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Hello. I'm an Accounting Student, and as part of my capstone project, I'm helping one of the entrepreneurial students. One of the things on my todo list is to find out from an accounting perspective whether or not two parts of the business should be run as separate businesses. I'm leaning toward the "separate businesses" option for two reasons:
1. Help keep track of profitability.
By running the parts as separate businesses, it will be easier to keep track of the profitability of both businesses individually. If the two parts are run as one business, then there is significantly more information on the books. Sifting through this information to find out just how profitable one "part" of the business is seems like an extra step.
2. Will be easier to manage the different "parts".
Building off of point 1, with separate books, the business owners will be able to narrow down unnecessary expenses much easier than if the business was run as a whole. Also, management in general will be easier because the business will be separated into parts that can be individually managed.
A third possible reason I came up with is that it might be easier to close down a "part" of the business if it has its own individual book rather than simply trying to remove the related expenses from the books if the company were whole. Also, I'm wondering if there is any tax advantages to running the "parts" as separate businesses? For example, I know that if you have a Net Operating Loss, you can deduct that from your taxes. For example, if "Part A" of the business made $1,000, and "Part B" of the business made ($500), then if the parts were run as separate businesses, you could deduct the $500 loss on your taxes. If the businesses were run as one, then there would be nothing to deduct. You'd just have a $500 profit to pay taxes on.
(At least I think I'm applying the tax law correctly. And yes, I know that you can deduct business expenses including the expenses that "Part B" accumulated even if the business were run as a whole; however, you can already deduct those expenses if the parts were run as separate businesses.)
If anyone could provide any more reasons to run the business parts seperately, or let me know if my reasons are sound or correct, I'd very much appreciate it.
HUGE thank you for any help,
David
1. Help keep track of profitability.
By running the parts as separate businesses, it will be easier to keep track of the profitability of both businesses individually. If the two parts are run as one business, then there is significantly more information on the books. Sifting through this information to find out just how profitable one "part" of the business is seems like an extra step.
2. Will be easier to manage the different "parts".
Building off of point 1, with separate books, the business owners will be able to narrow down unnecessary expenses much easier than if the business was run as a whole. Also, management in general will be easier because the business will be separated into parts that can be individually managed.
A third possible reason I came up with is that it might be easier to close down a "part" of the business if it has its own individual book rather than simply trying to remove the related expenses from the books if the company were whole. Also, I'm wondering if there is any tax advantages to running the "parts" as separate businesses? For example, I know that if you have a Net Operating Loss, you can deduct that from your taxes. For example, if "Part A" of the business made $1,000, and "Part B" of the business made ($500), then if the parts were run as separate businesses, you could deduct the $500 loss on your taxes. If the businesses were run as one, then there would be nothing to deduct. You'd just have a $500 profit to pay taxes on.
(At least I think I'm applying the tax law correctly. And yes, I know that you can deduct business expenses including the expenses that "Part B" accumulated even if the business were run as a whole; however, you can already deduct those expenses if the parts were run as separate businesses.)
If anyone could provide any more reasons to run the business parts seperately, or let me know if my reasons are sound or correct, I'd very much appreciate it.
HUGE thank you for any help,
David