SBA:Taxes Vary By Entity = Not All Inventory Is The Same

Inventory is one of the largest investments made by most businesses, yet today's software packages treat the inventory of all businesses the same, often using arbitrary settings or outdated models developed in 1913. Not all businesses are the same, and their decision on how much to invest in inventory is more complex and should be based on each specific business entity.

In order to optimize inventory at the business entity level, a metric that is capable of incorporating business entity variability must be utilized. One such variable is economic profit. Economic profit is defined as the the net operating incomes after taxes minus the cost of capital. Economic profit is much more capable of weighing the complex decisions involved with investing in inventory as it impacts both the income statement and the balance sheet.

Economic profit is capable of weighing each business entity type by weighing their tax rate and their cst of capital. For example, a study by the SBA showed that the effective tax rate by business entity type:

• Non Farm Sole Proprietorships 13.3%
• Partnerships 23.6%
• S Corporations 26.9%
• C Corporations 17.5%
• All Small Businesses 19.8%

The study by the SBA also showed that the effective tax rate varied by industry, for example Sole Proprietorships varied as follows:

• Agriculture 11.7%
• Mining 12.7%
• Utilities 4.1%
• Construction 13.1%
• Manufacturing 12.5%
• Wholesale & Retail Trade 14.2%
• Transportation & Warehousing 13.3%
• Total All Returns 13.3%

The point to stress is that taxes vary and consequently not all inventory is the same. It should be managed accordingly. In fact, inventory can often mean the difference between success and failure. According to SCORE , using data from the SBA, nearly one-third of businesses fail within two years, and two-thirds fail within seven years. In his book Small Business Management, Michael Ames reveals that inexperience and poor inventory management are among the top reasons for small business failure.

Between the lack of experience and the access to appropriate technology, small businesses have not had the tools to make smart inventory management decisions. That is where ePhiphony Incorporated's patent pending solution, Phitch OC 9.0, comes in to guide small businesses to optimize their inventory at their specific maximum economic profit.

Not all businesses and their inventory decisions are the same. In our whitepaper "Doing Business Globally" we highlight the impact of not only tax rate but the cost of capital. Phitch OC 9.0 provides an easy to use interface that provides the wisdom to guide today's small business to optimize their inventory and peak financial performance.

By optimizing inventory at their specific peak financial performance, businesses can reveal hidden wealth that is needlessly tied up in inventory.