It is pretty much an undisputed fact that setting goals makes things happen. I was out meeting with clients this week preparing budgets for next year. Since we work a lot with small business owners the first question is usually “what are your goals for next year”. That question started a great conversation with one of our clients. This particular client set a revenue goal last year and is very excited that this year they will make it and then thinking back he discussed how a few years ago he set a whole list of goals for himself both personally and professionally and that he has accomplished all of these goals with very little focus on these goals. He feels that just the process of setting the goals programs your brain and gives it a target to aim for.
So set a few goals and be brave about it. It certainly can’t hurt. As business owners I think it is not only important for us to set goals but to set goals for our employees and have our employees set a few too.
Here is a good ezine article on goal setting http://ezinearticles.com/?Rules-to-Setting-Business-Goals-and-Objectives:-Why-and-How-to-be-SMART&id=24276
Saturday, December 4, 2010
Friday, November 12, 2010
Year-end is quickly approaching; it is not too late to consider charitable giving
Plan Year-End Charitable Gift Giving Planning to make charitable donations before year end? As Thanksgiving and the holidays approach, many people start thinking about making contributions and giving gifts. Americans are known for their charitable giving, plus of course, donations provide a tax break. But the tax laws that govern charitable deductions have changed in recent years. Here are the basic rules. Plus, we'll tell you about a way to get a bigger deduction when you donate a vehicle to charity. Americans donated more than $303 billion to charitable causes last year, according to the Giving USA Foundation. And while that represents a slight decline from the year before, Americans continued to give generously despite the economy.
The holidays are a popular time to make gifts. If you're getting ready to donate, be aware of the charitable tax deduction rules and some important changes that have been made in recent years.
Monetary Donation Guidelines
To deduct a charitable donation of money, regardless of the amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the organization, as well as the date and amount of the contribution.
Here are some details about substantiation:
• Bank records include canceled checks, bank or credit union statements, and credit card statements.
• If you have a bank or credit union statement, it should show the name of the charity, the date, and the amount paid. Credit card statements should show the charity name, the date, and the transaction posting date.
• Donations of money include those made in cash or by check, electronic funds transfer, credit card, and payroll deduction.
• For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for monetary donations do not change or alter the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible gift (either money or property) of $250 or more. However, one statement containing all of the required information may meet the requirements of both provisions.
Rules for Donating Clothing and Household Items
To be deductible, clothing and household items donated to charity must be in good used condition or better. An item for which a taxpayer claims a deduction of more than $500 does not have to be in good used condition or better if a qualified appraisal of the item is filed with the return. Household items include furniture, furnishings, electronics, appliances and linens.
Deductions for Donating Vehicles
Tax law limits the amount that individuals are able to deduct when they donate vehicles to charity. (The same basic rules apply to boat and aircraft donations.) This provision has understandably discouraged charitable gifts of used cars.
However, there are exceptions that can result in a better tax deduction.
Years ago, you could deduct the full fair market value of a donated vehicle based on the "Blue Book" value or some other reasonable indicator. But tax officials felt some taxpayers overstated deductions for their run-down clunkers. Now, a charitable deduction for a vehicle valued above $500 is generally limited to the amount the charity receives from the vehicle's resale. Typically, a charity sells the vehicles it receives from donors. Many organizations promote programs specifically designed for this purpose.
There are exceptions that can provide higher deductions:
Exception #1: If the charity certifies that it intends to make a "significant intervening use" of the vehicle, which furthers the charity's stated purpose, you can deduct the full fair market value.
Exception #2: If an organization certifies that it intends to make a "material improvement" to the vehicle, you can also deduct the full fair market value. But simply cleaning, painting, or removing minor dents and scratches isn't enough. The improvement must increase the overall value of the car.
Exception #3: In addition, you can deduct the fair market value if the charity certifies that it intends to give or sell the vehicle to a needy individual at a price significantly below the fair market value. This exception applies only if the gift or sale is in direct furtherance of the charity's purpose of relieving poor, distressed or underprivileged people who are in need of a means of transportation.
Finally, note that a deduction of a fair market value is allowed for a gift of a vehicle valued at $500 or less.
If you qualify under one of the exceptions, the value can be determined through an established used vehicle pricing guide like the Blue Book. The guide must list the sales price for a vehicle based on the same make, model and year in the same condition, with the same or similar options, features, warranties and guarantees.
To help with your holiday-season and year-end giving, here are some additional reminders and rules:
• Contributions are deductible in the year made. So if you make a donation by charging it to a credit card before year end, it counts for 2010. This is true even if the credit card bill isn't paid until next year. Also, checks count for 2010 as long as they are mailed this year.
• It may be better from a tax standpoint to contribute certain appreciated assets to charity that have been held more than 12 months. That way, you avoid paying capital gains tax but can still deduct the full fair market value as a charitable deduction.
• Make sure the organization is "qualified." Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most eligible organizations. The searchable online version can be found at IRS.gov under " Search for Charities." In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even though they often are not listed in Publication 78.
• Only taxpayers who itemize their deductions can claim charitable contribution write-offs.
• If possible for property donations, including clothing and household items, get a receipt that includes the name of the charity, date of the contribution, and a reasonably detailed description of the donated property. If a donation is left at a charity's unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
• The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is more than $500.
• If the amount of a taxpayer's deduction for all noncash contributions is more than $500, an additional form must be submitted with the tax return.
The holidays are a popular time to make gifts. If you're getting ready to donate, be aware of the charitable tax deduction rules and some important changes that have been made in recent years.
Monetary Donation Guidelines
To deduct a charitable donation of money, regardless of the amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the organization, as well as the date and amount of the contribution.
Here are some details about substantiation:
• Bank records include canceled checks, bank or credit union statements, and credit card statements.
• If you have a bank or credit union statement, it should show the name of the charity, the date, and the amount paid. Credit card statements should show the charity name, the date, and the transaction posting date.
• Donations of money include those made in cash or by check, electronic funds transfer, credit card, and payroll deduction.
• For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for monetary donations do not change or alter the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible gift (either money or property) of $250 or more. However, one statement containing all of the required information may meet the requirements of both provisions.
Rules for Donating Clothing and Household Items
To be deductible, clothing and household items donated to charity must be in good used condition or better. An item for which a taxpayer claims a deduction of more than $500 does not have to be in good used condition or better if a qualified appraisal of the item is filed with the return. Household items include furniture, furnishings, electronics, appliances and linens.
Deductions for Donating Vehicles
Tax law limits the amount that individuals are able to deduct when they donate vehicles to charity. (The same basic rules apply to boat and aircraft donations.) This provision has understandably discouraged charitable gifts of used cars.
However, there are exceptions that can result in a better tax deduction.
Years ago, you could deduct the full fair market value of a donated vehicle based on the "Blue Book" value or some other reasonable indicator. But tax officials felt some taxpayers overstated deductions for their run-down clunkers. Now, a charitable deduction for a vehicle valued above $500 is generally limited to the amount the charity receives from the vehicle's resale. Typically, a charity sells the vehicles it receives from donors. Many organizations promote programs specifically designed for this purpose.
There are exceptions that can provide higher deductions:
Exception #1: If the charity certifies that it intends to make a "significant intervening use" of the vehicle, which furthers the charity's stated purpose, you can deduct the full fair market value.
Exception #2: If an organization certifies that it intends to make a "material improvement" to the vehicle, you can also deduct the full fair market value. But simply cleaning, painting, or removing minor dents and scratches isn't enough. The improvement must increase the overall value of the car.
Exception #3: In addition, you can deduct the fair market value if the charity certifies that it intends to give or sell the vehicle to a needy individual at a price significantly below the fair market value. This exception applies only if the gift or sale is in direct furtherance of the charity's purpose of relieving poor, distressed or underprivileged people who are in need of a means of transportation.
Finally, note that a deduction of a fair market value is allowed for a gift of a vehicle valued at $500 or less.
If you qualify under one of the exceptions, the value can be determined through an established used vehicle pricing guide like the Blue Book. The guide must list the sales price for a vehicle based on the same make, model and year in the same condition, with the same or similar options, features, warranties and guarantees.
To help with your holiday-season and year-end giving, here are some additional reminders and rules:
• Contributions are deductible in the year made. So if you make a donation by charging it to a credit card before year end, it counts for 2010. This is true even if the credit card bill isn't paid until next year. Also, checks count for 2010 as long as they are mailed this year.
• It may be better from a tax standpoint to contribute certain appreciated assets to charity that have been held more than 12 months. That way, you avoid paying capital gains tax but can still deduct the full fair market value as a charitable deduction.
• Make sure the organization is "qualified." Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most eligible organizations. The searchable online version can be found at IRS.gov under " Search for Charities." In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even though they often are not listed in Publication 78.
• Only taxpayers who itemize their deductions can claim charitable contribution write-offs.
• If possible for property donations, including clothing and household items, get a receipt that includes the name of the charity, date of the contribution, and a reasonably detailed description of the donated property. If a donation is left at a charity's unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
• The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is more than $500.
• If the amount of a taxpayer's deduction for all noncash contributions is more than $500, an additional form must be submitted with the tax return.
Wednesday, August 18, 2010
What is the best Corporate Structure for an Early Stage Company?
By Cecilia Chen Esq.
What is the best Corporate Structure for an Early Stage Company?
As an attorney specializing in business entity formation, I have often been asked by my clients whether they should form an LLC or a corporation, specifically an S corporation. Unfortunately, the answer is never a simple one and it depends on a lot of different factors, such as relations between multiple owners, taxes and treatment of assets. By and large, there is no uniform "right" choice. A careful review of the details, strategies and goals of each business needs to be made before an entity structure is chosen.
There are, however, some basic similarities and differences between each entity. I have attempted to provide an overview of these key elements below. But please keep in mind, the information below, by itself, will not allow you to make a proper, informed choice of entity. This should always be done in conjunction with the assistance of your attorney and accountant.
Most start-up small businesses choose between LLC and S-Corporation to avoid double taxation that C-Corporations are subject to. Double Taxation means that all of the income of the C-Corporation is taxed once at the corporate level, then those same revenues are taxed again at the shareholder level when profits are distributed via dividends (please note that in smaller C corps., the double tax may sometimes be avoided by carefully zeroing out of net income each year by paying enough out to shareholder-employees). Shareholders must report any dividend earnings as capital gains on their personal tax returns.
LLC’s and S-Corporations are not subject to the double taxation that C-Corporations are, which is why most start-up businesses choose between LLC’s and S-Corporations. For the majority of small businesses, the relative simplicity and flexibility of the LLC make it the better choice. This is especially true if your business will hold property (such as real estate) that's likely to increase in value. LLC's are usually the entity of choice for real estate ventures for a variety of reasons, primarily due to the tax treatment of real property.
But an LLC isn't always the best choice. Occasionally, other factors may tip the balance toward a S-Corporation. Since both LLC and S-Corporation provide the same liability protection, the decision boils down to several points to consider:
Self-Employment Tax: One of the greatest benefit of a S-corporation is the ability to minimize self-employment tax. Profits of the S-Corp which pass through to the shareholders are not subject to self-employment tax (Social Security and Medicare which is approximately 15%). Rather, self-employment is only taxed on the portion classified as a "reasonable salary". Consult a CPA regarding “reasonable salary”. LLCs and sole-proprietorships must pay self-employment tax on all income.
Treatment of Losses: Deduction on losses in a S-Corp. is limited to the owner’s initial capital contribution; whereas there is no such limitation for a LLC.
Franchise Tax: Both LLC and S-Corp must pay the CA Franchise Tax board a minimum of $800 franchise tax on an annual basis; however the franchise tax is waived for the first year for S-Corporations. LLC on the other hand, must pay franchise tax its first year.
Distribution of Profit and Losses: In a S Corp, there is no special allocation of profit and losses for shareholders. Corporate profits and losses must be split up proportionately to the percentage of shares owned by each shareholder. LLC's on the other hand allow for flexibility as to how they split their profits and losses.
Ease of Conversion: In order to "convert" an LLC into a C-Corp, one actually has to go through a complete merger, whereby a new entity is created, which usually drops down a wholly owned subsidiary, that sub is merged into the LLC, leaving the LLC as the sub of the parent. In short, it’s complicated and makes the lawyers and accountants some extra cash.
Maintenance and Compliance: LLC has the advantage of having relatively few statutory formalities that need to be followed by the owners. The benefit of having limited formalities is that the risk of a claim being brought by a creditor for failure to follow corporate formalities is significantly decreased with LLCs, which reduces the owner's exposure to personal liability. On the other hand, once a S-Corporation is set up, it’s really not that hard to maintain either, especially if that task is delegated to an experienced attorney.
Possible Investments from Future Investors: Private investors and venture capital (“VC”) funds typically cannot (or don’t want to) invest in LLC’s. When a VC invests in an LLC, they risk getting an income tax called UBTI (unrelated business tax income). This type of income is frowned upon by investors in venture fund partnerships and most funds have a provision in their fund agreements that they will use best efforts not to bring UBTI into the partnership. As a result, VC funds shy away from investing in LLC’s. In contrast, converting an S-Corp to a C-Corp is simply a "check the box tax election” (or - actually – “unchecking the box”) - this can be done in a day with a single tax form. No lawyers, no accountants, no money. Therefore, while the LLC has some benefits, the costs of converting the LLC into a fundable entity is substantially higher and usually not worth the additional effort.
In conclusion, each entity structure has its unique advantages and disadvantages. Before choosing an entity structure for your business, a careful review of the details, strategies and goals of each business needs to be made in conjunction with consulting with an experienced attorney and accountant.
Ms. Cecilia Chen provides legal services throughout southern California concentrated in the areas of corporate transactional matters, estate planning, business organization and dissolution as well as bankruptcy. Cecilia received her law degree from American University in Washington DC and completed her undergraduate studies at Boston University majoring in business administration with a concentration in finance. Ms. Chen is licensed to practice law in both California and Virginia, and has extensive experience in representing clients ranging from small and emerging entrepreneurial businesses to large multinational corporations.
Please visit http://www.cclegalgroup.com for more information regarding the services provided by the Law Office of Cecilia Chen, or contact cchen@cclegalgroup.com
What is the best Corporate Structure for an Early Stage Company?
As an attorney specializing in business entity formation, I have often been asked by my clients whether they should form an LLC or a corporation, specifically an S corporation. Unfortunately, the answer is never a simple one and it depends on a lot of different factors, such as relations between multiple owners, taxes and treatment of assets. By and large, there is no uniform "right" choice. A careful review of the details, strategies and goals of each business needs to be made before an entity structure is chosen.
There are, however, some basic similarities and differences between each entity. I have attempted to provide an overview of these key elements below. But please keep in mind, the information below, by itself, will not allow you to make a proper, informed choice of entity. This should always be done in conjunction with the assistance of your attorney and accountant.
Most start-up small businesses choose between LLC and S-Corporation to avoid double taxation that C-Corporations are subject to. Double Taxation means that all of the income of the C-Corporation is taxed once at the corporate level, then those same revenues are taxed again at the shareholder level when profits are distributed via dividends (please note that in smaller C corps., the double tax may sometimes be avoided by carefully zeroing out of net income each year by paying enough out to shareholder-employees). Shareholders must report any dividend earnings as capital gains on their personal tax returns.
LLC’s and S-Corporations are not subject to the double taxation that C-Corporations are, which is why most start-up businesses choose between LLC’s and S-Corporations. For the majority of small businesses, the relative simplicity and flexibility of the LLC make it the better choice. This is especially true if your business will hold property (such as real estate) that's likely to increase in value. LLC's are usually the entity of choice for real estate ventures for a variety of reasons, primarily due to the tax treatment of real property.
But an LLC isn't always the best choice. Occasionally, other factors may tip the balance toward a S-Corporation. Since both LLC and S-Corporation provide the same liability protection, the decision boils down to several points to consider:
Self-Employment Tax: One of the greatest benefit of a S-corporation is the ability to minimize self-employment tax. Profits of the S-Corp which pass through to the shareholders are not subject to self-employment tax (Social Security and Medicare which is approximately 15%). Rather, self-employment is only taxed on the portion classified as a "reasonable salary". Consult a CPA regarding “reasonable salary”. LLCs and sole-proprietorships must pay self-employment tax on all income.
Treatment of Losses: Deduction on losses in a S-Corp. is limited to the owner’s initial capital contribution; whereas there is no such limitation for a LLC.
Franchise Tax: Both LLC and S-Corp must pay the CA Franchise Tax board a minimum of $800 franchise tax on an annual basis; however the franchise tax is waived for the first year for S-Corporations. LLC on the other hand, must pay franchise tax its first year.
Distribution of Profit and Losses: In a S Corp, there is no special allocation of profit and losses for shareholders. Corporate profits and losses must be split up proportionately to the percentage of shares owned by each shareholder. LLC's on the other hand allow for flexibility as to how they split their profits and losses.
Ease of Conversion: In order to "convert" an LLC into a C-Corp, one actually has to go through a complete merger, whereby a new entity is created, which usually drops down a wholly owned subsidiary, that sub is merged into the LLC, leaving the LLC as the sub of the parent. In short, it’s complicated and makes the lawyers and accountants some extra cash.
Maintenance and Compliance: LLC has the advantage of having relatively few statutory formalities that need to be followed by the owners. The benefit of having limited formalities is that the risk of a claim being brought by a creditor for failure to follow corporate formalities is significantly decreased with LLCs, which reduces the owner's exposure to personal liability. On the other hand, once a S-Corporation is set up, it’s really not that hard to maintain either, especially if that task is delegated to an experienced attorney.
Possible Investments from Future Investors: Private investors and venture capital (“VC”) funds typically cannot (or don’t want to) invest in LLC’s. When a VC invests in an LLC, they risk getting an income tax called UBTI (unrelated business tax income). This type of income is frowned upon by investors in venture fund partnerships and most funds have a provision in their fund agreements that they will use best efforts not to bring UBTI into the partnership. As a result, VC funds shy away from investing in LLC’s. In contrast, converting an S-Corp to a C-Corp is simply a "check the box tax election” (or - actually – “unchecking the box”) - this can be done in a day with a single tax form. No lawyers, no accountants, no money. Therefore, while the LLC has some benefits, the costs of converting the LLC into a fundable entity is substantially higher and usually not worth the additional effort.
In conclusion, each entity structure has its unique advantages and disadvantages. Before choosing an entity structure for your business, a careful review of the details, strategies and goals of each business needs to be made in conjunction with consulting with an experienced attorney and accountant.
Ms. Cecilia Chen provides legal services throughout southern California concentrated in the areas of corporate transactional matters, estate planning, business organization and dissolution as well as bankruptcy. Cecilia received her law degree from American University in Washington DC and completed her undergraduate studies at Boston University majoring in business administration with a concentration in finance. Ms. Chen is licensed to practice law in both California and Virginia, and has extensive experience in representing clients ranging from small and emerging entrepreneurial businesses to large multinational corporations.
Please visit http://www.cclegalgroup.com for more information regarding the services provided by the Law Office of Cecilia Chen, or contact cchen@cclegalgroup.com
Cost Reduction - Part 3
Know your costs
In order to cut costs strategically you must first know your costs. You must be able to see what your costs have been over time and hopefully have a plan for the future.
Knowing your costs is sometimes easier said then done, often the overworked business has not implemented the systems necessary to know their costs and plan them strategically. Quite often small business owner/managers busy themselves trying to hire, train and retain capable bookkeeping staff, rather than analyzing their costs and the strategic effects of these expenditures on the business. If you need help implementing systems to track and maintain your costs, while cutting your costs and freeing up your time to strategically understand your costs CLICK HERE.
Know Where You're Going
Once you have implemented a cost tracking system and you have freed up your time to strategically plan for your company you need to create your plan. Strategy demands that you express clearly the results you intend to achieve. Two things are important here: a) Have the end result in mind before you start, and b) For clarity, quantify that end result.
Strategy needs to be articulated into quantifiable results. With respect to cost reduction, ask yourself what level of profitability are you aiming for? Write it down and refer to it often.
Cost reduction is only a means by which you can increase profits. Cost reduction is not the end result you want; increasing profits is. So don't lose sight of this important distinction. It can have a major impact on the effectiveness of your strategy.
Finally, you must thoroughly understand the ramifications of your decisions, before you make them. It is difficult when you are a busy small business owner to take the time to strategically plan for your company, but it is a step that is imperative to your long-term success. This is the work that keeps you in business; it is planning and organizing the steps you need to take; it includes clearly defining, measuring, and tracking your results. It is precisely this planning that will help you get the result you want increase profits and insure your business success.
In the future installations of this series (coming soon), we'll take a look at some of the tactical steps you can take once you've determined your overall strategy. Stay tuned!
In order to cut costs strategically you must first know your costs. You must be able to see what your costs have been over time and hopefully have a plan for the future.
Knowing your costs is sometimes easier said then done, often the overworked business has not implemented the systems necessary to know their costs and plan them strategically. Quite often small business owner/managers busy themselves trying to hire, train and retain capable bookkeeping staff, rather than analyzing their costs and the strategic effects of these expenditures on the business. If you need help implementing systems to track and maintain your costs, while cutting your costs and freeing up your time to strategically understand your costs CLICK HERE.
Know Where You're Going
Once you have implemented a cost tracking system and you have freed up your time to strategically plan for your company you need to create your plan. Strategy demands that you express clearly the results you intend to achieve. Two things are important here: a) Have the end result in mind before you start, and b) For clarity, quantify that end result.
Strategy needs to be articulated into quantifiable results. With respect to cost reduction, ask yourself what level of profitability are you aiming for? Write it down and refer to it often.
Cost reduction is only a means by which you can increase profits. Cost reduction is not the end result you want; increasing profits is. So don't lose sight of this important distinction. It can have a major impact on the effectiveness of your strategy.
Finally, you must thoroughly understand the ramifications of your decisions, before you make them. It is difficult when you are a busy small business owner to take the time to strategically plan for your company, but it is a step that is imperative to your long-term success. This is the work that keeps you in business; it is planning and organizing the steps you need to take; it includes clearly defining, measuring, and tracking your results. It is precisely this planning that will help you get the result you want increase profits and insure your business success.
In the future installations of this series (coming soon), we'll take a look at some of the tactical steps you can take once you've determined your overall strategy. Stay tuned!
Friday, June 25, 2010
Cost Reduction - Part 2
Consider the Big Picture
Let's examine more closely why looking at the big picture is so important. For starters, the big picture gives you a wider view of your market and your business.
Clearly, good strategies are critical to making good business decisions. Poorly conceived strategies can haunt you. In bad times, strategies such as "slash and burn" are employed by the well intended business owner trying to save their. But, be careful.
The slash and burn approach is short term. It is reactive in nature and characterized by the wholesale cutting of people and programs across the board, without much consideration of the consequences. The approach is reactive because it comes from no strategy at all, other than cutting costs. Hence, the tactic often achieves a positive short-term effect on earnings, but commonly leads to disastrous long-term results. Why? Because short-term cutbacks are, for the most part, unsustainable.
Let's examine more closely why looking at the big picture is so important. For starters, the big picture gives you a wider view of your market and your business.
Clearly, good strategies are critical to making good business decisions. Poorly conceived strategies can haunt you. In bad times, strategies such as "slash and burn" are employed by the well intended business owner trying to save their. But, be careful.
The slash and burn approach is short term. It is reactive in nature and characterized by the wholesale cutting of people and programs across the board, without much consideration of the consequences. The approach is reactive because it comes from no strategy at all, other than cutting costs. Hence, the tactic often achieves a positive short-term effect on earnings, but commonly leads to disastrous long-term results. Why? Because short-term cutbacks are, for the most part, unsustainable.
Friday, June 18, 2010
Cost Reduction Part 1
In this tumultuous economy, reducing operating expenses has emerged as the number one objective for business owners everywhere. So what are operating expenses? Operating expenses (also known as operational costs, fixed expenses, and indirect costs) comprise the expenditures that a business incurs as a result of performing its normal business operations. These expenses include rent, phone, utilities, fixtures, equipment, inventory, marketing budgets, insurance, payroll, professional services, etc.
This article is not meant to be a step by step plan to reduce your operating costs, but to stimulate thought about how your Company can reduce costs, increase profits while not losing its strategic focus.
So let's look at operating expenses strategically and some of the reasons you may wish to reduce them.
1. In this tough economy many are cutting back which may reduce demand for your product
2. Your losing money and need to get back on track to profitability
3. Your business is profitable but not profitable enough to meet your strategic goals
Circumstances for cutting operating costs vary, but cutting some of them, or all of them, can be risky. To do this correctly and maintain your strategic goals ask yourself the following questions:
• If I/we don’t spend this money can the Company still compete effectively?
• If I/we don’t spend this money will the quality of our product be diminished?
• If I/we don’t spend this money will our clients' experience with the company be reduced?
• If I/we don’t spend this money will the goodwill you have worked so hard to build be reduced?
You need to consider your company and the market in which you compete while making these decisions.
This article is not meant to be a step by step plan to reduce your operating costs, but to stimulate thought about how your Company can reduce costs, increase profits while not losing its strategic focus.
So let's look at operating expenses strategically and some of the reasons you may wish to reduce them.
1. In this tough economy many are cutting back which may reduce demand for your product
2. Your losing money and need to get back on track to profitability
3. Your business is profitable but not profitable enough to meet your strategic goals
Circumstances for cutting operating costs vary, but cutting some of them, or all of them, can be risky. To do this correctly and maintain your strategic goals ask yourself the following questions:
• If I/we don’t spend this money can the Company still compete effectively?
• If I/we don’t spend this money will the quality of our product be diminished?
• If I/we don’t spend this money will our clients' experience with the company be reduced?
• If I/we don’t spend this money will the goodwill you have worked so hard to build be reduced?
You need to consider your company and the market in which you compete while making these decisions.
Thursday, April 29, 2010
Michael helps me stay focused
My experience has shown me that the people who are exceptionally good in business aren't so because of what they know but because of their insatiable need to know more.
Michael Gerber
Michael Gerber
Wednesday, April 21, 2010
Financing Your Business
2010
April
By Diane Fries, CPA
No matter what stage you are in your business you need access to adequate funding sources to ensure success. There is no “perfect” way to financing a business, but there are some fundamental steps owners need to take to ensure success.
Step 1: Know your business
Have a plan and write it down. Know where you want your business to go and how you are going to get there. Start with a budget and forecast, support these items by making sure you keep good records and know your cash needs. This can be done with the help of the appropriate accounting software. If you show up at the bank with a shoe box full of receipts and an unbalanced check register you will not make a good first impression.
Know your customer, market and your competition. Being in business just because you want too will not get you where you want to go. Do your homework and create a business plan.
Step 2: Establish a relationship with your banker
The next step to financing a business is to build a relationship with a banker. Even though a bank may not always be part of the solution, this step can be crucial and should take place before a financial need arises. If you need money it’s late to get started in this process.
Every business needs a bank for its checking, savings and merchant account services but your relationship should go far beyond this. A good banker can facilitate the lending process, but this works more successfully if you have a relationship with your banker and they have a clear understanding of your business and its needs. This process should take place over time so a true relationship is created between you and a banker (sometimes two or three). Your bank becomes your partner when the bank “invests” in you by lending you money.
When evaluating loan requests, banks essentially attempt to predict your future. Accurately forecasting the future requires a dynamic partnership between the banker and borrower. The banker will need to know you, your business and your market.
Starting a relationship when you open your checking account is not too soon, this will give the banker time to get to know you. As your business goes through its early stages you can ask your banker for referrals to accountants, lawyers and possibly suppliers and customers. A good banker is entrenched in the local business community and is a great resource
Step 3: Determine how much money is needed
Another important initial step to financing a business is identifying the amount of funds that will be needed. The amount will depend on your budget, which would be encompassed in your business plan. For new businesses, Fitzgerald says, the budget would be broken into two components: startup capital and working capital. Startup capital is for items you will need to spend money on before opening, such as equipment, office furniture, lease payments and insurance. Then you would need to anticipate what your cash flow needs would be during the first 90 to 180 days the doors are open.
"This is one of the areas that I see folks typically under budget," Fitzgerald says. "They underestimate the length of time it will take for cash to come in the door or the number of customers they anticipate will come in the door."
Existing businesses, on the other hand, should always be looking back at and updating their original business plan, Alvarado says. "It should be a living document for any business," he says.
The next question becomes whether the need relates to capital fixtures or working capital. Every business is different, and the current need will determine the amount and type of financing that will be required. Once you've determined your expenses, you will need to estimate how much of those funds you can provide and how much you must secure elsewhere.
Step 4: Consider funding sources and types
Many new businesses start out using credit cards, home equity loans/lines or borrowing money from private sources such as family and friends. Relatives and friends can be an important source of capital for businesses because they typically offer more flexible payment terms.
Banks are another obvious solution for businesses needing funds to get established or grow. However, it can be difficult for a new company to borrow from a bank since lenders generally prefer to lend to stable businesses. The bank's first responsibility is to protect its depositors; therefore bankers tend to be very cautious about lending money.
Other private sources of finances also can be external providers, such as angel investors or venture capitalists. Venture capital firms, which specialize in investing in unproven businesses, typically provide equity funds to new and young companies. Venture capitalists don't make outright loans, so there's generally nothing to repay. Instead, they buy an equity interest in the business and become hands-on investors.
Business’ may also be able to take advantage of government-financing programs. For example, the Small Business Administration (SBA) offers a variety of loan-guarantee programs to promote the long-term needs of small businesses that have difficulty getting financing on reasonable terms through normal lending channels. Loans are available for a wide range of business purposes, from working capital and inventory to real estate and expansion. Generally, the SBA can guarantee financing up to $750,000 at between 70 percent and 90 percent of the loan value.
Eligible small businesses can also participate in the SBA 504 Program, which is designed to provide longterm, fixed-rate financing. Loan proceeds can be used for fixed assets, such as real estate and long-life equipment, new construction, and even improvements to existing properties. Participating lenders typically loan 50 percent of the eligible project costs, while the SBA lends another 40 percent in a second-lien position.
Step 5: Provide supporting documentation
Preparing documentation to support the financing request is another important step to securing funding with banks and other lenders. Your proposal should show how much funding you will supply, your budget and your expectations about your future income. Hopefully, you have done good record keeping. It is important to know the financial implications of your business decisions. A good set of internal books and financial statements are the best way to provide the financial information you will need for your loan documents. Most businesses can use their internal financial statements along with tax returns to quantify your supporting information. Those with larger requests--in excess of seven figures--will need more specialized financial reporting. This could include compiled statements, financial statements reviewed by a CPA and even a financial audit.
Once the business has its numbers, business plan, credit and other documentation in order, it's time to move to the negotiation stage. Keep in mind that financing is a business decision on both ends of the equation.
April
By Diane Fries, CPA
No matter what stage you are in your business you need access to adequate funding sources to ensure success. There is no “perfect” way to financing a business, but there are some fundamental steps owners need to take to ensure success.
Step 1: Know your business
Have a plan and write it down. Know where you want your business to go and how you are going to get there. Start with a budget and forecast, support these items by making sure you keep good records and know your cash needs. This can be done with the help of the appropriate accounting software. If you show up at the bank with a shoe box full of receipts and an unbalanced check register you will not make a good first impression.
Know your customer, market and your competition. Being in business just because you want too will not get you where you want to go. Do your homework and create a business plan.
Step 2: Establish a relationship with your banker
The next step to financing a business is to build a relationship with a banker. Even though a bank may not always be part of the solution, this step can be crucial and should take place before a financial need arises. If you need money it’s late to get started in this process.
Every business needs a bank for its checking, savings and merchant account services but your relationship should go far beyond this. A good banker can facilitate the lending process, but this works more successfully if you have a relationship with your banker and they have a clear understanding of your business and its needs. This process should take place over time so a true relationship is created between you and a banker (sometimes two or three). Your bank becomes your partner when the bank “invests” in you by lending you money.
When evaluating loan requests, banks essentially attempt to predict your future. Accurately forecasting the future requires a dynamic partnership between the banker and borrower. The banker will need to know you, your business and your market.
Starting a relationship when you open your checking account is not too soon, this will give the banker time to get to know you. As your business goes through its early stages you can ask your banker for referrals to accountants, lawyers and possibly suppliers and customers. A good banker is entrenched in the local business community and is a great resource
Step 3: Determine how much money is needed
Another important initial step to financing a business is identifying the amount of funds that will be needed. The amount will depend on your budget, which would be encompassed in your business plan. For new businesses, Fitzgerald says, the budget would be broken into two components: startup capital and working capital. Startup capital is for items you will need to spend money on before opening, such as equipment, office furniture, lease payments and insurance. Then you would need to anticipate what your cash flow needs would be during the first 90 to 180 days the doors are open.
"This is one of the areas that I see folks typically under budget," Fitzgerald says. "They underestimate the length of time it will take for cash to come in the door or the number of customers they anticipate will come in the door."
Existing businesses, on the other hand, should always be looking back at and updating their original business plan, Alvarado says. "It should be a living document for any business," he says.
The next question becomes whether the need relates to capital fixtures or working capital. Every business is different, and the current need will determine the amount and type of financing that will be required. Once you've determined your expenses, you will need to estimate how much of those funds you can provide and how much you must secure elsewhere.
Step 4: Consider funding sources and types
Many new businesses start out using credit cards, home equity loans/lines or borrowing money from private sources such as family and friends. Relatives and friends can be an important source of capital for businesses because they typically offer more flexible payment terms.
Banks are another obvious solution for businesses needing funds to get established or grow. However, it can be difficult for a new company to borrow from a bank since lenders generally prefer to lend to stable businesses. The bank's first responsibility is to protect its depositors; therefore bankers tend to be very cautious about lending money.
Other private sources of finances also can be external providers, such as angel investors or venture capitalists. Venture capital firms, which specialize in investing in unproven businesses, typically provide equity funds to new and young companies. Venture capitalists don't make outright loans, so there's generally nothing to repay. Instead, they buy an equity interest in the business and become hands-on investors.
Business’ may also be able to take advantage of government-financing programs. For example, the Small Business Administration (SBA) offers a variety of loan-guarantee programs to promote the long-term needs of small businesses that have difficulty getting financing on reasonable terms through normal lending channels. Loans are available for a wide range of business purposes, from working capital and inventory to real estate and expansion. Generally, the SBA can guarantee financing up to $750,000 at between 70 percent and 90 percent of the loan value.
Eligible small businesses can also participate in the SBA 504 Program, which is designed to provide longterm, fixed-rate financing. Loan proceeds can be used for fixed assets, such as real estate and long-life equipment, new construction, and even improvements to existing properties. Participating lenders typically loan 50 percent of the eligible project costs, while the SBA lends another 40 percent in a second-lien position.
Step 5: Provide supporting documentation
Preparing documentation to support the financing request is another important step to securing funding with banks and other lenders. Your proposal should show how much funding you will supply, your budget and your expectations about your future income. Hopefully, you have done good record keeping. It is important to know the financial implications of your business decisions. A good set of internal books and financial statements are the best way to provide the financial information you will need for your loan documents. Most businesses can use their internal financial statements along with tax returns to quantify your supporting information. Those with larger requests--in excess of seven figures--will need more specialized financial reporting. This could include compiled statements, financial statements reviewed by a CPA and even a financial audit.
Once the business has its numbers, business plan, credit and other documentation in order, it's time to move to the negotiation stage. Keep in mind that financing is a business decision on both ends of the equation.
Wednesday, March 24, 2010
Manage your Cash
March 24, 2010
By Diane Fries, CPA
We have all heard the saying “Cash is King” and at no time in recent history has this been more true. Cash is the fuel that runs your business, and like a car, your business will go nowhere with out fuel. You must be aware of how much fuel you have in your tank, where you need to go, and where the next gas station is.
Do you know how much cash you have?
Is you tank on full, empty? Do you know? The amount of cash you have on hand is one of the most important factors for the growth and survival of your company. All small business people know that if there is not enough cash on pay day, game over.
There are some key steps to knowing how much cash you have.
• All transactions need to be recorded accurately and in REAL-TIME
• All cash accounts need to be reviewed and reconciled as frequently as possible (NO it is not good enough to have your tax guy look at your bank statements at year end)
• Use appropriate accounting software maintained by qualified people (NO on-line banking is not good enough)
Do you know how cash flows through your business?
You must understand the efficiency in which your business is burning cash and where your next fill-up is coming from. Simply put you need to know how much cash you have, who you owe and who owes you at any time.
There are some key steps to knowing who you owe and who owes you.
• All transactions need to be recorded accurately and in REAL-TIME
• All cash accounts need to be reviewed and reconciled as frequently as possible (NO it is not good enough to have your tax guy look at your bank statements at year end)
• Use appropriate accounting software maintained by qualified people (NO on-line banking is not good enough)
Starting to sound familiar? All business must control their cash to become and stay successful. A cash control system must be implemented and maintained accurately and in REAL-TIME.
A Cash Control System
Managing this vital component requires the use of simple, well-documented control systems for the money flowing through the business. It needn’t be an overly complex system, but it must cover two categories: money coming in and money going out.
Money coming into the business includes:
• Sales Receipts
• Cash Handling
• Credit Transactions
• Invoicing and Accounts Receivable
• Collections
Money going out of the business includes:
• Purchasing
• Accounts Payable
• Inventory Control
• Payroll
There are some key steps to cash control system are.
• All transactions need to be recorded accurately and in REAL-TIME
• All cash accounts need to be reviewed and reconciled as frequently as possible (NO it is not good enough to have your tax guy look at your bank statements at year end)
• Use appropriate accounting software maintained by qualified people (NO on-line banking is not good enough)
Ok this is indeed sounding familiar. Not to over-simplify the complex issue of CASH and how it relates to your business success, but to drive home a very important message. You must manage cash to be a successful business. This important task can be accomplished easily, accurately and in REAL-TIME. To learn more contact us.
Now get back to growing your business!
By Diane Fries, CPA
We have all heard the saying “Cash is King” and at no time in recent history has this been more true. Cash is the fuel that runs your business, and like a car, your business will go nowhere with out fuel. You must be aware of how much fuel you have in your tank, where you need to go, and where the next gas station is.
Do you know how much cash you have?
Is you tank on full, empty? Do you know? The amount of cash you have on hand is one of the most important factors for the growth and survival of your company. All small business people know that if there is not enough cash on pay day, game over.
There are some key steps to knowing how much cash you have.
• All transactions need to be recorded accurately and in REAL-TIME
• All cash accounts need to be reviewed and reconciled as frequently as possible (NO it is not good enough to have your tax guy look at your bank statements at year end)
• Use appropriate accounting software maintained by qualified people (NO on-line banking is not good enough)
Do you know how cash flows through your business?
You must understand the efficiency in which your business is burning cash and where your next fill-up is coming from. Simply put you need to know how much cash you have, who you owe and who owes you at any time.
There are some key steps to knowing who you owe and who owes you.
• All transactions need to be recorded accurately and in REAL-TIME
• All cash accounts need to be reviewed and reconciled as frequently as possible (NO it is not good enough to have your tax guy look at your bank statements at year end)
• Use appropriate accounting software maintained by qualified people (NO on-line banking is not good enough)
Starting to sound familiar? All business must control their cash to become and stay successful. A cash control system must be implemented and maintained accurately and in REAL-TIME.
A Cash Control System
Managing this vital component requires the use of simple, well-documented control systems for the money flowing through the business. It needn’t be an overly complex system, but it must cover two categories: money coming in and money going out.
Money coming into the business includes:
• Sales Receipts
• Cash Handling
• Credit Transactions
• Invoicing and Accounts Receivable
• Collections
Money going out of the business includes:
• Purchasing
• Accounts Payable
• Inventory Control
• Payroll
There are some key steps to cash control system are.
• All transactions need to be recorded accurately and in REAL-TIME
• All cash accounts need to be reviewed and reconciled as frequently as possible (NO it is not good enough to have your tax guy look at your bank statements at year end)
• Use appropriate accounting software maintained by qualified people (NO on-line banking is not good enough)
Ok this is indeed sounding familiar. Not to over-simplify the complex issue of CASH and how it relates to your business success, but to drive home a very important message. You must manage cash to be a successful business. This important task can be accomplished easily, accurately and in REAL-TIME. To learn more contact us.
Now get back to growing your business!
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