accrual method within the Michele Corporation refers to the basic rules or guidelines that the business keeps their financial records. A corporation has to have pristine records so that all monies are accounted for within the corporation. The Michele Corporation has to decide which one of the methods would work for this situation. By understanding, both the cash and accrual methods of accounting will allow The Michele Corporation to see which one would work better for the business, Depending on the type of legal methods, the small business has to decide whether they will extend credit to customers or pay the tax on the cash that The Michele Corporation brings in.
According to generally accepted accounting principles (GAAP), only the accrual method of accounting correctly measures annual income (Jones, 2011). The accrual method within The Michele Corporation has some advantages. One of the advantages of the accrual method is that the financial information about the corporation can be recorded as the transactions occur not when the cash received from the consumer. The accrual basis method of accounting allows the corporation to prepare the financial statements so that they can view at any time to see where the financial standing is within the corporation. Furthermore, the accrual method does not take into consideration whether the corporation has paid the bills or not.
One of the disadvantages of the accrual method for accounting is that it is complicated and rather expensive for The Michele Corporation. The cost to implement and employ the accrual method for The Michele Corporation is expensive compared to the cash method in accounting. Another disadvantage in using the accrual basis method for The Michele Corporation would result in the corporation may owe taxes on the income before the corporation receives that income. With the “cash basis this is used for smaller companies when they record revenue after they receive the cash and pay out cash, that can be tremendously misleading for the financial statements” (Weygandt, 2008).
Constructive receipt is applied to an account when the income is credited to the taxpayer’s account. This means that when The Michele Corporation receives credited income allows the taxpayer to draw on the income during the taxable year. If the payment is received and not cashed or lost The Michele Corporation would still have to claim it as income because it would be a restriction composed on The Michele Corporation. Having a business requires understanding on how accounting works within the business. By having, a clear understanding the owners can see the financial standing of the corporation. If the corporation sees that there are items that need to be taken away or are not needed anymore, the corporation should dispose to reduce the cost of the corporation.
By keeping informed about the corporation’s net present value, will help to determine if the new retail store will make it. Depending on the information that is found within the research by determining the net present value of how the corporation’s financial standings are at the end of the fiscal year. This is information that must be made available to the corporation. On the cash basis records are not required but should be kept to account for the money that he or she has made.
In conclusion, the cash and accrual methods both have some advantages and disadvantages concerning business. The Michele Corporation needs to decide which methods would work better for the business. Funnell W and Cooper K (1998 pg 129), the difference between accrual basis accounting and cash basis accounting revenues and expenses are recorded. In my opinion, I would have to say that the recommendation would have to be the cash basis method because the

References

Jones, S. M., & Rhoades-Catanach, S. C. (2011). Principles of taxation for business and investment planning: 2011 edition (14th ed.). New York, NY: McGraw-Hill/Irwin.
Harrington, S. E., Niehaus, G.R. (2004). Risk and Its Management The McGraw-Hill Companies, Inc.

Jones R and Pendlebury (2000) Public sector accounting 5th edition, Pearson Education, Essex, chapter 8.
Funnell W and Cooper K (1998) Public sector accounting and accountability in Australia UNSW Press, Sydney, pp. 117-149.

Horngren, C. T. (2008). Introduction to Management Accounting (14 ed.). Upper Saddle River, NJ: Prentice Hall.
Weygandt, Jerry J., Kimmel, Paul D., & Kieso, Donald E. (2008). “Financial Accounting” (6th ed.). Hoboken, NJ: Wiley. Retrieved June 20, 2011 from eBook of University of Phoenix.