Small Business Profit Explosion

MYTH VS TRUTH: Is Receivables an Asset?

The myth most business owners believe: Just about all business owners consider it an asset. Why not? Their bankers and their CPA’s tell them it is.

Why this myth causes a problem: In a word – you can’t spend receivables! (Yes, I know you can borrow against it. But, that is getting very hard to do.) In truth – trade receivables is really potential future cash in the bank.

The truth successful business owners learn the hard way! The best sale is a cash sale. Better yet, the best sale is a sale where you get prepaid all or a part of it in advance. You have to pay your staff and your vendors. And, they want CASH!

But, business owners also know they will sell more if they can offer payment terms. In many industries this is what the customer has come to expect. So, what do you do if you must sell on terms?

Lesson learned: The following are many of the ways that smart business owners control their receivables:

1. Don’t let it become a receivable in the first place! Give a discount for prepayment. On large jobs, especially from new customers, take a substantial down payment.
2. Know your customers. Do a credit check if they are new. Or, trust them and start them off with a small credit line and let them “earn” their way to a larger credit line. This is what I did when I was the Controller for Magnolia Coca-Cola back. We often provided credit for a startup where our competitors wouldn’t. But we paid particular attention to these and called them quickly if they were late on a payment. As these customers grew they were very loyal Coke customers because we trusted them when no one else would.
3. Be upfront with your customers about your payment expectations. Don’t be afraid to discuss payment with them.
4. When possible, don’t deliver the product to the client until the bill is paid. We implemented this on tax returns a few years back and it greatly reduced our receivables.
5. Don’t hesitate to collect. The longer a balance is outstanding the higher the chance of it becoming non-collectable. Assign smaller ones to your staff. But, the owners and the sales staff should be involved in the larger balances due.
6. When a balance becomes seriously past due and there is doubt about collecting it, you should call the customer and offer a deep discount to the customer if they pay by a certain date.
7. As a last resort, have an attorney send a collection letter. I am not really a fan of suing for receivables. This often leads to a countersuit. Plus, your time is better spent getting a new good paying customer. But, a collection letter from an attorney often is enough to shake loose a payment.

Thank you for your continued support and let’s make this year our most profitable year ever!

 

10 Surefire Ways to Make More Money and Keep it in the Bank!

Go to www.myprofitguru.com to listen to our free webinar that will show you the following 10 Surefire ways to make more money and keep it in the bank. This one hour webinar is jam packed with information that I have used over the last thirty plus years to help business owners increase their profits.

The following are the items I cover that I know can help you double or triple your profits this year:

1. See what the crowd is doing and do the opposite.
2. Focus your time on the work that increases profits, sales and cash flow.
3. Manage & improve every step of the sales cycle.
4. Increase sales to current customers.
5. Create a marketing system to get the big customer.
6. Speedup and improve all areas of the business transaction cycle.
7. Understanding & utilizing the most important rule of business.
8. Using 5 critical accounting numbers to increase profits, sales & cash flow.
9. Never totally trust your bookkeeper.
10. Be a lifetime learner.

At www.myprofitguru.com you will also receive a list with all legal business tax deductions (So you don’t ever miss a legal deduction again!), 65 tax cutting tips and a list of QuickBooks keyboard shortcuts.

Please let me know what you think of this free webinar.

Thank you for your continued support and let’s make this year our most profitable year ever!

 

Lessons Learned – Profits are all that matter!

The myth most business owners believe: The most important thing is to get the sale!

Why this myth causes a problem: It focuses on the wrong thing! The only thing that counts in a business is to make a profit. You didn’t start a business to make a sale and turn around and send all the cash out to vendors and employees. Most business owner’s started their business in order to at least be reasonably prosperous (some even wanted to be unreasonably prosperous).

Most business owners who have rapid increases in sales for the first time almost always run into cash flow problems. They have spent so much time focusing on increasing sales that they failed to have the financing and systems in place to support the increased costs in inventory and employees to deliver the product to the customer. The result is usually serious financial trouble and sometimes even bankruptcy.

The truth successful business owners learn the hard way! Successful business owners have learned that, in business, the only thing that matters is profits! A profitable business provides the means to support the business owner and their employees while also paying all vendors, bank loans, tax liabilities and investors.

 

Profits allow the company to have the strength to survive the tough times and to take advantage of good business opportunities when they appear.

 

The successful business owner starts every year by creating a profit plan. A sales and marketing plan that focuses on profitable sales is obviously a large part of that profit plan.

Lesson learned: Start each year by making a profit plan that maps out exactly how the business will hit the profit goal that the business owner has set. By focusing on what is really important in running a business you will greatly increases your odds of truly becoming successful.   

Thank you for your continued support and let’s make this year our most profitable year ever!

 

The Sale Isn’t Complete Until the Customer Pays!

A recent study found that half of all small businesses are having trouble collecting receivables. During good times this is an annoyance. During bad times it is often the path to an appointment with a bankruptcy attorney.

Collecting receivables requires a plan and a system that addresses collections before the sale, at the point of the sale and after the sale.

Before the sale is complete you should:

1. Review the customer’s ability to pay. Big companies use credit reports. But, for most small companies the easiest method is to require a down payment from any customer who you do not have a track record with. How they pay the down payment is a good indication of their payment ability. Plus a down payment lessens your exposure, recovers your cost and speeds up your cash flow.
2. Make sure that your product has value to the customer that is equal to or (preferably) higher than the cash that the customer will pay. This is one of the top reasons for slow pay or non-payment. We have all fallen victim to the slick sales person who gets us to buy something that later we regret. The customer usually “gets even” by slow paying or refusing to pay.
3. Offer incentives to prepay. This can be with a discount but I would rather offer a bonus of some sort that actually increases the value to the customer if they pay early.
4. If possible, don’t deliver without receiving payment. At a bare minimum review with the customer your payment terms. The goal is to eliminate the excuse that they didn’t know about when the payment was due. At this point also keep an eye out for clues that something has changed in the customer’s financial ability between the order date and the delivery date.
5. Invoice quicker. Don’t wait till month end. Invoice as the work is completed.  

After the sale is complete you should:

1. At every step in the collection process remember to keep stressing the value that the customer received. Don’t stop selling!
2. Call shortly after the sale to make sure they are happy with the purchase. You are still stressing the value of the product or service they received. If you can’t call all customers you should at least call the largest sales. (This is often a great time to up-sell to the next level or to sell an add-on product!)
3. Have a system that includes some combination of calls and letters that automatically go out to any account that is past due. The squeaky wheel does get paid first. So squeak loudly! Of course remain polite and keep stressing the value of what they received.
4. At a certain point (60-90 days after the sale) the owner should call and
   1. Make sure the customer really felt they received value. If not, the owner should try to fix the problem. This may be your last chance to save a customer.
   2. Ask them for payment.
   3. If they can’t pay the owner should say, “You are a valued customer and I would like to help you by offering a payment schedule.”
   4. As a last resort – offer a reduced payment if the invoice is paid by a certain date.
5. If all else fails – write off the balance and forget about the customer. Don’t waste any additional time and money suing them.  Your time would be much better used learning what went wrong in your sales and collection process and getting better customers who value what you are providing and are willing and able to pay.

Thank you for your continued support and let's make this year our most profitable year ever!

Lessons Learned – Six Ways Smart Business Owners Cut Their Income Taxes

The myth most business owners believe: Hiring a good tax preparer is the secret to paying lower taxes.

Why this myth causes a problem: The normal business owner believe that their work is done once they hire a tax preparer. They don’t do anything to control tax costs. This leads to them being surprised when they get their tax return and paying a much higher tax liability than smart business owners.

So, they blame their tax preparer and find a new one. Of course, this doesn’t change anything since they took the source of the problem with them to the new tax preparer.

The truth successful business owners learn the hard way! Uncle Sam is your partner. And, he is a bad partner! He does little work in the business and demands a third or more of the profits. Smart business owners also understand that income tax is an expense like any other. Thus, it can be planned for and managed.

Smart business owners cut their income taxes in the following six ways:

1. Smart business owners take year-end tax planning seriously. After the first of the year there is very little that can be done to reduce taxes. Before year-end is the only time where a business owner can effectively reduce their tax liability.
2. Smart business owners call their tax advisor before doing any major transactions. They call before selling assets, opening a business or taking money out of retirement accounts. Since they know in advance the tax consequences of their actions they don’t “Shoot-the-messenger” when they get their tax return and discover how much they owe.
3. Smart business owners keep good accounting records. They don’t drop off shoe boxes full of receipts to their tax preparer and they understand that good accounting records ensure that they deduct everything they spend in their business. With the current technology there is no good reason not to have good records in order to prepare your tax return.
4. Smart business owners get their records to their tax preparer early. I prepared close to fifty returns in the last two weeks. There is no way that they received the same amount of attention to helping them reduce their taxes that I was able to spend with clients earlier in the year. Smart business owners understand this and make time to meet with their tax preparer as early as possible.
5. Smart business owners save for taxes as they earn the income. Uncle Sam’s motto – pay me now or pay me more later. Smart business owners make their estimate payments. The smartest business owners put an amount into a savings account weekly that represents how much they will owe. (Hint: divide your total tax liability last year by your total sales from last year. Put this percentage amount in a savings account weekly.)
6. Smart business owners get a basic understanding of the income tax law. They don’t become experts. But, they do learn how the system works and how to use it to their advantage.

Lesson learned: Income taxes can be reduced like any other expense with proper management and planning. This allows the smart business owner to use the savings to grow their business, or support their family, plan for retirement, take a vacation, etc.  

Tax Tip of the Week: Year-end tax planning time is here!

Yes, I survived the 10/17/11 personal extension deadline. Barely! I, like most CPA’s, hate this deadline. We are dealing with the clients who have bad records, don’t plan, are surprised that they owe taxes and complain about how we must have missed something. (Obviously, I'm not talking about any of my clients!)

I tell them all the same thing, “After the first of the year we write history not fiction.”

Now we are entering a time most CPA’s enjoy - Tax planning season!

This is the time that smart business owners work to reduce their taxes for 2012. No surprise that the business owners who hire me to help them reduce their taxes are the same business owners who are expanding even during this economic downturn. They try not to be surprised by anything in their business and they understand that income tax is an expense that can be controlled just like any other cost.

I just recently finished initial tax planning for two of my clients. Together, we identified legal ways to cut their taxes by over 60% (Savings of $108,000 for one and $124,749 for the other). If you are in business you should be tax planning. Yeah, you might only cut your bill by a few thousand dollars. But, if you are like me, you can think of a few things your business or your family could use the savings for.

Tax planning starts by projecting your income to the end of the year and then exploring different tax strategies, loopholes and opportunities that are available to you. This can be intense and time consuming if you have a large business. So call your tax preparer for help.

I will be sending out a year-end tax savings tip each day from now to the end of the year. Signup for these daily tax planning emails by going to www.wjb-cpa.com and entering your email address in the box in the upper right hand corner. I will also be posting these to my FaceBook business page, Linked In account and Twitter account. So search for me there.

Finally, I have only a few tax planning spots available. Email or call so I can discuss with you if this is something that will help you and your business cut your taxes.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Business Success Secrets: Lessons Business Owners Keep Learning the Hard Way! Planning is the Key to a Successful Advertising or Promotional Campaign

The myth most business owners believe: All I need to have a successful advertising or promotional campaign is to just buy an ad, pick some products to advertise, cut my normal price by 20% and then wait for the customers to start rolling in.

Why this myth causes a problem: Simply put – the ads that most business owners place with little or no planning fail to bring in the results that the business owner expected. So, they reduce their advertising or just flat out eliminate it all together. In this economic downturn advertising and promotion is often one of the first things reduced. Of course this leads to flat or reduced sales and sometimes totals business failure.

The truth successful business owners learn the hard way! Successful business owners have a plan and a system for everything important to their business. And they know that advertising and promotion is one of the three pillars of a successful business (along with financial and management).

The successful business owner will have a system that forces them to know the answer to each of the following questions before placing an ad or running a promotion:

• Why am I choosing this product to advertise or run a promotion for?
• What am I trying to accomplish with this advertisement or promotion?
• Who is the target market for this product? Be sure to consider both current customers and prospective customers.
• What will my promotion do that will make me stick out from our competitors? If it doesn’t then why should I run the advertisement or promotion?
• Is this promotion strong enough to get attention? Running BORING advertising is worst then no advertising at all. No advertising is at least free.
• Does the advertising or promotion stress how the product or service will solve an important problem that the customer has?
• Does the advertising or promotion explain why you are the best solution to the customer’s problem?
• What guarantee(s) will you offer to eliminate or reduce the risk to the customer of buying from us?
• What will be my call to action? For example, “Hurry! This offer is only good until Friday!” or “Due to the amount of work required to customize each plan, I can only accept three new clients this month. So don’t miss out – call now so you can see how we can help you increase profits now!”

Lesson learned: Smart, successful business owners understand that proper planning is the key to success. And they also apply this believe to all their advertising & promotions.

Tax Tip of the Week: Many Tax Breaks Set to Expire After 2011

The following is a list of tax breaks that are scheduled to expire at the end of this year:

• The 2% cut to the employee share of social security tax.
• College tuition write-offs.
• The $250 write-off of teacher supplies.
• The write-off of state sales tax.
• The 100% bonus depreciation will be reduced back to 50% for 2012.
• Direct payouts to charities of up to $100,000 a year from IRA’s
• The research & development credit.

Most of these will be extended – though it may not happen until 2012. One exception is the depreciation bonus which will most likely be allowed to expire due to budget restraints.

Also, I would be very surprised if the social security tax cut does not get extended before the end of the year. Allowing it to expire would result in every employee in the country getting a lower paycheck starting in January. Not something any politician is willing to allow in an election year.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Business Success Secrets: Lessons Business Owners Keep Learning the Hard Way! No Pain – No Change! The Unofficial Business Owner’s Slogan



The myth most business owners believe: I can still get the job done, it can wait.

Why this myth causes a problem: Just about every week I meet with business owners who have waited too long to address an issue that has now become an emergency! The numbers of potential problems just waiting to trip up a business owner are almost limitless. The most common first symptom that a business owner usually has is a shortage of cash.

The truth successful business owners learn the hard way! You can never rest! A successful business owner is always on the lookout for little problems that can grow into huge problems that can threaten the survival of their company.

One of the ways they do this is by updating their strategic plan at least annually. They pay particular attention to external threats that are affecting their business now and could threaten their very survival in the future.

 

I know that this sounds somewhat melodramatic. But, consider the fate of BlockBuster. A decade ago they had a rapidly expanding business and were a leader in the home entertainment market. But, they failed to see the threat that a small startup named Netflix represented. Now they are in bankruptcy.

 

The second thing a successful business does is review their internal systems annually. They are looking for better ways to deliver their products and meet the needs of their customers. Failing to do this often leads to a competitor who took the time to improve their systems stealing your customers.

 

Third, they review their marketing and sales tools to make sure they are still reaching and appealing to their “ideal” customer. With the internet and social media changing the way your customers are interfacing with businesses almost on an hourly basis, failing to at least consider the impact of these items on your business may make you the next “Blockbuster”.

 

Fourth, a successful business owner understands that their employees are one of their most important assets. They review their personnel needs with their current employees and determine whether any changes are needed. Do they need new employees, an improved training program, a better recruitment plan, changes in the compensation plan and many, many more employee related items?

 

Finally, a successful business owner doesn’t ignore the financial side of their business. They have accounting systems that provide them with accurate data that allows them to make educated business decisions rather than making decisions based on a hunch. They have a budget that supports their business goals. And finally, they also understand the importance of tax planning.

 

Lesson learned:  If you want to grow a profitable business you must plan for success and solve problems before they grow to such a size that they threaten the very survival of your business.          

Tax Tip of the Week: What employer payments to an employee are not taxable to them?

This is a frequent question I receive from both employers and employees. The debt fight in Washington has highlighted what the President calls, “tax loopholes that should be closed.” A “loophole” is a legal deduction that Washington has written in to the code to encourage some behavior that they feel is worthwhile.

Contrary to public opinion, “Loopholes” are not just for millionaires and billionaires. There are many “loopholes” that employers can offer to their employees that are normally deductible to the company and not considered taxable wages for the employee. These include:

• Noncash gifts of a nominal value, such as a holiday turkey or movie tickets.
• Expense reimbursements under an accountable plan.
• Reimbursed and employer paid moving expenses.
• Contributions to a qualified retirement plan.
• Certain employee length-of-service and safety achievement awards. This is limited to $1,600 in a qualified plan or $400 in a non-qualified plan.
• Value of health and accident insurance premiums paid by the employer. (This is one benefit that the Obama administration and congressional democrats want taxed. Keep an eye on the “Super-Committees” deficit reduction plan this fall to see if this “Loophole” survives.)
• Meals furnished on the employer’s premises for its convenience.
• Lodging on the employers premises required for the performance of their job. (A good example is a fireman.)
• Qualified adoption expenses.
• Qualified transportation fringe benefits.
• Up to $5,250 of qualified educational expenses.
• Qualified retirement planning services.
• Value of employer-provided athletic facility that is on premises.
• Qualified dependent care benefits.
• Employee discounts on property or services normally offered to customers.

Every employer should talk to their tax preparer to see how they can take advantage of these legal “Loopholes”. It will help employee morale and allow you to recruit better employees.

If you are an employee, talk to your employer to be sure you are taking advantage of everything they are currently offering. You might want to give them a copy of this blog article so they can speak to their CPA about adding “Loopholes” that they currently aren’t taking advantage of.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Marketing & Sales Tip Of The Week – Don’t Forget To Budget Me In!!

I have a hard time stressing the importance of budgeting money each month on marketing.  A lot of business owners see it as a wasted expense. It’s really not!

I like to use this analogy when it comes to spending money on marketing. It’s like buying a $20 gift certificate for $10 to your favorite restaurant. You spend money to make money. Just because you don’t get an instantaneous response doesn’t mean it won’t pay off.

The trick is to spend your marketing dollars in the right areas. You have to know your customer to have any type of success. If you need help budgeting or getting to know how your customer’s think, call my office at 915-857-8158, to schedule a meeting.

Business Success Secrets: Lessons Business Owners Keep Learning the Hard Way! More Sales Isn’t Always the Answer!



The myth most business owners believe:  Most business owners think that if they just bring in more sales that profits will take care of themselves.

The truth successful business owners learn the hard way: You can increase sales dramatically and still end up going broke. Many new business owners are talented sales people and get their business off to a fast start. But, a successful business owner quickly learns that in addition to marketing they must also be good at finances and management.

Consider each of these as one leg of a three legged stool – if one leg of your stool is much longer than the other two you will quickly find yourself on the floor. But, keeping the three legs even is a never ending battle for the small business owners. Almost all business owners end up following the same pattern:

1.       New business owners, by necessity, start off concentrating on getting customers. A business without customers is called a hobby.

 

2.       Soon they realize that they must work on their finances. At this stage, the business owner often realizes that even though they have built up their sales, their business is running out of control. They frequently complain to me at this stage that they don’t know what they have in the bank, who owes them money, who they owe money to, what products are their best sellers and who are their most profitable customers. Then they end up being surprised by how much income taxes they owe.

At this stage, the business owner has to seriously improve their bookkeeping and management reporting. Also, they often need to improve their banking relations in order to obtain financing in order to even out cash flow fluctuations.

3.       The next hurdle that a business owner typically hits is that they now have more employees than they can easily manage. So now they must concentrate on implementing management systems in order to ensure that their customer has a consistent experience.

At this stage the business owner also often realizes that the demands on their time are multiplying. Successful business owners become experts at delegating and time management.

4.       After working on all three legs the business owner often thinks that they are done. But, they quickly find out that they are never done. At this stage they often have to revisit their marketing leg. In the beginning sales was the only thing the business owner concentrated on. Now, they find that their time is split between all three legs and the marketing leg now needs work. In place of 100% of the owner’s time they now must create a formalized marketing plan, marketing systems and measurement systems. Once again they are lengthening the short leg of the stool.

Lesson learned: Increasing sales does not guarantee increased profits. Also, what you don’t know can bankrupt you.

 

Business Success Secrets: Lessons Business Owners Keep Learning the Hard Way!

For 35+ years I have worked with small business owners and watched them. This has allowed me to learn many things that worked and a whole bunch of things that don’t. This is my 20^th year running my own CPA firm and I have to confess I have repeated many of the mistakes I watched others make. Heck, since I tend to be creative, I even made a few new ones of my own.

This is the first in a new series sharing some of these lessons with you. I will start with the “myth” that most startup business owners believe and follow that with the “hidden truth” that successful business owners learn the hard way. Finally, I will finish with a business lesson to be learned.

So, let’s start ………………

Budgets – The secret to survival!

The myth most business owners believe: If you know your business, budgets are only needed by the bank when you are applying for a loan.

The truth successful business owners learn the hard way: Running a successful business requires attention to a huge amount of moving parts that seldom fall together correctly. Even the smallest business will run into cash flow problems because of the business cycle. Large growing companies are almost guaranteed to run into cashflow problems at one time or another.

In the past three years, I have met with many small construction companies who learned the “business cycle” the hard way when they won a contract at Ft. Bliss. Once they started the contract, they quickly learned that they had to pay upfront for materials and labor and that it often took 45-90 days to get paid. A quick budget would have helped them see this problem ahead of time.

What they didn’t understand is that budgets are critical to every business owner’s success! Operating without a budget is like starting off on a journey without any idea how to get to where you are going. Sounds like fun but often ends up as a disaster. A budget helps you plan to be a success rather than hoping for success.

When you budget (and I mean real-life budgeting – not Government pretend budgeting!) you actually sit down and figure out:

1. what you are going to do in order to get the sales you need to be a success,
2. what costs are absolutely necessary to deliver your product efficiently,
3. what staffing that is needed to attain this budgeted income,
4. what financing might you need during slow times.

Finally, a budget helps you stay on track. Successful business owner’s review every month what actually happened against their budget and then make the necessary adjustments needed to reach their goals. You would be amazed how many business owners only discover that they made a profit when I do the tax return after the year end. By then it is way too late to adjust for changing business circumstances.

Lesson learned: Budgeting is a waste of time only if you don’t plan on making money!

Tax Tip of the Week: Is money I received from an inheritance taxable? Will I Owe Tax if I sell my parent’s house that I inherited?

These are common question from my clients. Like most things in tax law the answer is not simple.

First, property received from an inheritance is not taxable. This includes cash, property, stocks & bonds, below-market sales, debts that are forgiven and partial interests in property.

But income in respect of a decedent is taxable. These are items that would have been included in decedent’s gross income if received before death. These include IRA distributions, accrued interest and dividends, tax-deferred annuities, Series EE bond interest, etc.

As to selling your parents House - If you sell property that you inherited it is taxable. But, the gain is calculated using the fair market value (FMV) at the date of death (or the FMV on the alternate date if an Estate Tax Return is filed and alternate valuation is elected).

So, if your parent’s house is sold within a few months of you inheriting it is very unlikely that you will have a taxable gain unless the value has dramatically increased in the short amount of time that you owned it. But, if the value has increased since you inherited it than you will be taxed on the increased value.

 Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Jump-Start Profit Tip of the Week: Cash is King!

The storm clouds are on the horizon! Multiple times in the last month business owners have complained to me that sales have dropped in the last two to three months. There are a multitude of reasons that I would point to. The main ones:

• The consumers are nervous and not buying.
• Higher inflation in gas, food and clothing is limiting funds available for non-essentials. Seniors & veterans, in their third year without as cost of livings increase, are really feeling the pinch of this inflation
• Continued high unemployment. Don’t believe the 9% number! When you count those who have given up looking, those who are working less than 40 hours, or those who have had to take a job at a much lower pay than what they were used to working (the “under-employed”) the rate is closer to 18%-20%.
• Smaller employers, burdened with increased audits and regulation and uncertain about future tax rates and the regulatory burdens of ObamaCare, are delaying expansion and hiring plans.
• Reduced government spending as states and local governments are forced to cut their budgets.
• Large Federal deficit spending that is sucking credit out of the market. This is making it almost impossible for both the consumer and the business owner to get the credit needed to kick-start the economy with spending.

So what should the small business owner do? Prepare for the storm now of course! The smart business owner should immediately buckle down and get back to basics. This means:

• Run your business by the numbers. Profits and cash are the only measure of how successful your business is.
• So, you must run accurate cash based profit and loss weekly. If it is accurate – fix it! If you don’t know how pay to have your CPA fix it.
• Focus on cash flow and cut expenses NOW! If survival is on the line – be brutal about the cuts. You cannot afford any sacred cows.
• Collect on your receivables. You must get the profits into the bank. Review your policies and require upfront deposits and payment upon delivery. Remember – Cash is King.
• Run lean! Keep your inventory as low as possible. Work with your suppliers to get product only when absolutely needed.
• Control payroll costs! Get rid of any deadwood. Cut every employee’s hours by 4-8 hours per week. Make sure they understand that you are doing this to save the company and to make sure they all have a job during this hard time. When an employee quits – don’t replace them right away. See if the work can be spread around or what can be eliminated without hurting customer service and the quality of your product or service.
• Increase marketing and sales efforts. Focusing on sales is the easiest way to grow your business during good times and sustain it during the bad times.
• Work harder. As the owner of the business you have the most to lose if your business fails. So, get back to work. Come in early, leave later, work weekends and forget the golf for awhile. Set the tone that this is an emergency.
• Don’t panic. You have a plan and the will to survive and thrive. So, let the country have a recession (or whatever the politicians want to call it this time) just decide not to participate!

Thank you for your continued support and let’s make this year are most profitable year ever.

P.S. Call me if you need help putting together a profit improvement plan.

Jump-Start Profit Tip of the Week: Never Totally Trust Your Bookkeeper!

Over the years I have spoken to literally hundreds of business owners who have had problems with their bookkeepers. The lucky ones only had incompetent or lazy bookkeepers who only provided financial statements that were so wrong that they were useless as a management decision tool.

The unlucky business owners hired bookkeepers who stole thousands of dollars from them. Most of this theft resulted from the business owner totally trusting them. Why? Well the main reason is that the business owner just hates anything to do with bookkeeping! They would rather be out making a sale and working on producing the product or service so that they can get paid. Who can blame them? But, this trust can go way too far! I have seen business owners let their bookkeepers run the business finances in total. This often includes receiving the money, paying out cash, making deposits, signing checks, using the company & personal credit cards and then relying on them to prepare all the bookkeeping. I know they trust them but do they have to tempt them?

Though some employers are unlucky enough to hire a professional embezzler, most theft starts small as a onetime thing when the bookkeeper has a problem. But, they don’t get caught and they realize how easy it is so it grows. The bookkeepers rationalize it by saying they are running this company and are not being paid what they are worth. So, they deserve the money since they “earned” it!

The employer often thinks their CPA will find it. Wrong! We are hired to do tax returns or financial statements not to perform an audit. Often theft occurs before the cash is ever booked. Most often the theft is payments to cover the bookkeeper’s personal expenses that the CPA has no way of knowing they are not business expenses. There are at least a dozen ways a smart bookkeeper can cover their tracks.

So, what should the business owner be doing?

1. The business owner should sign all checks. Before they do, every check that is given to them to sign should have attached all relevant backup data so the owner knows what is being paid and who ordered it.
2. The business owner should make the daily deposit and compare it to the daily cash receipts report. (If you don’t have one you better call your CPA for help in designing one!)
3. The business owner must control all access to company & personal credit and debit cards. Be sure not to share passwords!
4. The Owner must get the bank statements and open them personally. Better yet, they should review the bank credit card activity on line daily or at least weekly.
5.  The owner should reconcile their bank monthly. If not them, they should hire someone else like their CPA to reconcile their bank accounts. Just be sure it is not the bookkeeper.

Remember, the job of a good professional embezzler is to become the trusted bookkeeper! Never ever totally trust your bookkeeper.

Thank you for your continued support and let’s make this year our most profitable year ever!

P.S. If you don't believe me, google embezzlement and bookkeeper.

Tax Tip of the Week – Determining Deductible Business Expenses

Every business owner has tons of business expenses that they “need” in order to run their business. And, every business owner believes that everything they spend should be deducted on their tax return. But, the tax code makes reporting these expenses to the IRS tricky. According to the law, some expenses are fully deducted, some expenses are only partially deducted and other expenses are never deductible.

This will be the first in a series on the topic of deductible business expenses. But, let’s start this week with a brief overview on the topic.

So, what is a business expense?

Business Expense - Money spent or cost incurred in an organization's efforts to generate revenue, representing the cost of doing business.

This can be pretty vague. I have heard this one almost a hundred times a tax season, “I need to buy suits for work so that is a business expense.”  Hate to burst your bubble; but, according to the IRS it’s not. As a general rule, nothing is deductible unless you can point to somewhere in the IRS code that states it is.

So, how do you know if something qualifies as a business expense?  In order for an expense to be deductible it must meet the following four categories:

• The expense is ordinary and necessary for business.
• The expense is current (in other words for the current year).
• The expense is directly related to your business.
• The expense is in reasonable amount

I’ll give you an example of an expense that meets all of the criteria. Your business phone services:

• You need a phone line for your business to contact customers and for customers to reach your business.
• The bills you paid during the tax year will be deducted on that year’s tax return. The phone line is only used for business purposes.
• And hopefully you’re not being ripped off and your bill is a reasonable amount.

Now here is a similar scenario but some of the expenses might not be deductible.  Your cell phone bill:

• You use your cell phone for business and personal use. We usually estimate what is used for business and personal and use a percentage of what you paid.
• We can only use what you paid in the tax year so if you paid December’s bill in January what you paid in January will not be used in this tax return but next years
• Again whatever you use for business is deductible so if you have a family plan you cannot take other family member’s portion of the bill as a business deduction unless they work for you and genuinely use it 100% for business.
• Last but not least, reasonable amount you have a small, low tech business and you spend $1,500 on a new cell phone, you better be prepared to prove to IRS that is a necessary business expense and is used for business purposes.

In future parts of this series will go into more detail of the four items that a taxpayer must prove in order to deduct a business expense along with examples of expenses that are never deductible.

  Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Jump-Start Profit Tip of the Week: The Federal Deficit is Increasing by $237,823 per minute! What does that mean to the small business Owner?

That is not a misprint! In the minute it will take you to read this article (better read fast) the federal government will spend $237,823 more than the taxes it takes in. You can easily verify this information on the internet and you will see that the federal deficit is projected to increase $1.5 trillion dollars this year. But, that number is so large that I would like to break it down to something us normal people can at least start to understand. So here goes, the federal deficit is increasing:

• $1,500,000,000,000 per year($1.5 Trillion),
• $125,000,000,000 per month ($125 Billion),
• $28,846,153,846 per week ($28.8 Billion),
• $342,465,753 per day ($342.4 Million),
• $14,269,406 per hour ($14.3 Million),
• $237,823 per minute and,
• $3,964 per second.

Most small business owners will just shake their heads and try to ignore it since the numbers are just so ridiculously large and they feel there is very little they can do. But, this extreme deficit spending will have, and I argue is already having, a very negative effect on small businesses. History indicates that the following is the most likely outcome of this excessive spending:

• Increased inflation. Especially for food, fuel and any imported goods.
• Increased interest rates as bond purchasers perceive a higher risk.
• Increased taxes. On the federal government level as it tries to keep the spending levels the same. And also at the state and local levels which will be dealing with the effects of decreased funding from the feds.
• Increased audits & collection efforts by all levels of government which will be trying to increase revenues without increasing tax rates.
• Reduced credit for business expansion and growth. The federal governments increased borrowing will continue to suck investor funds that otherwise could go to businesses in order to cover its excessive spending.

So what should the small business owner be doing now to prepare?

• Review all current costs and look for ways to decrease them that will not affect customer service.
• Improve your business systems in order to accomplish more work with less staff.
• Train and cross train your employees. Again, this will help you accomplish more with less staff.
• Know your cost of providing your product or service and review them monthly. You will need to react quickly to changing circumstances and product prices.
• Review your pricing now. I just emailed a business tip on this. If you didn’t receive it email me at Wayne@wjb-cpa.com and I will send it to you.
• Improve your marketing so that you reach more prospects, convert more of the prospects to customers, retain more of your current customers and get more referrals from them.

Finally, pray that the American people and the politicians in Washington start acting responsibly soon.

Jump-Start Profit Tip of the Week: The Education of the Accidental Manager!

The majority of business owners are what I call accidental managers who have no formal training in managing employees. In fact managing employees if often very far from the business owners’ mind when they started their business. Unfortunately for them, being able to effectively manage employees is a vital skill that they must develop if they ever want to grow their business. While sales and marketing skills are important in order to get customers; having well trained, qualified and motivated employees is the key to good customer service that keeps your customers coming back time and time again.

Mastering the following areas is vital to proper employee management and I will explore them in detail in future posts:

• Setting goals and job descriptions before the employee is hired.
• Creating a good hiring system.
• Proper training.
• Good delegation.
• Management by weekly meetings and by walking around.
• Catching your employees doing something right.
• Learning to manage systems not people.
• Concentrate on cross training.
• Growing talent from within.
• Establishing a proper compensation system.

Two books I would start with are The One Minute Manager by Ken Blanchard and The EMyth Manager by Michael E. Gerber. Both of these are good places to start in fine tuning your management skills

Thank you for your continued support and let's make this year our most profitable year ever!

Jump-Start Profit Tip of the Week: Growing Sales Doesn’t Automatically Increase Profits!

Growing sales is the main goal of almost all business owners. Most business owners think that more sales will be the answer to all their cash flow problems. The problem is that more sales do not automatically equal higher profits. But, when you increase sales some things are guaranteed to happen:

• More customers equal more vendors and more payables.
• More customers equal more employees.
• More customers equal more headaches.
• More customers equal more risk.

There are two main times when businesses end up filing for bankruptcy - in the first year of existence and shortly after they have a dramatic increase in sales. For businesses that sell a product, this happens about the time their sales hit the million dollar mark and their staff grows to about ten employees. Service companies hit the wall around a quarter million in billings and around five employees.

What happens at these points is that the owner no longer can keep a handle on everything like they could when they were smaller. If they have not setup proper management and accounting systems they can easily run out of cash.

This transition from being an entrepreneur to becoming a manager is one of the hardest to make. That is why less than 2% of startup companies grow to these levels and why so many companies fail to survive.

What are you doing to avoid “hitting the wall”? Are you educating yourself by reading as many business books as possible? Are you looking for a trusted business advisor to help guide you through this treacherous time? Or are you just ignoring the problem and trying to sell more so you can grow your way out of it?

Remember the choice is always yours!

Thank you for your continued support and let's make this year our most profitable year ever!