Category Archives: Successful Business

SMALL BUSINESS OPTIMISM CONTINUES TO GROW

smallbusinessownerby Isaac M. O’Bannon, CPA Practice Advisor, August 13, 2014

More small business owners say their company’s current financial situation is good, yet their outlook for the next year has not changed significantly, according to a new survey.

The latest Wells Fargo/Gallup Small Business Index score increased slightly to positive 49 (+49) in July, up two points from positive 47 (+47) in April. The score, which measures small business optimism, has increased six of the last seven quarters. Small business optimism is now at its highest point in more than six years, however it remains well below pre-recession levels.

The present situation – how business owners rate current conditions for their businesses – is the main contributor to increased optimism in the latest survey. The present situation score is now at a positive 18 (+18), up four points since the April survey and 14 points from the same period a year ago. Specific factors that contribute to the improvement include:

  • Small business owners are feeling better about their current business financial situation, with 62 percent rating it as very or somewhat good, up from 57 percent in the second quarter 2014.
  • More business owners report their company’s revenues have increased, with 43 percent indicating revenues are up in the past 12 months compared with 36 percent in April.
  • Cash flow over the past 12 months also is at a six-year high. In the survey, 55 percent of business owners report their cash flow has been very or somewhat good over the past year, up from 50 percent in the second quarter of 2014.
  • Ease of obtaining credit in the past 12 months is up significantly – 32 percent of small business owners say that it has been very or somewhat easy to obtain credit in the past 12 months.

At the same time, the future outlook for business owners in the July survey was relatively unchanged, down two points to positive 31 (+31) from positive 33 (+33) in the second quarter. In three surveys conducted in 2014, the percent of business owners who think their businesses’ cash flow, financial situation and revenue would improve over the next 12 months has not moved significantly. The percent of business owners who expect to increase capital spending in the year ahead is the same as those who plan to decrease (25 percent).

“The latest Index scores show small businesses have made gradual progress since the economic downturn –with modest improvement in the economy, healthier small businesses are growing revenue and have stronger cash flow today,” said Lisa Stevens, head of Small Business for Wells Fargo. “However, we know many businesses still face challenges in the marketplace and it’s reflected in the survey results. Many continue to wait for more improvement in their businesses and the economy before they express confidence in the year ahead.”

Business owners report that the biggest challenge they face is attracting customers and finding business (13 percent), followed closely by government regulations (11 percent), financial stability of their business (11 percent) and the economy (11 percent).

When it comes to generating new business, small business owners said the toughest part is marketing and advertising (14 percent), and competition (13 percent). Ten percent of business owners said the costs of running a business make it difficult to attract customers and grow. Another 10 percent said making product improvements or having the latest products is the biggest challenge to growing sales.

LEAVING A BUSINESS? WHICH EXIT PLAN IS BEST

exitSelecting your business successor is a fundamental objective of planning an exit strategy and requires a careful assessment of what you want from the sale of your business and who can best give it to you.

There are only four ways to leave your business: transfer ownership to family members, Employee Stock Option Plan (ESOP), sale to a third party, and liquidation. The more you understand about each one, the better the chance is that you will leave your business on your terms and under the conditions you want. With that in mind, here’s what you need to know about each one.

1. Transfer Ownership to your Children

Transferring a business within the family fulfills many people’s personal goals of keeping their business and family together, but while most business owners want to transfer their business to their children, few end up doing so for various reasons. As such, it’s necessary to develop a contingency plan to convey your business to another type of buyer.

Transferring your business to your children can provide financial well-being for younger family members unable to earn comparable income from outside employment, as well as allow you to stay actively involved in the business with your children until you choose your departure date.

It also affords you the luxury of selling the business for whatever amount of money you need to live on, even if the value of the business does not justify that sum of money.

On the other hand, this option also holds the potential to increase family friction, discord, and feelings of unequal treatment among siblings. Parents often feel the need to treat all of their children equally. In reality, this is difficult to achieve. In most cases, one child will probably run or own the business at the perceived expense of the others.

At the same time, financial security also may be diminished, rather than enhanced, and the very existence of the business is at risk if it’s transferred to a family member who can’t or won’t run it properly. In addition, family dynamics in general, may also significantly diminish your control over the business and its operations.

2. Employee Stock Option Plans (ESOP)

If your children have no interest or are unable to take over your business, there is another option to ensure the continued success of your business: the Employee Stock Ownership Plan (ESOP).

ESOPs are qualified retirement plans subject to the regulatory requirements of the Employee Retirement Income Security Act of 1974 (ERISA). There’s one important difference however; the majority (more than half) of their investment must be derived from their own company stock.

Whether it’s due to lack of interest from your children, an economic downturn or a high asking price that no one is willing to pay, what an ESOP does is create a third-party buyer (your employees) where none previously existed. After all, who more than your employees has a vested interest in your company?

ESOPs are set up as a trust (complete with trustees) into which either cash to buy company stock or newly issued stock is placed. Contributions the company makes to the trust are generally tax deductible, subject to certain limitations and because transactions are considered stock sales, the owner who is selling (you) can avoid paying capital gains. Shares are then distributed to employees (typically based on compensation levels) and grow tax free until distribution.

If your company is a stable, well-established one with steady, consistent earnings, then an ESOP might be just the ticket to creating a winning exit plan from your business.

If you have any questions about setting up an ESOP for your business, give us a call today.

3. Sale to a Third Party

In a retirement situation, a sale to a third party too often becomes a bargain sale–and the only alternative to liquidation. But if the business is well prepared for sale this option just might be your best way to cash out. In fact, you may find that this so called “last resort” strategy just happens to land you at the resort of your choice.

Although many owners don’t realize it, most or all of your money should come from the business at closing. Therefore, the fundamental advantage of a third party sale is immediate cash or at least a substantial up front portion of the selling price. This ensures that you obtain your fundamental objectives of financial security and, perhaps, avoid risk as well.

If you do not receive the bulk of the purchase price in cash, at closing, however, your risk will suddenly become immense. You will place a substantial amount of the money you counted on receiving in the unpredictable hands of fate. The best way to avoid this risk is to get all of the money you are going to need at closing. This way any outstanding balance payable to you is “icing on the cake.”

4. Liquidation

If there is no one to buy your business, you shut it down. In liquidation the owners sell off their assets, collect outstanding accounts receivable, pay off their bills, and keep what’s left, if anything, for themselves.

The primary reason liquidation is considered as an exit plan is that a business lacks sufficient income-producing capacity apart from the owner’s direct efforts and apart from the value of the assets themselves. For example, if the business can produce only $75,000 per year and the assets themselves are worth $1 million, no one would pay more for the business than the value of the assets.

Service businesses in particular are thought to have little value when the owner leaves the business. Since most service businesses have little “hard value” other than accounts receivable, liquidation produces the smallest return for the owner’s lifelong commitment to the business. Smart owners guard against this. They plan ahead to ensure that they do not have to rely on this last ditch method to fund their retirement.

If you need assistance figuring out which exit strategy is best for you and your business, please don’t hesitate to contact us. The sooner you start planning, the easier it will be.

CASH FLOW: THE PULSE OF YOUR SMALL BUSINESS

cashflowCash flow is the lifeblood of any small business. Some business experts even say that a healthy cash flow is more important than your business’s ability to deliver its goods and services! While that might seem counterintuitive, consider this: if you fail to satisfy a customer and lose that customer’s business, you can always work harder to please the next customer. If you fail to have enough cash to pay your suppliers, creditors, or employees, then you’re out of business!

What is Cash Flow?

Cash flow, simply defined, is the movement of money in and out of your business; these movements are called inflow and outflow. Inflows for your business primarily come from the sale of goods or services to your customers, but keep in mind that inflow only occurs when you make a cash sale or collect on receivables. It is the cash that counts! Other examples of cash inflows are borrowed funds, income derived from sales of assets, and investment income from interest.

Outflows for your business are generally the result of paying expenses. Examples of cash outflows include paying employee wages, purchasing inventory or raw materials, purchasing fixed assets, operating costs, paying back loans, and paying taxes.

Note: An accountant is the best person to help you learn how your cash flow statement works. Please contact us and we can prepare your cash flow statement and explain where the numbers come from.

Cash Flow versus Profit

While they might seem similar, profit and cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat broad and only looks at income and expenses over a certain period, say a fiscal quarter. Profit is a useful figure for calculating your taxes and reporting to the IRS.

Cash flow, on the other hand, is a more dynamic tool focusing on the day-to-day operations of a business owner. It is concerned with the movement of money in and out of a business. But more important, it is concerned with the times at which the movement of the money takes place.

In theory, even profitable companies can go bankrupt. It would take a lot of negligence and total disregard for cash flow, but it is possible. Consider how the difference between profit and cash flow relate to your business.

Example: If your retail business bought a $1,000 item and turned around to sell it for $2,000, then you have made a $1,000 profit. But what if the buyer of the item is slow to pay his or her bill, and six months pass before you collect on the account? Your retail business may still show a profit, but what about the bills it has to pay during that six-month period? You may not have the cash to pay the bills despite the profits you earned on the sale. Furthermore, this cash flow gap may cause you to miss other profit opportunities, damage your credit rating, and force you to take out loans and create debt. If this mistake is repeated enough times, you may go bankrupt.

Analyzing your Cash Flow

The sooner you learn how to manage your cash flow, the better your chances for survival. Furthermore, you will be able to protect your company’s short-term reputation as well as position it for long-term success.

The first step toward taking control of your company’s cash flow is to analyze the components that affect the timing of your cash inflows and outflows. A thorough analysis of these components will reveal problem areas that lead to cash flow gaps in your business. Narrowing, or even closing, these gaps is the key to cash flow management.

Some of the more important components to examine are:

  • Accounts receivable. Accounts receivable represent sales that have not yet been collected in the form of cash. An accounts receivable is created when you sell something to a customer in return for his or her promise to pay at a later date. The longer it takes for your customers to pay on their accounts, the more negative the effect on your cash flow.
  • Credit terms. Credit terms are the time limits you set for your customers’ promise to pay for their purchases. Credit terms affect the timing of your cash inflows. A simple way to improve cash flow is to get customers to pay their bills more quickly.
  • Credit policy. A credit policy is the blueprint you use when deciding to extend credit to a customer. The correct credit policy – neither too strict nor too generous – is crucial for a healthy cash flow.
  • Inventory. Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. An excessive amount of inventory hurts your cash flow by using up money that could be used for other cash outflows. Too many business owners buy inventory based on hopes and dreams instead of what they can realistically sell. Keep your inventory as low as possible.
  • Accounts payable and cash flow. Accounts payable are amounts you owe to your suppliers that are payable at some point in the near future – “near” meaning 30 to 90 days. Without payables and trade credit, you’d have to pay for all goods and services at the time you purchase them. For optimum cash flow management, examine your payables schedule.

Some cash flow gaps are created intentionally. For example, a business may purchase extra inventory to take advantage of quantity discounts, accelerate cash outflows to take advantage of significant trade discounts, or spend extra cash to expand its line of business.

For other businesses, cash flow gaps are unavoidable. Take, for example, a company that experiences seasonal fluctuations in its line of business. This business may normally have cash flow gaps during its slow season and then later fill the gaps with cash surpluses from the peak part of its season. Cash flow gaps are often filled by external financing sources. Revolving lines of credit, bank loans, and trade credit are just a few of the external financing options available that you may want to discuss with us.

Monitoring and managing your cash flow is important for the vitality of your business. The first signs of financial woe appear in your cash flow statement, giving you time to recognize a forthcoming problem and plan a strategy to deal with it. Furthermore, with periodic cash flow analysis, you can head off those unpleasant financial glitches by recognizing which aspects of your business have the potential to cause cash flow gaps.

Need assistance? We can help you analyze and manage your cash flow more effectively and make sure your business has adequate funds to cover day-to-day expenses.

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FIVE BASIC TAX TIPS FOR NEW BUSINESSES

business-owner-stockxpertcom_id17260461_jpg_9d244c0f32209ba041e058fccd912e101If you start a business, one key to success is to know about your Federal tax obligations. You may need to know not only about income taxes but also about payroll taxes. Here are five basic tax tips that can help get your business off to a good start.

1. Business Structure.  As you start out, you’ll need to choose the structure of your business. Some common types include sole proprietorship, partnership and corporation. You may also choose to be an S corporation or Limited Liability Company (LLC). You’ll report your business activity using the IRS forms which are right for your business type.

2. Business Taxes.  There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. The type of taxes your business pays usually depends on which type of business you choose to set up. You may need to pay your taxes by making estimated tax payments.

3. Employer Identification Number.  You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on IRS.gov to find out if you need this number. If you do need one, you can apply for it online.

4. Accounting Method.  An accounting method is a set of rules that determine when to report income and expenses. Your business must use a consistent method. The two that are most common are the cash method and the accrual method. Under the cash method, you normally report income in the year that you receive it and deduct expenses in the year that you pay them. Under the accrual method, you generally report income in the year that you earn it and deduct expenses in the year that you incur them. This is true even if you receive the income or pay the expenses in a future year.

5. Employee Health Care.  The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. Beginning in 2014, the maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities.

For 2015 and after, employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees that is equivalent to 50 full-time employees) will be subject to the Employer Shared Responsibility provision.

If you would like to start a new business or have questions about starting up a new business, please call our office today. We specialize in helping people just like you who want to enjoy the freedom and flexibility of owning their own businesses.

Source: IRS Summertime Tax Tip 2014-09

GOOGLE LAUNCHES NEW ‘GOOGLE MY BUSINESS’

googlemybusinessGoogle has launched a new portal, Google My Business, designed to simplify and demystify Google visibility for small businesses. Google My Business provides a central hub for small, local businesses to manage their presence on Google Search, Google Maps and Google+ from a single dashboard.

Getting on Google is Simpler than Ever

Before Google My Business, small-business owners and marketers had to update their business information on each of these services separately, a confusing process for business owners already crunched for time. “We see our customers struggle with this all the time,” says Kevin Gibson, Marketing Technologist at Utah printing and marketing agency AlphaGraphics Bountiful.

“Either they have multiple listings and can’t combine them, or they have a listing but can’t get access to change it, or they have no listing and go deer in the headlights as soon as you start talking about it,” Gibson explains. “Anytime Google can consolidate tools and make it easier for regular business owners to use, it is a good thing.”

Manage Multiple Google Services Simultaneously

With Google My Business, you can now update your business information, such as hours of operation and physical location information, across Google Search, Google Maps, and Google+ at the same time. You can also implement and manage an AdWords Express campaign (a simplified version of Google’s pay-per-click advertising program), monitor audience engagement with your content on Google+, track website analytics, respond to customer reviews, and even launch a Google+ Hangout.

Because it’s simpler to manage, Google hopes that more businesses will take advantage of features like Google+ to engage with potential customers, encourage customers to write reviews, and monitor performance with Google Analytics data and Insights for Google+ posts and pages. If you already use Google Places or Google+ Pages, Google will automatically upgrade you to Google My Business. There’s no charge to use Google My Business, although the typical pay-per-click (PPC) advertising costs apply to the AdWords Express program.

Experts Agree It’s a Good Thing

Digital marketing experts say the change is positive for Google, small businesses, and the SEO agencies that serve them. “When you understand the power of both SEO and PPC mixed together within the Google portal, you can dominate your niche that you’re in and blow away even the big guys that have huge ad agencies,” says Andrew Anderson of Strategic Web Blueprint. “In our opinion, it is actually a great equalizer for small businesses.”

Gibson also sees Google My Business as a win-win. “Consolidating the tools and making it easy for small-business owners to get involved will ultimately lead to more business for SEO providers, when [small businesses] get to some of the more technical parts of PPC campaigns they don’t understand,” he explains. The benefit for Google is, of course, more paid advertising business, while small businesses gain visibility and connect with more potential customers.

Using Google My Business

If you don’t already use Google+ Pages or Google Places, you can set up your own profile by visiting Google My Business and selecting “Get on Google.” Google will then walk you through the steps, ranging from locating or adding a local business address on Google Maps, to creating a Google+ page, and more.

Taking advantage of the tools Google My Business offers helps small businesses connect with their customers. That means your business is more likely to show up in the search results when Google users search for keywords related to your business. The more effort you put into nurturing your Google presence, the better your odds of raising your visibility with your target audience.

Written By: Angela Stringfellow
Read more: http://blog.intuit.com/local/google-launches-google-my-business-a-central-dashboard-for-small-business/#ixzz38CU9FWgM

TWO IMPORTANT LIQUIDITY RATIOS TO KNOW FOR YOUR BUSINESS

currentratioDo you know what the current ratio is for your business?  How about the quick ratio?  These two ratios are considered important liquidity ratios, or ratios that will give you an idea of how well you can meet your debt obligations. These two ratios are critical because if your business does not have liquidity, then it won’t be able to pay its liabilities. Also, the business may not be able to handle an unexpected expense.

The Current Ratio is the total of current assets that your business owns (ex.-cash and cash equivalents, accounts receivable, inventory, etc.) divided by current liabilities (ex.-accounts payable, taxes payroll, debt obligations due within the year, etc.). This ratio shows whether the assets that you own can be converted into cash within a year in order to pay off your liabilities that are due within a year. A ratio of less than one means that you could run short of cash within the year unless additional revenue is brought into the business.

The Quick Ratio is similar to the current ratio; however, inventory isn’t included in the calculation. The quick ratio is expressed as cash and cash equivalents plus accounts receivable divided by current liabilities. Inventory isn’t include because it may be difficult to turn over the inventory within a year.

Both of these ratios should be analyzed together to help you calculate how well your business can meet is debt obligations.

SHOULD YOU BUY A NEW TOP-LEVEL DOMAIN NAME FOR YOUR BUSINESS?

domainNow it’s easier than ever before to buy a branded URL for your business. With the Internet Corporation for Assigned Names and Numbers’ rollout of more than 1,400 themed domain extensions over the course of the year, you can now buy the website address of your choice with a .bike, .coffee, or .lawyer top-level domain, to name just a few of the options.

If the .com website address of your choice isn’t available, a themed domain extension may seem like an attractive option — but is it worth building your online brand around it? Consider the following points.

.Com Domains Still Dominate

There are more than 100 million registered .com domains, according to statistics from VeriSign, which far exceeds the use of any other domain extension. On a practical level, that means most people will default to including “.com” when typing in your URL unless you make a major branding effort to get customers to remember your custom domain.

What if You Can’t Find a .Com Domain That Suits Your Brand?

Domain names ending in .com are generally preferable, but what if your top choice — or even your tenth choice — isn’t available? That’s a common occurrence for small-business owners. In a study conducted by  Wakefield Research, 55 percent of respondents surveyed said they believe  they have lost business because of their domain names. If a suitable .com URL isn’t available, it may make sense to move to a themed top-level domain. For instance, if you own a business called Sunrise Coffee and can’t purchase sunrisecoffee.com or any suitable variants, consider purchasing sunrise.coffee instead.

You May Need to Buy More Than One Domain Name

Many businesses strive to protect their brand by purchasing numerous relevant domain names. But with the new business-themed domains, this can get quite expensive. If you own a chain of coffee shops, for instance, you may want to purchase a .com, a .biz, and now, even a .coffee domain name. ICANN has launched a trademark clearinghouse that allows brands to protect their trademarked names, with trademark registration available for between $95 and $150 per year. Keep in mind that this service sends a warning to those who purchase trademarked domain names, but it does not actually prevent anyone from buying them. To fully protect your brand, you’ll need to actually purchase the relevant domain names.

If you want to check on the costs and availability of brand-related domain names, a service like GoDaddy can help at no charge. If you haven’t even decided on a business name yet, try Panabee, which can help you come up with potential choices for a business name.

Written by Kathryn Hawkins, Intuit Small Business Blog, 7/17/2014

Read more: http://blog.intuit.com/marketing/should-you-buy-a-new-top-level-domain-name-for-your-business/#ixzz37jEVj1oR