That of course is one small business success story against millions of small business failures.  But are small business start ups disappearing? According to Jan Norman and US Census Bureau, they are.  The studies say that the starts ups (in general) have declined from 13% of all US companies in 1980 to 11% in 2006.  Companies that are less than 5 years old have decreased from 50% in the 1980s to 35% in 2006.  Lastly, young companies used to account for 1 in 5 jobs. Now, 1 in 8.

Obviously, in the biggest economic downturn since the Hoover Depression, small businesses will took a big hit.  Many small businesses just don’t have the capital to weather a storm.  But does this mean that we are losing our entrepreneur spirit?

I would challenge the article on that point.  As a CPA firm, more and more business plan opportunities are coming through our door.  Entrepreneurs grace our presence with investors who want some sort of business plan or strategic plan for their new idea or small business.  If you want to know more about setting yourself apart, read one of my earlier articles:Changes:Bowie Was Right, Look Out You Rock n Rollers. The article advocates the creation of smaller strategies instead of one big one.

So, are startups failing, or are new business people just choosing more carefully what they should invest their time and money into?  Remember, back in the 1980s and 1990s, credit was rampant.  People maxed out their credit cards and credit lines.

Now, those sources are not as available.

Don’t shy away from your dream.  Strategic planning is the key word to vision, and a business plan is the necessary tool to implementing it.

I was skeptical.  However, according to some industry opinions, the public’s method of listening is changing.  This is confirmed in the most recent growth of digital music in the last 3-4 years.  According to How Artists get Paid for Internet Radio: An interview with Mike Huppe, President of Sound Exchange by Chris Castle, “More and more people are accessing music through digital devices, mobile devices and through streaming content rather than downloading it.  The article also informed me that “Soundexchange pays performers directly, regardless if they are recouped through their record deal.”  (“Recoupment” is the method of recovering monies advanced to the artist before any royalties are paid out to them.)

So, what does this mean to you?

1. Make sure you have good representation in your contracts.   You can lose a substantial amount of money because of a poorly-worded contract.
2. You don’t have to be a CPA entertainment business manager to know what you don’t know.  Even though you are an artist, you should at least know the basics of your industry.  There are a number of good reference books that speak of the music industry.  After that, leave the rest to your attorney and CPA entertainment business manager.
3. If you receive substantial royalties payments, don’t be afraid to hire an auditor that specializes in music royalties.  You must keep the payers honest.

Music artists and writers have the best copyright laws in our nation’s history.  Don’t squander it by sticking your head in the sand.

Of the four elements, (strength, weaknesses, opportunities, and threats)  of the well known strategy SWOT analysis,  opportunities seem to be the hardest to define.  Most companies can tell you their strengths.  That’s not hard, if you just look at your successes.  Weaknesses can be illuminated if you are honest with yourself.  And threats surface from business paranoia.  All you have to do is list the things that keep you up at night.

Opportunities are different from the other three.  There are good opportunities and  bad opportunities.  Some opportunities are scams, others are half-baked dreams.  I have prepared a number of business plans and strategic plans that flushed out half-baked ideas.  I remember these group of musicians that wanted to start a music company and sign artists to perform the songs written by one of the principles.  I replied, “What happens if he dies?  Your whole business model is based on him living and writing.”

They didn’t hire me,(In face, I think the inspiring songwriter showed me to the door.)

So, where can you find opportunities?

Bill Birnbaum in his book, Strategic Thinking, A Four Piece Puzzle, lists some advice on finding opportunities.

1. Macro-environment factors: First look to the macro-environment.  This is the  big, broad place that is not specific to your company, or even your industry.  These issues include the economic conditions, government regulations, consumer attitudes, and demographic data.  In other words, SPEELT (Societal, political, economic, environmental, legal, and technology.)  An example would be Cique du soleil considering the movies, the opera, or Chinese acrobats when making their decision the change the nature of the circus. These segments are outside their industry, but these segments lack aspects of entertainment that the cirque provides.  So, the cirque saw an opportunity of competing against these other markets for the same audience.
2. Micro-environment factors:  The micro-environment includes your customers, suppliers, etc. interact. It is the world you customers belong.  A competitors weakness translates into an opportunity.  This is not a strategy.  An opportunity is a favorable external circumstance that you may pursue, where a strategy is not external and is part of your organization’s big picture quest.

Check out these factors when confronted with opportunities.  Dreams are just dreams. Good opportunities are well-thought out choices that may transform your business.

I have worked as an entertainment business manager  since  1985.  For the last 15 years I have helped artists strategically position themselves in new business ventures.  What I have found is those who do not start out with easy financing (parents for example), tend to have a better chance of success.  From a CPA business manager prospective, the adage, “easy come, easy go”  has  somewhat predicted the ventures.  Even though our firm works as consultants, I usually take an emotional stake in my projects because I want to see them succeed.  Most entertainment CPA business managers don’t do what we do, but come in after the business is funded.  We have found that entering after the initial planning stage is too late.

From an entertainment CPA business manager point of view, here are some steps I suggest you take before opening up your next venture:

1. Research your proposed industry thoroughly: You should start by speaking to people in the industry that you trust.  Don’t be afraid to ask the difficult questions, and don’t bury your head in the sand. Try to find statistics or news of your competitors and the industry you are venturing in.  Most important, speak to your target market.  Find out what the industry is not providing to them, and what the industry is providing to them that is unnecessary.
2. Find people in areas you lack expertise: If you have areas that are outside your expertise, bring in people who can fill those weaknesses.  They may sign on and be a major stakeholder for you once you get started.
3. Develop a strategic plan with a long range vision: Start 20 years or more from now and describe a vision that is more than making money. Are you out to change communication and entertainment by putting it in the palms of every person like Steve Jobs?  Once your vision and horizon is set, work backwards and set milestones.  You should end on your first day of business.
4. Consolidate a team: If there are others that will help you, line them up and get them on board.  It will show your investors that this business is more than you.
5. Build a business plan: A business plan is not a strategy, but a management tool.  It starts today and works forward for five years.  It is essential that you include the cash flow of the first twelve months.  This is when businesses struggle to stay afloat.  Make sure your business plan milestones correspond to your strategic milestones.  Insert your team bios along with your bio.
6. Present the package: Now you can go to your money people. Practice your dog and pony show.  A video or slide show can help bring the message across.

Like moving from a worm to a butterfly, artists must go through the “pain” before the doors open.  The more pain you endure, then better informed you will be when you meet your investors and launch the enterprise.

As CPA entertainments business managers, we have seen failed ventures that did not take these steps.  By engaging in this practice, it does not guaranty success, but will at least give you the wings to soar a little higher.

Last week, the Association for Strategic Planning, Los Angeles chapter, hosted two excellent strategist who spoke from  the future.  Ivan Rosenberg and Daniel Feiman discussed strategic planning by looking at the future and working backwards.  Both speakers contributed to The Book on Business from A to Z, the 260 Most Important Answers You Need to Know. The book is nominated for E-book of the year.

Of the seven points they discussed about “seeing the future” to plan the strategy of today, the one that interested me the most was the “vision.”   The speakers not only explained that a vision should be inspiring, but should be much broader and much, much farther in the future than a standard business plan.

Now, most strategist know that a business plan is a management document, not a strategy document. However, this “vision” approach helps look between the lines of the business plan in promoting to the world what the business believes in, not just what it sells.

As our speakers said, if you start from the future, and that is  20+ years, you can design the strategy and tactics necessary to get there, today.  Jim Collins describes this as his Big Hairy Audacious Goals in his book, Built to Last.  As Jim quoted Teddy Roosevelt, ” Far better to dare mighty things, to win glorious triumphs, even though checkered by failure, than to take rank with those poor spirits who neither enjoy much nor suffer much, because they live in the gray twilight that knows not victory, not defeat.”

When designing a business plan, think strategically.  When implementing strategy, build a business plan.  Normally, business plans look forward starting at a current place in time.  However, if you start a business plan by strategizing from the future, you create a new dimension of striving for a vision that surpasses the limited confines of a normal business plan.

Most small and medium-sized businesses find this concept foreign because businesses usually only want to know two things:  1) What are my sales? And 2) Do I have enough money to make payroll?

When these businesses focus on only the ground in front of them, they fail to see the direction they are travelling until they drive off a cliff.  And then it is too late.

If you need more time to file your return, you can get an automatic
six-month extension of time to file from the IRS.  You must file for an
extension by the April 17 deadline.  An extension will give you extra time
to get your paperwork to the IRS, but it does not extend the time you have to
pay any tax due. You will owe interest on any amount not paid by the deadline,
plus you may owe penalties. To get an extension:

• IRS Free File – Traditional Free File and Free File
Fillable Forms can both be used to file an extension for FREE.  Access the
Free File page at www.irs.gov.

• IRS e-file - Use IRS e-file to request an extension by
using tax preparation software on your own computer or by going to a tax
preparer.

• Form to File – Mail in IRS Form 4868, Application for
Automatic Extension of Time to File U.S. Individual Income Tax Return. It must
be postmarked by April 17, 2012.  A CPA can create this for you with your authorization.  Just provide your name, address, and social security numbers.

Taxpayers that are ready to file their returns and those that have already
filed and need to pay a tax bill have payment options:

• E-file - File electronically and authorize an electronic
funds withdrawal via tax preparation software or a tax professional.  Your CPA can explain the situations when the State of California require mandatory electronic payments.

• Phone - Pay by phone or online using a credit card.

• Mail - Pay by check or money order made payable to the
“United States Treasury.” Be sure to include your name, address, Social
Security number listed first on the tax form, daytime telephone number, tax
year and form number. Complete and include Form 1040-V, Payment Voucher, when
mailing your payment to the IRS.

If you owe tax with your federal tax return, but can’t afford to pay it all
when you file, the IRS has options to help you keep interest and penalties to a
minimum. File your return on time and pay as much as you can with the return,
then:

• Request an installment agreement - Use the Online Payment
Agreement application at www.irs.gov
or by file Form 9465, Installment Agreement Request with your return. The IRS
charges a user fee to set up your payment agreement.  Your CPA can represent you on setting this up, but you need to provide a Power of Attorney.

• Additional time to pay – You may request a short
additional time to pay your tax in full using the Online Payment Agreement
application on www.irs.gov.
Taxpayers who request and are granted an additional 120 days to pay the tax in
full generally will pay less in penalties and interest than if the debt were
repaid through an installment agreement over a greater period of time. There is
no fee for this short extension of time to pay.

• Extension of time to pay – Qualifying individuals may
request an extension of time to pay and have late payment penalties waived as
part of the IRS Fresh Start initiative. To see if you qualify visit www.irs.gov
and get Form 1127-A, Application for Extension of Time for Payment.  This
application must be filed by April 17, 2012.

CPA’s are always trying to get client’s to plan ahead whether they have businesses, or not.  If you are running late this year, this would be a good opportunity to start preparing for 2012.  You can accumulate receipts in envelopes and start EXCEL spreadsheets to keep track of them.  The reward will not only be your peace of mind, but also you may save more money in taxes next year.

If you are one of those last minute people, here are some tips from the IRS:

1. File electronically Most taxpayers file electronically.
If you haven’t tried it, now is the time! The IRS has processed more than 1
billion individual tax returns safely and securely since the nationwide debut
of electronic filing in 1990. In fact, 112 million people — 77 percent of all
individual taxpayers — used IRS e-file last year.

2. Check the identification numbers Carefully check
identification numbers — usually Social Security numbers — for each person
listed. This includes you, your spouse, dependents and persons listed in
relation to claims for the Child and Dependent Care Credit or Earned Income Tax
Credit. Missing, incorrect or illegible Social Security numbers can delay or
reduce a tax refund.

3. Double-check your figures If you are filing a paper
return, double-check that you have correctly figured the refund or balance due.

4. Check the tax tables If you e-file, the software will do
this for you. If you are using Free File Fillable Forms or a paper return,
double-check that you used the right figure from the tax table for your filing
status.

5. Sign your form You must sign and date your return. Both
spouses must sign a joint return, even if only one had income. Anyone paid to
prepare a return must also sign it and enter their Preparer Tax Identification
Number.

6. Send your return to the right address If you are mailing
a return, find the correct mailing address at www.irs.gov.
Click the Individuals tab and the “Where to File” link under IRS Resources on
the left side.

7. Pay electronically Electronic payment options are
convenient, safe and secure methods for paying taxes. You can authorize an
electronic funds withdrawal, or use a credit or a debit card. For more
information on electronic payment options, visit www.irs.gov.

8. Follow instructions when mailing a payment People
sending a payment should make the check payable to the “United States Treasury”
and should enclose it with, but not attach it to, the tax return or the Form
1040-V, Payment Voucher, if used. The check should include the Social Security
number of the person listed first on the return, daytime phone number, the tax
year and the type of form filed.

9. File or request an extension to file on time By the
April 17 due date, you should either file a return or request an extension of
time to file. Remember, the extension of time to file is not an extension of
time to pay.

10. Visit IRS.gov Forms, publications and helpful
information on a variety of tax subjects are available at www.irs.gov.

If you hire a CPA to help you file, you don’t have to worry about these things.  But, just like dancing, everything in taxes depends on timing. So, make sure you stay in step, or it can cost you penalties or delays.

Like vacationing, if you engage in, or plan to engage in international business transactions,  it is important that you design and implement a strategy.  Otherwise, many dollars, if not the whole venture, can be “lost in translation.”

With the current European slowdown, governments are finding ways to skim your profits.  In Roger Russell’s article, Global governments are getting hungrier, Roger discusses the global sharing of information and how that is affecting how companies move revenue from one country to another.

Another victim of the global information sharing is the financial information sharing that the IRS is pushing.  Don’t you remember the IRS obtaining Swiss Bank information?  This is becoming commonplace.  Businesses must find strategy experts to chart the strategic course in order to avoid double and triple taxation.  If you are not one of those experts, at least know where to find help.

There is a quick fix  on Tuesday, April 10.  I am the local chapter President of the  Association for Strategic Planning, Los Angeles.  We are presenting Creating the Future from the Future.  Speakers, Daniel Feiman and Ivan Rosenberg have designed strategies all over the world.

If you cannot make it, and you engage in international transactions, find a strategy expert who can navigate the waters for you.

The other night I told my wife that if Walter White (the main character) dies from his lung cancer, his wife could be liable for for tax evasion because of the unpaid taxes from the drug income.

However, Walter’s wife, and Flin (the son stricken with cerebral palsy) could be spared from the IRS if she meets some requirements under  Spousal Tax Relief. The IRS states the following:

You may be an injured spouse if you file a joint tax return and all or part of your portion of a refund was, or is expected to be, applied to your spouse’s legally enforceable past due financial obligations.

Here are a couple of facts:

1. To be considered an injured spouse; you must have paid federal income tax or claimed a refundable tax credit, such as the Earned Income Credit or Additional Child Tax Credit on the joint return, and not be legally obligated to pay the past-due debt.

2. Special rules apply in community property states. For more information about the factors used to determine whether you are subject to community property laws, see IRS Publication 555, Community Property.

Now, the Whites live in New Mexico, a Community Property state.  That could mean that the income (whether illicit or not) could be attributable to the Walter’s wife because it is earned income.  Also, that fact that she knows that he is somehow paying for his chimotherapy my hurt her defense that a reasonable person should have known that $50,000 doesn’t materialize out of the air.

This article is not meant to be tax advice but a warning to persons regarding their spouses’ mysterious income.  If you find yourself in such a position, you can talk to your CPA tax advisor and visit www.irs.gov

For example, a common prospective client is one who is trying to start a record company.  Usually, it is two musicians that have not posted their first hit.  One of them has parents (or potential investors) that believe in them.  They want to start a record company and collaborate with other writers and performers offering them 360 degree contracts, or some variation of it.

My response to them is always the same.  “So what?”  They then look puzzled.  I ask, “What makes you different from any other record company that is struggling to survive?  Where is your Blue Ocean?”  Then I proceed to give them a 3 minute explanation of Kim and Mauborgne’s Blue Ocean Strategy.

From an entertainment CPA point of view, the most troubling of the prospective clients are those who  base their success on one band, one writer, or one performer.  I remember one time, there were a group of people who wanted to start a record company, but it was dependent on the musical composition of only one of them.  The entire business model depended on one guy(who had a tiny bit of success) writing music for potential bands.  I asked the question, “What happens if he dies or gets really ill?”  They didn’t hire me.

Even though many see us as entertainment CPAs or entertainment business managers, we have designed business plans for more than the entertainment industry.  Strategy too, has no industry.  Many of the issues are the same.  For example, companies both inside and outside the entertainment industry usually make the same miscalculation, i.e., how much start up money they will need.  Usually, I find that clients need 2-3 times more money than what they originally project.  The reason for this is mainly the start up phase.  Most are under the illusion that once they “open their doors,”  they will reach operating capacity within a few months.  Full capacity takes years.  If you create a company with an unusually high overhead for its size, full operating capacity may not make a difference because the “monthly nut” is too high.  In other words, if you hire your friends, family, and anyone else who strokes you, your company probably won’t survive.  Keep it smart, keep it simple, and you may keep it past a year.

This is a wonderful time to start a business both inside and outside the entertainment industry.  Fortunately, as entertainment CPAs we are not emotionally involved in the project and can offer some objective advice.  But, creativity, fantasy, and ego has to take a back seat if they obscure your vision.