How Small Businesses Manage Risk to Prevent Loss

How Small Businesses Manage Risk to Prevent Loss

How Small Businesses Manage Risk to Prevent Loss

How Small Businesses Manage Risk to Prevent Loss 

Nobody wants loss. But, profit opportunities come only with the risk of losing money. The risks cannot be eliminated, but your income can be maximized when we properly account for losses while calculating the tax liability. 

Sound finances and financial management are the heart of every business besides being small or big. A lack in this will lead to excess business loss. Four out of 10 small businesses are likely to manage this excess business loss. 

What will loss do? 

Losses to any company will result in cash flow fluctuations. It is considered to be safe when we take loss prevention measures by identifying key areas of the potential loss.  

Loss prevention includes 

  • The Risk Management 
  • Protecting shareholder’s interest 
  • Protecting an organization’s interest 

There are simple steps that owners will take to manage losses in small businesses.  

How to handle loss? 

Income can be classified under 5 heads: House property income, Capital Gain, Salary, Business & Professional income, and other source income. 

The law will allow setting off a loss in one against the gain in another based on different criteria which are as follows:  

  • A loss from a source will be set off against the income from that same source with few exceptions 
  • Any loss on long term capital asset sale shall be adjusted only against the long term capital gain  
  • For a loss on short term capital assets, it can be adjusted against both short & long term capital gain 
  • Any loss from business & professional income shall set off against all other income heads than salary 
  • If income is tax-exempt, then it shall not be adjusted against any loss from the taxable income 
  • Casual income like a lottery, gambling, a horse race is fully taxable 

How to reduce losses in small businesses? 

Here are some steps that you can use to reduce loss in small business 

  • Effective Management 
  • Understanding the loss prevention goals of a company at all levels of management 
  • Employee Participation 
  • Training employees through loss prevention programs can be very effective  
  • Developing a loss prevention program 
  • Clear roadmap to evaluate the loss and predict them for avoiding 
  • Collaborating with other businesses 
  • Working with similar businesses can prevent losses 
  • Focusing on key areas 
  • Prioritizing and allocating more resources to key problematic areas 

How does a business claim losses in taxes? 

You can maximize income by accounting for the losses properly while calculating the tax liability. Know some rules that ease your loss burden. 

Business loss can never be set off against salary with the rest of the income heads open.   

Business losses shall be carried forward and set out in the following years even if the business has been quitted.  

Why Carry Forward? 

When a loss is higher than the income against which it shall be adjusted, then its net loss can be carried forward to the next year.  

If an entire loss doesn’t get adjusted in a financial year, then it shall be carried forward up to 8 years. 

How Small Businesses Manage Risk to Prevent Loss

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