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Tax_Benefits_Thumb.pngA retirement plan can help businesses attract, retain and motivate good employees, and for business owners who participate in the plan themselves, it can serve as the foundation of a strategy to help provide positive retirement outcomes. At the same time qualified retirement plans can provide three important tax benefits: tax deferral, tax deductions and tax credits to help offset a plan’s start-up and administrative costs in certain cases.

 

Choosing the right retirement plan requires a careful analysis of company size, projected growth, contribution limits and flexibility, and administrative and reporting requirements.

 

Click here to download "Beyond a Perk: Tax Benefits of Retirement Plans"

 


There are many important benefits and advantages available to businesses owned by women and/or minorities, but in order to qualify for them a business must become certified as a minority- or woman-owned enterprise. Connections, marketing assistance, and technical training are just some of the benefits that come with certification, says Susan Rittscher, president and CEO of the Center for Women & Enterprise, the New England affiliate of the Women’s Business Enterprise National Council, a leading certifier of women-owned businesses. (Others include the National Women Business Owners Corporation and the National Association of Women Business Owners.)

 

“First and foremost, if the diverse-owned business is interested in pursuing bids or contracts with a large corporation with a supplier diversity program, a state agency, or a federal agency, they must be certified in order to count toward supplier diversity goals,” Rittscher says. Another benefit of certification is connections to other certified businesses, which can be a powerful network of potential partners, clients, and advisors and mentors. “Certification is a strong marketing and selling tool for business owners when leveraged effectively,” she adds. Certified businesses may also have access to exclusive programs and services such as professional development workshops and networking and matchmaking events.

 

Tom Greco, vice president of ThomasNet.com, a free platform with a database of more than 610,000 companies, notes that there are many different ownership/diversity certifications that provide a competitive advantage to qualifying companies, and many businesses and government agencies are anxious to do business with them. “Indeed, 72 percent of buyers recently surveyed by CAPS, a research arm of the Institute for Supply Management, said they would be increasing their spending with diverse suppliers. Diverse businesses include Women-Owned Businesses and Minority-Owned Businesses as well as Veteran-Owned Businesses, Small Disadvantaged Businesses, HUBZone Businesses, and Service-Disabled Veteran Businesses,” he says.

 

While the process for obtaining various kinds of certification varies, Greco suggests that a business seeking any of the certifications mentioned above start by self-registering with the federal government’s System for Awards Management (SAM), since that is a requirement for most types of certification. Next, seek out one of the major certification organizations for your diversity group—such as WBENC for a women-owned business or the National Minority Supplier Development Council for a minority-owned firm. In most cases, minority-owned business certification falls under the purview of the individual states. Check out this useful list of certifying agencies by state to learn more.

 

It is important to note that in order to qualify for minority- or women-owned certification, the business must not only be owned by minorities or women but also controlled by them, says Dean dt ogilvie [ed. note: lack of capitalization is intentional and should be retained], the dean and a professor of business strategy at the Rochester Institute of Technology’s Saunders College of Business. “They have to be the ones making the decisions about strategy, business, and structure. They can’t just be figureheads to get the certification,” she warns. Owners must provide required documentation to prove ownership and control; they must have contributed capital and/or expertise to the business; they must be U.S. citizens (or, for some programs, resident aliens); and they must be independent in decision-making, Rittscher says.

 

Lisa Firestone is president and owner of Managed Care Advisors (MCA), a woman-owned employee benefits and disability management consulting and workers’ compensation case management firm based in Bethesda, Maryland, and she believes certifications and the set-asides to which they provide access play an important role in leveling the playing field for companies like hers. MCA is a certified minority business enterprise in Maryland and several other states and a WBENC-certified woman-owned business. In 2012 it also became certified as an Economically Disadvantaged Woman-Owned Small Business. “Honestly, before my business entered into government contracting, certifications and set-asides were unfamiliar concepts, and ones that made me a bit uncomfortable,” she says. “But what I have learned is that there really is no ‘special consideration,’ but just an opportunity to level the playing field and compete effectively. Certifications can get your business noticed, but they are not a direct conduit to a contract. You still have to get out there, compete for that business, and win it.”

 

Article provided by Inc. © Inc.

Content created exclusively for Bank of America.

 

 

Steve Strauss

The B Word

Posted by Steve Strauss Apr 28, 2014

It is safe to say that people start businesses for many different reasons:

 

  • Maybe someone loves doing something so much that he just had to take a risk and build a business around that passion
  • It might be someone who always longed to be her own boss and when the opportunity arose, she took it
  • It may be that they are what we call “accidental entrepreneurs”- people who lost their job, whose unemployment ran out, and who had no other choice

 

Whatever the reason, you can safely assume that all different types of entrepreneurs have one thing in common: They probably didn’t go into business because they love crunching numbers and making budgets (unless, of course, the entrepreneur is an accountant, but I digress.)

Steve-Strauss--in-article-Medium.png

But budgeting is one of those things that business people usually learn to do, sooner or later, because they have to, because staying afloat and being professional requires it. For newer businesses especially, budgets are often something to be endured at best and avoided at worst. Since there are so many other things to do in the start-up phase, projecting and budgeting can easily be put off for another day.

 

However, that is a big mistake. Think of it this way – would you ever get in your car, put a bag over your head, and drive off? Of course not. With a bag over your head, you would never know if you were headed in the right direction, you couldn’t see any dangers down the road, and you wouldn’t even know if you had enough gas to get where you wanted to go.

 

That is exactly the same situation when you run a business without a budget. Without a budget, you might have a vague idea of your cash flow, profitability, and money situation, but you don’t really know if you have enough money to get where you want to go. Creating a budget allows you to take the bag off of your head, get your bearings, and head in the right direction with the confidence you need to make smart decisions.

 

Often, new entrepreneurs learn about budgeting the hard way. In the early stages of a business, cash flow is usually an issue. Money comes in, some bills get paid, others don’t, and budgeting for the future is put off. The problem is that with cash flow so erratic, the new entrepreneur without a budget has no tool to help him or her analyze how best to use their money. Should they invest in that Google Adwords campaign, and if so, how much? Can they afford to hire that independent contractor? Without a budget, it is really tough to know.

 

Let me also suggest that another reason why many small business people put off budgeting is simply because of the word itself: “budget.” Not a lot of people like that word, entrepreneurs especially. Budgeting often connotes restriction, and especially with the freedom that entrepreneurship can bring, constraint can feel alien.

 

Click here to read more articles from small business expert Steve Strauss


So consider this instead: Substitute the word “plan” for “budget.” Because, really, that is all that a budget is; it is your financial plan for your business. Would you like to grow your business this year? Great, then you probably need to spend more on advertising and marketing. Make that part of your plan. Are you spending too much on labor? OK, make that part of your plan too.

 

Here is the easy way to do it: For three months, track all of your spending. Create as many categories as you can and faithfully record where you are spending your money right now. There are many excellent software programs you can use, such as Quickbooks, Peachtree, or Freshbooks. You could also simply create a spreadsheet using Excel.

 

Then, analyze the data. By taking the paper bag off of your head and seeing where you are headed, you will be better able to make a course correction. Want to spend more on new equipment? Then maybe you can cut back on transportation costs. Perhaps you see that you are spending too little on labor, or too much on insurance. Whatever the case, by analyzing your spending you will now be able to make smarter, better, more informed decisions.

 

If you are unsure how much to spend on different categories, ask yourself these two questions:

  • How much do you need to keep the doors open? (rent, labor, taxes, insurance, etc.)
  • What spending will give you the biggest bang for your buck?

 

In the beginning, this is a matter of trial and error, but after a while you will see what works best for you and your business. Double down on that.

 

After all, it is your budget – err, I mean plan – and you can use your money however you want.

 

 

About Steve Strauss

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest,The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss.

http://www.smallbusinessonlinecommunity.bankofamerica.com/people/Steve%20Strauss/content

You can read more articles from Steve Strauss by clicking here






Growth potential and the need for financing go hand-in-hand. “Certain milestones or trigger points are common growth challenges that require additional financial support if the business is going to move to the next level,” says Ray Vargo, director of the Small Business Center at the University of Pittsburgh’s Institute for Entrepreneurial Excellence. Among those trigger points are the need for more staff, sales growth that exceeds existing production capacity, the need to purchase new equipment and/or arrange for additional facilities, and expansion into new markets, he says.

 

It is critically important for business owners to be proactive in creating a plan for future growth. “They must be both forward-thinking and flexible,” Vargo says. “Owners should always plan ahead and anticipate future milestones, but they should also regularly examine the current state of their business and try to identify new opportunities that weren't originally planned for and then determine the sort of financing needed to pursue such opportunities.”

 

Lindsey Gilkes, a management consultant at the Institute for Entrepreneurial Excellence, suggests conducting a brief checkup of your business at the end of every fiscal year. Here is a suggested roadmap for the process:

  • Identify your three major current concerns about your business.
  • Conduct a thorough financial review of the previous year’s performance with a focus on key ratios, such as your margins relative to the industry average, inventory turns, and cash flow (including receivables and payables turnover rates).
  • Compare your previous year’s actual performance with the numbers you had projected for it.
  • Set specific financial and other performance goals for the coming year.
  • Develop a plan with concrete strategies for achieving those goals.
  • Include due dates for each goal and contingency adjustments to be made during the year for goals that are not being met.
  • Designate who in your organization will be primarily responsible for achieving each goal.

 

Examining your budget and your current balance sheet in conjunction with your action plan will help you identify where you might need financing to complete items on your action list and what type of financing is likely to be most effective and accessible, Gilkes says.

 

Financing plans with accurate projections are not difficult to create, says Rob Dennison, a national partner in Irvine, California-based Hardesty LLC, an executive services firm focused on the office of the CFO. The challenge is executing the plan to achieve the desired results. “It’s imperative to have a flexible plan that can be adjusted and allows for modeling of unexpected events.”

 

Defining needs and assigning associated weighting to their importance is an integral part of this process, and some key considerations include:

  • Expansion versus risk mitigation. Potential revenue and profit gains from expanding into new areas or market segments must be weighed against the costs of mitigation measures required for new risk factors, i.e., currency fluctuations or political instability in new overseas markets.
  • Securing the best terms and the impact on timing. It makes sense to secure the best financing terms possible, but having the financing already in place may be a more important consideration for expansion minded businesses so you can move quickly when opportunities arise.
  • Business stage-to-financial stage ratio. Different types of debt and equity financing are generally more available to businesses at different stages in their development. Make sure your financing efforts align with your current business stage to improve your chances of success.
  • Capital allocation plan. Lenders will want to know what you plan to do with the money. Have a detailed plan ready that ties the funds being requested to specific business goals (purchase of new equipment, expansion of production lines, etc.).
  • External issues and “unknown unknowns.”

 

“Knowing the most effective way to allocate your funds is of primary importance to any business,” say Evan Charles, co-founder of Boston-based Launch Academy, a provider of coding and web development training. “Misjudgment here can result in wasted money and time.” Start with long-term and associated short-term business goals, make sure the contemplated spend aligns with those goals, and confirm you are taking the correct strategic next step rather than skipping ahead, he advises. “Be protective of your assets as if you have two personalities: One is an entrepreneur—that’s easy—and the other is a tight-fisted investor. If you are not financially savvy, seek help. The cost will far outweigh the spend.” Dennison adds that the goal should be to create a plan that anticipates growth and puts financing in play before it’s needed. “Anticipation versus reaction should be the theme as it relates to financing,” he says.

 

For more information on different approaches to building a finance plan geared for growth and gauging the health of your business, check out:

 

Article provided by Inc. © Inc.

Content created exclusively for Bank of America.

 

 

Maximizing-Tax-Credits.pngAs a small business owner, are you taking advantage of all the deductions you are entitled to? With our new guide, Maximizing Tax Credits for Small Business, you’ll have the information you need to make the most out of your deductions come tax time.

 

Click here to download the Maximizing Tax Credits for Small Business guide.

There are many things to handle when you own a business: Of course, you need to be on top of sales, inventory, and advertising. You also probably have your hands full with everything from shipping to social media marketing to labor issues.

 

So, when was the last time you monitored your business credit?

 

If you are like most small business people, you haven’t done it in quite a while. While that’s understandable, it is also a mistake - and a potentially costly one at that.

 

Example: Joe owned a computer repair shop for many years. It was an established and successful business, so he never thought much about business credit. He ran his business off of his profits.

 

Then the recession hit, and Joe’s business took a dive. The problem for Joe was that because he had been ignoring his business credit for so long, when he needed a short-term line of credit to tide him over, he couldn’t get it.

 

It turned out that for many years, inaccurate derogatory information was being reported to Joe’s business credit profile. A company with a similar name to Joe’s business had hit hard times too, started paying its bills late, and eventually filed for bankruptcy. All of that was, unbeknownst to Joe, mistakenly being reported onto his business credit report. Since Joe had not been monitoring his credit, he never caught the mistake, and when the time came for Joe to use what he thought was stellar credit to help his business, it was almost too late.

 

It took six months of letters, documentation, and acrimony before the errors were discovered and corrected, and in that time, Joe almost went under.

 

Don’t think that Joe’s experience is unique, because it’s not. More than one billion pieces of information are reported to personal and business credit files every month, so there are bound to be mistakes. The way the system is designed is so that it is incumbent upon you to make sure your credit profile is correct. It is your responsibility to check your credit, no one else’s.Steve-Strauss--in-article-Medium.png

 

Up front, it is important to note that your business credit should not be the same as your personal credit, although for a lot of small businesses it is. Most people start their business with their personal credit, at least partially. However as soon as you can, you need to separate the two. The way to do that is to set up a separate and distinct credit profile for your business. You do so by getting a taxpayer ID number from the IRS, and then a DUNS number from Dun & Bradstreet Credibility Corp.

 

You may also need to review your personal credit profile. You are allowed by law to receive a free personal credit report, once a year, from AnnualCreditReport.com.

 

Click here to read more articles from small business expert Steve Strauss


Monitoring your credit report(s) allows you to:

 

Find and correct false information: As Joe’s cautionary tales exemplifies, you must monitor not only your personal credit profile, but your business profile as well.

 

There are any number of things that can be inaccurate on your business credit profile:

 

  • Someone else’s bad information showing up on your credit report as yours
  • Debts that are not yours being reported as yours
  • Omissions of your good payment history
  • Not having false or outdated information being removed after 7 to 10 years, as the law generally requires

 

And the beat goes on. It is vital therefore that you closely monitor your DUNS report so you can catch errors before they hurt your business.

 

Avoid identity theft: In this era where even large corporations can get hacked, it behooves all of us to keep a very watchful eye on our credit report. According to a study by McAfee, 60% of small business that are a victim of identity theft never recover and go out of business within six months.

 

Get the credit you deserve: The point of all of this monitoring is to make sure that your business credit report accurately reflects that you pay your bills on time, because once it does, it also shows potential lenders and investors that your business is a good risk. The likelihood that you will get the credit you need grows with each positive entry on your credit report.

 

Thus, by regularly monitoring your credit profile, paying your bills on time, and keeping your debt low, you may be able to get a good loan at a reasonable rate when you need it.



About Steve Strauss

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest,The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss.


http://www.smallbusinessonlinecommunity.bankofamerica.com/people/Steve%20Strauss/content


You can read more articles from Steve Strauss by clicking here






Last_Min_Tax_Tips_body.jpgby Erin O’Donnell.


Professional tax preparers for small businesses are already hard at work for the fast-approaching April 15 deadline. S corporations, which almost always follow a calendar tax year, are even shorter on time with a March 15 deadline.


Now that the reporting year has ended, most options to optimize a small business tax return lie in the deductions and credits you choose to claim, or in deciding to file for an extension. The estimated 85 percent of small business owners who file taxes as individuals should also review their returns for any claims that could raise suspicions with the IRS.


Home office deduction changes

Small business tax expert Barbara Weltman says the first thing to do is learn about changes in the tax code that affect entrepreneurs, especially those who work out of their homes.


“The good news is there is a new, simplified home-office deduction, since 52 percent of all small businesses are home-based,” says Weltman, author of J.K. Lasser’s Small Business Taxes.


Up until this year, most entrepreneurs working out of a home office had to make some complicated calculations about the percentage of their home’s square footage that they used for business, the portion of utilities and Internet that went to business use, and so on. Now, a home-based business can deduct $5 per square foot up to a limit of $1,500.


The original calculation method is still available, too. Which one should you take? Weltman advises business owners to compare the flat rate to the deduction they claimed in years past. “If you have a space that’s larger than 300 square feet, you might consider calculating it the old way. That’s the maximum you can have on the simplified method,” she says. The IRS also has an online comparison.


Use your time wisely

If you’ve been keeping good records throughout the year, tax time will be a lot less painful. But it’s also important to give yourself time to go over your paperwork and make sure you have everything you need to complete your return, says Chris Whitcomb, tax counsel for the National Federation of Independent Business.


Give your accountant or tax preparer enough time to complete your return and let you review it, Whitcomb says. Among NFIB’s 350-plus members, Whitcomb says nine out of 10 use an outside tax preparer, tax software, or both.


For sole proprietors, independent contractors, and home-based businesses, doing your own taxes isn’t out of the question. The Small Business Administration notes that tax preparation software is a good option, with one caveat: many free products don’t support business tax filers with necessary forms such as Schedule C. Check to make sure your software has everything you need.


Whitcomb adds that getting organized early also helps you find out if you owe money, and to plan accordingly. “You don’t have to file until April 15. You can plan for that cash flow ahead of time if you have to pay,” he says.


Maximizing deductions

Weltman says tax time is your opportunity to make smart elections. One example is the Section 179 deduction, which allows business owners to write off the entire cost of new equipment in one year rather than taking depreciation over multiple years. Eligible items include machinery, computers, certain software, and furniture. Or, a business can take bonus depreciation, which allows half the cost of qualifying equipment to be deducted this year, with remaining depreciation amortized over the item’s lifetime.


“Depending on your tax picture, you should sit down with your tax advisor to figure out the best depreciation strategy for your business,” Weltman says.


Enjoy these deductions while you can. They’re two of 55 tax breaks that Congress allowed to expire at the end of 2013. Congress could retroactively reinstate them, but for now Weltman says that makes 2014 tax planning difficult. For 2013, a business can write off up to $500,000 under Section 179. That number drops to $25,000 next year, and bonus depreciation is on track to be eliminated altogether.


If you laid the groundwork for a business in 2013, some startup expenses can be deducted, such as money spent on product and market analysis and visiting potential business sites. For more small business expenses and deductions, check out the SBA’s guide.


Finally, some states also have special incentives for businesses that aren’t available from the federal government, Weltman adds. Check the rules and deadlines in your state before you finalize your return.


Audit pitfalls

The SBA advises business owners to avoid these common audit triggers:


  • Large sum miscellaneous deductions – The IRS takes notice at long lists of itemized deductions that don’t seem to fit your income. Be specific about every deduction and keep the documents to back them up.
  • Classifying employees as independent contractors--Failing to classify correctly could mean you’ll owe back wages under the Fair Labor Standards Act, and you may pay back taxes and penalties. Visit this guide
  • Keep business and personal expenses separate – It’s best to maintain a separate bank account or credit card for the business, Weltman advises. But if you didn’t do that in 2013, recordkeeping is the next best defense, especially if you used personal property like a vehicle for your business. Failing to keep business and personal activities separate can mean losing out on business write-offs if your records aren’t clear, she says.


Where Weltman parts ways with the SBA, however, is over the home-office deduction. SBA repeats the long-held belief that having a home office increases your odds of being audited. “Is it a red flag? My opinion is no, because look at how many people work from home today,” Weltman says.


Just make sure you qualify for the deduction, she adds. If your business has a commercial address and you work from home occasionally, that doesn’t pass the test.


And if you’re doing really well, expect extra scrutiny. Those who report $200,000 or more in income automatically fall into a high audit risk category, Weltman says. This year, there is also an additional 0.9 percent Medicare tax on earned income and 3.8 percent tax on net investment income for single filers making $200,000 and married couples filing jointly who make $250,000.


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Need more time?

You can file for an extension if April 15 is coming too fast. NFIB’s Whitcomb says it’s better to get your return right than to rush through it just to meet the deadline, especially if you’re missing key supporting documents.


If approved, an extension will give you five to six extra months to prep your return. But remember, you don’t get extra time to pay. Estimate what you owe and send the payment when you file Form 7004 to request the extension. If you’ve already made quarterly payments, furnish that information to the IRS as well. If you owe money but don’t pay, the IRS could reject your application, and interest and penalties will kick in.


Looking ahead

When wrapping up your 2013 return, remember that it’s also time for the first payment of quarterly estimated taxes for 2014, Weltman says. Stay on top of your cash flow projections so you have enough on hand when these payments come due.


Although the expiring tax breaks make for a lot of moving targets, she says it’s best to peg your 2014 tax liability to your 2013 tax obligation. “No matter how much you ultimately owe, at least you won’t have underpayment penalties,” she says.


Disclaimer: Since the details of your situation are unique, you should always seek the services of a qualified professional for advice specific to your business.

second_opinion_taxes_body.jpgby Iris Dorbian.

 

With the proliferation of DIY tax software programs such as TurboTax flooding the market, it can be tempting for financially pinched small business owners to forgo the services of an accountant when filing their taxes. But according to several experts, that could be a serious mistake. Following are some reasons why a small business owner should, at least, have a tax accountant review their returns before filing.

 

Computers are not infallible

Believe it or not, there are several salient items that even the most deftly assembled software program can miss. Unlike an accountant who deals with thousands of returns over a career, software programs are not designed to detect oversights.

 

“They're all highly simplified,” says Eric Levenhagen, an Iowa-based CPA who runs his own firm ProWise Tax & Accounting, which specializes in small businesses. “They don't catch everything.”

 

To prove his point, Levenhagen, who launched his business four years ago, says he is frequently contacted by small business clients who use software programs to file their taxes. In one instance, his client, a sole proprietor, didn't understand that business and personal returns are filed together. The software missed this.

 

“He had already filed his personal returns and he came to me and said, 'I'm going to file my business return and I want a second opinion on the figures that I'm going to plug in,'” he recalls. “I said we need to go back and change that.”

 

Financial pros know what to look for

An accountant with years of experience working with small businesses will have likely encountered any tax situation you present. Sure, it might end up costing   more than the investment in a tax software program, but the short-term pain of parting with a few dollars compensates for an outcome that could be dire to your bottom line.

 

“Tax professionals will know additional things to watch out for like audit red flags,” says Levenhagen. “For example, you get people who have too many round numbers on their returns because they're just guessing or estimating their expenses. And there'll be a lot of numbers that end in zeros. That's not a good situation.” Levenhagen explains that such facile approximations could raise the suspicions of the IRS.

 

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Second opinions are valuable only if provided by competent professionals

Make sure that the tax professional you're consulting has a solid reputation as someone who is knowledgeable, reliable and well informed when it comes to current tax laws and trends. Ask trusted colleagues or associates for referrals. Don't pick the first name in a Google search result without doing your due diligence.

 

Linda de Marlor, president of Tax-Masters, an accounting firm in Rockville, Maryland whose client base is also heavily comprised of small businesses, agrees wholeheartedly. She recalls an example of small business owner client who came to her after dealing with an inept CPA.

 

“He was a successful real estate broker who was married and had twin sons with asthma,” she explains. “Their previous accountant never informed them that they qualified for a medical reimbursement plan. [If the accountant had done that], it would have saved them at least $5,000 in taxes a year for the 10 years since the twins were born.”

 

Tim Kerin, who with his wife Tracey, owns several businesses including a commercial construction firm, learned a very difficult lesson when he and his wife visited an ineffectual CPA several years ago to get a second opinion.

 

“He did not explain the returns to us nor did he go over how we used expenses,” recalls Kerin. “He just took our numbers and did the return. We should have questioned every line and understood it before signing the return.”

 

What ensued was a business owner's nightmare—an IRS audit. Kerin says that he and his wife have paid $95,000 in legal and accounting fees, and that the ordeal has been a financial drain on the couple's business operations. Although they did not lose their various businesses, Kerin notes they did have to lay off several employees, sell two company vehicles, and close a storage unit.

 

The ordeal inspired the Kerins to launch Learning Lessons in Business, a two-year old consulting firm designed to educate business owners on various challenges. Kerin's negative experience with the CPA notwithstanding, he does feel that small business owners who do their own taxes are taking unnecessary chances.

 

“As much as you may not like to have a professional prepare your taxes, [you should do this] at least once every three years,” he advises. “That way you can probably get some tips from your tax preparer on things that you should have been doing, such as categorizing expenses correctly based on your business activity code (which classifies a business type) and the round number syndrome. And if there are mistakes that the preparer finds by going through your records, then you can see if that same mistake exists in the past.”

 

Small business owners looking to save money by preparing their own tax returns may be doing themselves—and their companies—a serious disservice. With tax laws continually changing, there may be deductions or other items that you, as a busy entrepreneur, simply can’t keep up with. Even if you feel confident about the reliability of your software program and your gift for numbers, always seek out the opinion of a tax professional who is trained to file returns just to make sure you’re not missing anything. It may be the best money you ever spend.

Taxes_body.jpgby Robert Lerose.


Congress waited until the early hours of January 1, 2013 to pass the American Taxpayer Relief Act of 2012, which the president signed the next day. Although this was not the first piece of legislation approved at the last minute, it underscores how daunting it can be for small businesses to do any kind of tax planning while they wait to find out what laws and provisions will be enacted. Still, by looking carefully at their returns, entrepreneurs can use their tax situation to help manage their finances and make sound business decisions in the year ahead. We checked with three experts to get their perspective on how small business owners can gain tax advantages.

 

Pick the right structure

One of the first things a small business can do to manage their tax bill is to examine their business structure to see if it gives them the best tax advantages. "The first tip I would give to almost anybody who has income besides W-2 wages is to form a corporation or a limited liability company (or an LLC)," says Aaron Young, CEO of Laughlin Associates, a Nevada-based company that specializes in helping entrepreneurs find the right business structure. "Right away, you're going to see your taxes go down for the investment of a few hundred dollars."

 

For example, a sole proprietorship is subject to self-employment tax, but a corporation or an LLC is exempt. An S corporation allows you to take part of your salary in dividends, which further reduces the tax bite. "Small business owners, including very small operators, don't realize that they can benefit from this just like a big company," Young says.

 

Corporations exist to reduce the risk to business owners and to get every advantage that the government allows, Young says. For example, while a home-based sole proprietor would not be able to write off a home gym, a corporation could turn their spare bedroom into an exercise facility and deduct 100 percent of the cost as part of a wellness plan.  

 

Still, Young warns that sole proprietors should think carefully before incorporating because each business structure has its own legal and tax consequences. For example, depending on who will own the company and whether it will seek outside financing will help determine the best way to incorporate. "It's not good for a husband and wife to own a limited liability company because the government looks at them as one person," Young says. "If you're going to bring in outside equity, then you're going to want to be a C corporation. They have lower tax rates than individual tax rates."

 

Another factor to consider when incorporating is different attributes of each business structure. For example, shareholders of an S corporation are taxed at their individual income tax rate. In contrast, profits from a C corporation are taxed twice—at the corporate level and then again at the individual level when the profits are distributed as dividends.

 

Document and deduct

Studies from different sources, including the General Accounting Office, show that many small businesses overpay their taxes. It is clear that many entrepreneurs are not aware of all the deductions that they are legally entitled to.

 

Taxes_PQ.jpg

"I have found that there are two reasons people miss deductions. One is that they don't know what they don't know," says Sandy Botkin, CEO of the Tax Reduction Institute and author of Lower Your Taxes Big Time. "For example, if you talk business with a client in person and then go out to the theater with them, you can deduct 50 percent of the cost of the tickets. You can write off any meals that you have with that client."

 

The second reason that small business owners miss out on deductions is because they do not properly document their expenses. For example, to document a local business appointment by car, you should record the mileage, the date and explanation of the trip, and the beginning and ending addresses. "If you don't have something triggering you to write down the types of things you need for a deduction, you're not going to do it," Botkin says. He recommends getting software that does the work for you. There are different expense tracker apps on the market—including Botkin's own application Taxbot—that supply everything you need for documentation.

 

Overnight business trips have their own requirements, but small business owners can still reap a handsome amount of deductions. "For every day you're doing business, you can deduct your road expenses, including 50 percent of your food and 100 percent of your lodging. You can even deduct 100 percent of the dry cleaning bill for the clothes you wore while away,” Botkin says.

 

In looking for an accountant, Botkin recommends choosing a CPA, tax attorney, former IRS attorney or Enrolled Agent who is "honest but aggressive. Someone who tells you to take every deduction you may be legitimately entitled to with the right documentation and who specializes in your industry."

 

Review with a pro

Small business owners should set aside time with their accountant to do some serious tax planning, but not at the height of tax season.

 

"I always suggest to people that they get together with their tax professional in, say, midsummer once tax season is over and the accountant is rested to go forward with some tax planning," says Bonnie Lee, an Enrolled Agent and founder of California-based Taxpertise. "They can pull up a comparative profit and loss statement from the prior year to see if your net profit or sales have increased or decreased and then you can go from there."


Tax issues are rarely a favorite topic among small business owners and the details can seem overwhelming at times. But the evidence is clear that taking the time to review your taxes with a qualified professional could put your business on firmer financial footing.

 

Disclaimer: Since the details of your situation are unique, you should always seek the services of a qualified professional for advice specific to your business. 

 

 

Time_Management_body.jpgBy Iris Dorbian.

Few would argue that being a small business owner can be enormously demanding. Whether it's dealing with vendors, managing staff, or serving customers, finding the right balance for these tasks can be a formidable challenge. While some try to handle the time management dilemma by working overtime every day, this kind of solution can often lead to burnout. How then can business owners successfully manage their time without sacrificing their health and personal lives?

Following are time management tips from several small business owners who have faced this challenge:

1. Don't be afraid of shutting down technology to complete a project.

Because technology allows us to instantaneously access information via an unending assortment of mobile or wireless devices, it can be tempting to constantly check for e-mails or alerts—and then just as quickly respond to them. Try to avoid this trap. Unless you are waiting for a time-sensitive response from a client, your time is probably better spent attending to other aspects of your business.

Diana Ennen, president of Virtual Word Publishing, an online PR/marketing firm that handles book authors, wholeheartedly agrees.

“You absolutely need to focus and turn off all notifications when working on projects,” she urges. “That means turn off your cell phone, social media, Skype, or e-mail notifications. Log out of Outlook so that way you won't see new e-mails coming in. If it helps, set a timer and work for several hours.”

To prove her point, Ennen, who works with four subcontractors regularly, says she often does this when writing press releases and articles for clients. As a result, she can complete the job easily. “It's so much better because I've committed to it and am fully focused,” she says.

2. Carve out a block of time to complete jobs.

If you want to use your time productively, schedule in your calendar a block of time to work on a key job or project. This way you will be able to concentrate on what needs to be done without scattering your energies or letting your attention wander to a host of other things.

Time_Management_PQ.jpg

Dana Manciagli, a Bellevue, Washington-based career consultant with her own business, says this is an imperative.

“Schedule your important work as an appointment to yourself,” advises Manciagli, who previously worked at Microsoft as a worldwide sales manager. “If you need to write proposals that you are not getting to, open your calendar and make an appointment with yourself for it. If you need to remind yourself which ones to work on, put more details in the body of the invitation.”

3. Master the art of saying no.

Cultivating potential customers and associates at meetings or networking events is good for business. But if your attendance prevents you from planning your monthly budget or training new personnel, you might have to decline the invitation to focus on the task on hand. Be strategic when weighing the pros and cons of invitations as well as favors that others may ask of you.

“Learn how to say no,” insists Manciagli. “I made a lot of mistakes in my first year [as a small business professional] and this is one of them. Ask yourself: Which line item of my P&L will benefit immediately if I attend this event? Cost-Savings? And within revenue, be more specific with yourself. Will new clients be there? Will I get leads? If not, say ‘no, thank you.’”

4. Get up early.

It might be a platitude but the old saying, “Early to bed and early to rise makes a man, healthy, wealthy and wise,” might have some validity for business owners seeking to better manage their time. Drew Stevens, owner of Stevens Consulting Group, which helps small struggling healthcare professionals improve their revenue, endorses this takeaway as a great way to get things done.

With the extra time, Stevens says small business owners can review a perplexing client issue or look over notes or PowerPoint slides for an upcoming board meeting. “I remember getting up at 5 a.m. to get my master’s work done before I commuted to work,” he says. And if you do commute, do some work on the train rather than read a book or sleep.”

5. Create a to-do list.

Sometimes scheduling time to complete a project is not enough. You might need to actually write out a to-do list on a regular basis. Then once you're finished with each task, just cross it off until you get to the next job. It might sound like an obvious time management solution for small business owners, but not too many do it, says Essen. However, if you don't adhere to this simple best practice, you might be subjecting yourself to a lot of all-nighters.

“To feel more in control, make this a habit—even on your busiest days,” she advises. “It takes away the feeling of being overwhelmed and the fear of forgetting something. For me, it has been instrumental as well in completing larger projects, such as redoing my website. It's amazing how freeing it is to take large projects a chunk at a time. And if they don t get done, put it on the list for tomorrow.”

6. Learn to delegate.

As a small business owner, it is not incumbent upon you to do everything yourself. Lighten your load by learning to assign some duties to your staff or others who can help you.

Says Stevens: “There is no reason to be involved in everything. For example, I operate a very busy coaching business and recognize I cannot do it all. To that end, I hire freelancers for my graphics, my invoicing, my collections and even printing. This allows me to focus on my most vital aspect—clients.”

Small_Biz_Acct_body.jpgby Robert Lerose.

 

Small business owners who call upon their accountants only when it's time to prepare taxes are doing themselves a disservice. Sure, accountants can fill out the necessary paperwork to keep your business in compliance with the tax authorities, but that's just one function they perform. Many accountants offer a wide range of overlooked services that can accelerate the progress of your small business.

 

Ask questions

Small businesses that want to get the most out of their relationship with their accountant can begin by communicating candidly. "People are almost embarrassed to ask questions. They think they're the only one with that question or that it's too silly," says Helena Swyter, owner of Chicago-based SweeterCPA. "But an accountant can be a good helper. It's easier for both of us if the small business owner asks questions going forward."

 

One issue that Swyter runs into repeatedly is how to categorize funds. Some businesses commingle business and personal funds and do not clearly categorize what is deductible. Others do not keep accurate records about business and personal expenditures—such as cash purchases or cell phone usage—making it hard to know what is fully deductible. A good accountant can set up an efficient bookkeeping system when a business is first starting out or review a system that is already in place. "I tell people that the best bookkeeping system is the one that they're going to use regularly," Swyter says.

 

Accountants can also offer a much needed perspective before major decisions, such as selling or acquiring a business, taking on a partner, or hiring a first employee. Swyter points out that there is considerable gray area when it comes to hiring an employee versus an independent contractor, and even something as simple as knowing whether to buy a piece of equipment in December or January can be fraught with tax consequences that an accountant can unravel. "I tell all my clients that the best thing they can do for me is to ask me questions whenever they have them," Swyter says.

 

 

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Leverage their network

Because accountants are exposed to different types of small businesses, they can usually offer general advice on a variety of concerns. But in addition to what they know, accountants can help small business owners by who they know.

 

"Accountants get to be very well networked with other trustworthy professionals, whether it be bankers or attorneys or insurance agents or financial advisers," says Josh Dubrow, a CPA and senior manager at Nussbaum Yates Berg Klein and Wolpow, a New York-based accounting firm. "So if it's not something in the accountant's area of expertise, they typically know somebody that they can direct a small business owner to."

 

For example, Dubrow is guiding one of his high tech clients through the maze of proposals to raise capital. He is helping them put together a sound business plan, forecasts, and budget. "This is something that I enjoy doing—actively working with my clients to give them a solid foundation in this situation," Dubrow says.

 

While most CPAs can service a wide variety of businesses, Dubrow concedes that small business owners should interview accounting firms to see if they have expertise in their particular niche before settling on a firm. "You want to know that your accountant has other clients or experience in your industry or has the knowledge base to navigate you in that industry," Dubrow says.

 

Like Swyter, Dubrow would like to see more small businesses keep an open line of communication with their accountant throughout the year on key business decisions—including those that are not related to accounting—such as entering into a major contract or buying a new facility. Sometimes the accountant can uncover opportunities in the negotiations that the business owner might overlook. "Far too often you hear about these things after the fact, which eliminates tax planning considerations because the year is over or the transaction is done," Dubrow says. "If these [transactions] were structured slightly differently, maybe there could be some sort of tax efficiency [for the small business owner]."

 

Keep in touch

Besides these major transactions, accountants can handle smaller, day-to-day functions like bookkeeping in some cases. "We do this for a few companies where we are their accounting department, handling everything from paying bills and invoices all the way up to the financials and preparing tax returns," says Kevin McCoy, a St. Louis, Missouri-based CPA.

 

Some small business owners are not well versed in the financials of their operation, which can lead to costly problems, McCoy says. For example, after he showed one of his clients that the cost of their workers' compensation coverage was alarmingly high, the client is considering negotiating a new arrangement. Regular communication between an accountant and a small business owner is vital to avoid these kinds of mistakes. "I call or email my clients every quarter and encourage them to call me if they need anything in between," McCoy says. "Any farther out than that and you run into surprises that nobody likes."

 

Case in point: one of his clients had bought stock in another company without realizing that the company was burdened by heavy tax liabilities that the new owner was obligated to pay. "If they would have come to me up front and told me they were interested in buying this company, we could have advised them about checking them out more thoroughly or going for just an asset purchase and not the whole company," McCoy says. "We like to hear from our clients on anything that's out of the ordinary or different from their day-to-day operations."

 

Inc.

Guide: Keys to Cash Flow Modeling

Posted by Inc. Jan 28, 2014

Cash-Flow-Modeling---Thumb.gifBusiness evaluation and forecasting resources are especially valuable for small business owners and sole proprietors whose responsibilities extend to every facet of the company’s operations. Cash flow modeling tools can support their decision-making, help to ensure that the company is prepared to handle emerging challenges and opportunities, and strengthen relationships with lenders who can contribute to the company’s long-term success.

 

Click here to download the guide "Keys to Cash Flow Modeling"

Inc.

Back-to-Basics Cash Flow

Posted by Inc. Jan 21, 2014

There are very good reasons for business owners to stay on top of their cash flow, says Robert W. Duron, CPA, associate professor at Husson University’s School of Accounting. A business with well-managed cash flow runs more smoothly and finds it easier to establish and maintain the kind of credit rating required to secure financing for future growth and expansion. Perhaps most important, managing cash flow effectively helps you avoid the kind of surprises that can result in a sudden and unexpected cash crisis, he says.

 

In its basic form, cash flow is simply the total inflows of cash from operations, loans, and capital investments, minus the total outflows from operations, loan repayments, capital expenditures, and equity distributions, says Greg Wank, a partner at accounting firm Anchin, Block & Anchin. The basic cash flow formula is:

 

Beginning cash + Cash receipts – Cash disbursements = Ending cash

 

This can be broken down further into operating cash flow (solely from the buying and selling of goods and services the company is in business to provide), investing cash flow (capital expenditures and other cash flows from long-term investments), and financing cash flow (from debt and equity activity).

 

Cash flow modeling typically is fairly straightforward, but the information it provides is only valuable to your business if you use the right information and input it accurately, warns Doug Mitchell, a partner in Hardesty LLC, which provides on-demand financial management executives to businesses. For example, make sure the “Beginning cash” amount you use in the formula above agrees with the amounts that appear on the statements for your business bank accounts. For the “Cash disbursements” amount, make sure you include:

  • All accounts payables
  • Vendor invoices which have not been received but for which the service or product has been delivered
  • Payroll
  • Loan and/or lease interest and principal payments
  • Capital expenditures

 

To help ensure greater accuracy in the “Cash receipts” variable of the formula, Mitchell suggests organizing them into product and/or service categories, then checking off each category as you add them up. So your formula for determining cash receipts for each individual category is:

(Product/service item) x (quantity sold) x (price) = Cash receipts per category

 

Aron Susman, CPA, is a co-founder of TheSquareFoot, an online platform for commercial real estate leasing. He credits careful cash flow management with enabling his business to expand into three cities since its launch in 2011. “I think businesses overemphasize revenue and do not stress enough about cash flow,” he says. “Revenue is great, but if you are not collecting—and thus have huge accounts receivable—those revenues do not matter. I do not think you can compete in today’s environment if you are not monitoring your cash flow.”


Duron stresses that cash flow management must include a forward-looking perspective to be strategically useful. Start with beginning cash and then estimate both cash receipts and disbursements for a set planning period, he suggests, and he seconds Mitchell’s observation on the importance of including credit terms in those projections. “Sales made in one month may not be collected until one or more months after the sale,” he says. “Over time, a business owner can forecast with surprising accuracy what percentage of sales and/or purchases will be received or paid in a given month.”

 

Mitchell says one of the biggest mistakes owners of growing companies make is underestimating the amount of working capital they need. “Most entrepreneurs are optimists and tend to overstate revenues and understate expenses and surprises,” he observes. Other common mistakes he sees in his practice include:

  • Not linking the cash flow model with the P&L or balance sheet
  • Not linking the cash flow model to the sales forecast
  • Not allowing an extra margin to absorb a receipts shortfall
  • Not balancing/reconciling bank accounts on a routine, daily basis
  • Not monitoring payment patterns of key customer accounts
  • Insufficient attention paid to days sales outstanding (DSO) of smaller customers and to significant past due balances

 

Cash Flow Tools


Most accounting software programs include a variety of cash flow management and charting tools, and many additional resources are available online. Robert W. Duron, CPA, associate professor at Husson University’s School of Accounting, suggests:

 

Aron Susman, CPA, a co-founder of TheSquareFoot, suggests the SBA site is also a good source for answers to common questions about cash flow management. Check out the Managing Small Business Cash Flow – Answers to 10 Commonly Asked Questions blog post and the projected cash flow calculator, in particular. 


Article created by Inc. © Inc.

Content created exclusively for Bank of America.

Business-Model---Thumb.gifImplementing a business model change presents small business owners with both challenges and opportunities. By defining your goals and benchmarks, making sure you have the resources to execute the change, and creating a plan to mitigate the risks involved, you can create a foundation for ensuring that your plans remain on track and perform to your expectations.

 

Click here to download our guide "When to Change Your Business Model"

In order to be effective, a good business tool must be simple, easy to deploy, and provide clear benefits. That, in a nutshell, describes a dashboard. “Like the sun rising in the morning, dashboards are reliably available—same time, same day of the week, without fail, regardless of sickness or bad numbers,” says Jim Drew, a business coach and consultant specializing in CEO-level strategy and leadership. Dashboards provide a simple, one-page snapshot of the key performance indicators (KPIs) you select for your business, and you can customize them to cover the three or four critical issues you most want to track at any given time.

 

Standard indicators that all businesses should be tracking include revenue, profit margin, percent of repeat business, customer lifetime value, average order/transaction size, type of product or service purchased, and marketing source for the transaction, says Yoon Cannon, a serial entrepreneur and business growth coach. Choosing the right KPIs to include in your dashboard is a function of the industry you are in and the specific goals laid out in your most recent business plan or strategic plan. (Retail metrics firm Kipfolio offers this link, which illustrates of some common KPI metrics [conversion rate funnel, sales per square foot/location, average purchase value, cost of goods sold, etc.] in dashboard report form.]

 

“For example, at a staffing company, the number of hours booked for the temporary workers placed is a key driver of profitability and should be included in the dashboard,” Cannon says. “Profitability at a landscaping company, on the other hand, might be more directly affected by how well job-costing numbers are being met. Having that KPI in a dashboard can help to hold project managers accountable for getting their crews to finish installations on time or ahead of schedule.”

 

Growth-oriented businesses doing up to about $1 million in annual revenue should focus on KPIs with the most direct impact on cash flow and profits, says Sabrina Parsons, CEO of Palo Alto Software, a developer of business planning and marketing tools for growing businesses. The time periods used for measuring KPIs are also important. Businesses in the early stages of growth should always compare KPIs to the previous period (this month vs. last month), the same period last year (this month vs. same month last year), and the planned forecast (what your business plan or financial projections call for you to be achieving).

 

Drew Williams, managing partner at business consulting firm nuRevenue Partners and co-author of Feed the Startup Beast (McGraw-Hill, June 2013), says the most important advantage a dashboard provides to growth-stage companies is an answer to the question, “Am I on track to meet my annual objectives?” “The benefit, of course, is knowing that your business is headed in the direction you set out for it, and the sense of control that imparts,” he says. “Control and visibility make for a happy, less stressed, more empowered owner.”

 

Dashboards are easy to come by. They’re available as off-the-shelf software or on a subscription basis via the cloud, but the concept is simple enough that many companies choose to make their own. “You can easily create your own dashboards in a simple Word document which you populate with whatever metrics you choose,” Cannon says. “You can also get great dashboards from Excel.”  Canon recommends this free resource for finding a range of Excel templates.


Article created by Inc. © Inc.

Content created exclusively for Bank of America.

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