If You Are Reading This, You’ve Proved My Point

Rick_E_Norris,_An_Accountancy_Corporation_If_You_Are_Reading_This_You've_Proved_My_Point Last January, I again participated on the planning committee for the 2011 Entertainment Industry Conference for CPAs and attorneys.  We agreed on most of the usual topics to be presented at the conference.  Then, I suggested social networking.  The idea was written on the board.

Fifteen minutes later, a respectible CPA turned to me and said, “Rick, I know social networking is a sexy topic, but I doubt it is what our attendees are looking for.  They won’t come away with anything.” I nodded my head and thought to myself: Thank you.  You just gave me an extra 12 months to blow my competition out of the water using social networking and SEO.

Skeptical? 5 Key Social Media Findings That Affect Your Business by Glen Stansberry lists some new findings:

1. Americans spend most of their time online on social network and blogs–If you are reading this blog, you have contributed to the 23% statistic that more time is used reading blogs and social networks than checking emails.  You may have also found me because of what I have been doing for over a year.  Writing

2. Seventy percent of active online adult social networkers shop online–Sell where your buyers live, online.  We are all going there.  Have a bigger presence than your competition.

3. Fifty-three percent of active adult social networkers follow a brand(only 32 percent follow a celebrity)–Adults follow brands across social networks.

4. Sixty percent of social media users create reviews of products or services–When was the last time you reviewed a book on Amazon, or rated a restaurant on Opentable?  You are contributing the movement.  If your business is not on there, then you are behind the curve.

5. The number of mobile Internet users is up 47 percent from last year–I have actually trashed a rude restaurant that made us wait an hour beyond their seating estimate. We were outside with our 85 year old father-in-law on Father’s Day in the dark.  My bad review went into Yelp before I reached my car in the parking lot.

If you are resisting the social network, SEO revolution, you are risking the well-being of your business.  But, before you jump in, do some research and learn.  There are consultants that can help you.  Then, create a strategy and stick to its implimentation.  Your online presence will not increase overnight, but the constant creation of content will get you noticed.

Small Business Promotion Using Social Media–How We Did It

Rick_E_Norris,_An_Accountancy_Corporation_Small_Business_Promotion_Using_Social_Media_How_We_Did_ItI couldn’t believe it.  Well, actually I could, but I didn’t want to.  Gregg Towsley of WSI Quality Solutions sat down with me me 18 months ago and showed me that my business’s social profile was dead.  In other words, if you typed in  industry key words, we didn’t even show up on ANY page.

I came across  What Drives Small Business Social Media Engagement? by Dan Schawbel.  He cited a study by Roost which offered  advice to small business owners who want to create brand awareness, customer, acquisition, and customer services.

Using only Facebook and Twitter, the study suggested the following:

  1.  Publishing photos: The study suggested photos of employees, products, and functions.  I remember when I first put up our web page, our most valuable search term was my assistant Maddy Curley.  She was an actress that had (and has) some success on television and film.  People googled her after seeing her on a TV episode and came up with her picture on our personnel page.
  2. Ask Questions:Start a discussion by asking questions.  You see this a lot on LinkedIn.  I feel that providing information along with questions is a better strategy.  What do you think?
  3. Share Quotes:There are way too many twitter sites and blogs quoting wise people.  I don’t like to.  I find it is far more interesting to coin my own phrases that display my expertise.  You don’t convince others of you knowledge and wisdom by using someone else’s brain. (You can quote that).

The main activity that got our firm on the front Google page ahead of CPA firms much larger than us is our content and consistency.  To be successful, you must give to the business community. We provide advice and steps to individual businesses that can help them in managing their finances.

 

2010 Small Business Tax Breaks Revisited

Rick_E_Norris,_An_Accountancy_Corporation_2010_Small_Business_Tax_Breaks_RevisitedIt’s always good to practice the basics, like a major league baseball player who may work on his swing by hitting a ball off a tee.  So here I am going back to the IRS tax site to remind small business owners of the Tax Relief Act of 2010. There may be benefits that you may be missing.

Sect. 2011: Temporary exclusion of 100% of gain on certain small business stock

Expanding on the provisions of Internal Revenue Code Section 1202 and the American Recovery and Reinvestment Act, the Small Business Jobs Act provides an additional incentive for investment in qualified small businesses. Under this Act, investors in qualified small business stock can exclude up to 100% of the capital gain upon sale of the stock.

Under the SBJA, in order to claim the capital gain exclusion, the qualified small business stock must be:

  1. Acquired after September 27, 2010, and before Jan 1, 2011, and
  2. Held for at least five years before the stock is sold.

However, Section 760, Temporary Exclusion of 100% of Gain on Certain Small Business Stock, of the Tax Relief Act of 2010, extended the exclusion for qualified small business stock acquired before January 1, 2012.

Under current law, the earliest tax year for which this 100% capital gain exclusion can be claimed is 2015. Additional limitations, qualifications and requirements may apply. Capital Gains and Losses has information on reporting capital gains.

Sect. 2012: General business credits of eligible small businesses for 2010 carried back 5 years

The new law allows an eligible small business to carry back general business credits five years. Previously, the credits could only be carried back one year. The carryback is for credits determined in the first taxable year beginning after December 31, 2009.

An “eligible small business” in general is defined as follows:

  1. A corporation whose stock is not publicly traded, a partnership, or a sole proprietorship, and
  2. The taxpayer must have $50,000,000 or less in average annual gross receipts over the three preceding tax years.

This is a one year initiative applicable only to the tax year 2010 (For fiscal year filers, the effective tax year is the first tax year beginning after December 31, 2009). The five-year carryback period is available only for credits carried forward to the tax year 2010 and/or earned in the tax year 2010.

Sect. 2013: General business credits of eligible small businesses in 2010 not subject to alternative minimum tax

The new law allows general business credits to offset both regular income tax and alternative minimum tax of eligible small businesses as described in Section 2012 of the Small Business Jobs Act (see above). The provision is effective for any general business credits determined in the first taxable year beginning after December 31, 2009, and to any carryback of such credits.

This is a one year initiative applicable only to the tax year 2010 (For fiscal year filers, the effective tax year is the first tax year beginning after December 31, 2009).

Sect. 2014: Temporary reduction in S-Corporation built-in gain recognition period

Under the Small Business Jobs Act, if the fifth year of an S Corporation’s recognition period ends before their 2011 taxable year begins, then no entity-level tax is imposed on the net recognized built-in gain for the 2011 tax year. Sect. 2021: Increased expensing limitations for 2010 and 2011; certain real property treated as Code section 179 property.

An expense deduction is allowed for businesses which choose to treat the cost of certain qualified property, called section 179 property, as an expense rather than a capital expenditure. For qualifying property placed in service during the taxable years 2010 and 2011, the new law increases both the maximum amount of the deductible expense under IRC Section 179, as well as the statutory phase-out amount. The provision also expands the definition of IRC Section 179 property to include the following types of real property: qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.

Sect. 2022: Additional first-year depreciation for 50% of the basis of certain qualified property

Generally, businesses are allowed to recover the cost of capital expenditures over time through depreciation expense. IRC Section 168(k) allows for additional first-year depreciation, for 50% of the basis, of certain qualified property placed in service after December 31, 2009. The new law extends the additional first-year depreciation deduction to qualified property acquired and placed in service during 2010.

Section 401, Extension of Bonus Depreciation, of the Tax Relief Act of 2010, expands the additional first-year depreciation deduction (bonus depreciation) to equal 100 percent of the cost of qualified property placed in service after September 8, 2010, and before January 1, 2012. It also provides for a 50 percent first-year bonus depreciation deduction for qualified property placed in service after December 31, 2011 and before January 1, 2013.

Sect. 2031: Increase in amount allowed as deduction for start-up expenditures in 2010

For taxpayers starting an active trade or business, the new law increases the amount the taxpayer is allowed to elect as a deduction for start-up expenditures under section 195(b) for taxable years beginning after December 31, 2009. Section 2031 allows up to $10,000 as a deduction for start-up expenditures, but requires a dollar-for-dollar reduction of the $10,000 deduction if startup expenditures exceed $60,000. This expense should be claimed as an “Other Deduction” on business returns, such as the Form 1120, 1120S or 1065, or as an “Other Expense” on the Schedules C or F of the Form 1040. The remainder of any start-up expenditures, not deducted under section 195(b), can be amortized ratably over 180 months on Form 4562, Depreciation and Amortization.

Sect. 2042: Deduction for health insurance costs in computing self-employment taxes in 2010

Generally, small business owners may not deduct the cost of health insurance when calculating self-employment tax. Under the Small Business Jobs Act, and subject to specific statutory restrictions (i.e. deduction is not available if self-employed individual is eligible to participate in an employer-subsidized health plan maintained by the employer of the taxpayer or the employer of the taxpayer’s spouse), business owners can deduct the cost of health insurance for themselves and their family in the calculation of their 2010 self-employment tax.

Always consult your tax professional before making any of these decisions.

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IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

How Does a Small Business Grow? You Can Try to Think Like A Rock Band

Rick_E_Norris,_An_Accountancy_Corporation_How_Does_A_Small_Business_Grow_You_Can_try_to_think_Like_A_Rock_BandWe were called the Mini Playboys. Three ten year old musicians who temporarily  put down their rock roots to play old standards, big band, and Italian songs.  The band consisted of a drum, guitar, and accordion.  We almost never played like this for our friends for the obvious reasons, but played at old folks parties and restaurants. Heck, we each earned $5.00 an hour in 1967 when minimum wage was $1.40.  Great money!  Our band  focused on a strategy to hit a particular niche market, and it worked for 2 years until we went our separate ways.

I came across an article by Apryl Peredo, So, You Want a Label Contract? The article listed 5 reasons why bands are not signed by record labels. The article laid out some good, though basic advice to young band members.  However,  as I read the article I substituted the word “small business” for “band.”  It also seemed to translate into good advice to those small businesses that are looking to grow their business.  Here is what I mean:

  1. We don’t sign  “newly formed” bands. Customers who are looking for value and trust like to see an established business.  This also pertains to expertise.  I remember working for an accounting firm who declared themselves as experts in any area where they performed a single engagement.  That hardly builds up the trust you want with your customers.
  2. We don’t sign undeveloped bands.As a business owner, you must walk before you run.  Starting small is not bad, it allows you to make mistakes without risking too much.  Design your strategy to build slowly and in control or you may find yourself in the “white water” (Les McKeown’s definition in Predictable Success).
  3. We don’t sign unknown bands. Customers and clients like to see a reputation, a good reputation.  In looking at E-Bay, I noticed that some of the most successful businesses are those who have hundreds of good ratings.  This weighs a lot with a new customer, so build your fan base.
  4. We don’t sign people/band we meet at parties. Very few people would hire an attorney who advertised door to door.  There is just a culture that discourages that kind of selling for that profession.  It may work for a realtor, but not a surgeon.  Learn your industry’s norms and culture.
  5. We don’t sign based on “oral” favors. Business character counts.  Always be beyond reproach in your client solicitation practices.

The article summed up a band’s quest to secure a label contract with “persistence, practice, professionalism, creative development, and hard work”

That is good advice for any small business looking to grow.  Very few businesses make it “big” over night, and the ones that seem like they do, worked at it for years.

Good and Bad Aspects of Small-Medium Sized Business Strategies

Rick_E_Norris,_An_Accountancy_Corporation_Good_And_Bad_Aspects_Of_Small-Medium_Sized_Business_StrategiesWhen I speak of “strategy” to business owners or entertainers, I usually get a blank look.  Small and medium-sized businesses usually don’t have a specific business strategies.  However, what they don’t realize is that they do have a strategy, formal or otherwise, and it was probably a bad one.

The Perils of Bad Strategy by Richard Rumelt discussed this concept of bad strategy.  Rumelt defines a strategy as “a way through a difficulty, an approach to overcoming an obstacle, a reponse to a challenge.”  The problem is identifying the challenge.

I have met business owners who refuse to face the problem.  Why?

  1. Their ego gets in the way.  They want to see the business in their own light, and not reality.
  2. They are afraid to look at the business problem.  The owners literally bury their heads in the sand like an ostarich and ignore the problems.
  3. The business owner is excellent at their trade, but not at management of a business.

Rumelt also states that business owners mistake goals for strategies.  “We want to raise our sales revenue to $20 M in five years.  So?  That is not a strategy, that is a goal.  I hear that type of talk all of the time from clients.  They point to the “where,” but not “what,”  and then the “how.”  They don’t look at their core competancy (or Hedgehog concept as explained by Jim Collins in Good to Great.)  And recently, I have not even been able to get that far because the company’s internal reporting system is inadequate.

The third hallmark of bad strategy discussed by Rumelt is “fluff.”  I see this  in the entertainment industry business propects.  I remember one prospect that wanted to start a new record company.  It was a typical scenario, a group of musicians and friends who are financed by a rich parent or two.  This particular group set their entire strategy of one guy who was going to write for them and any band they sign.  I alerted them the risk of establishing a company on the back of one unproven talent, especially in an industry who is still searching for a new business model.  I didn’t get them as a client.

As a small business owner, you don’t have to hire someone to create a 100 page strategy complete with the history of your company.  In fact, you can find someone to do it in about an hour.  Then, as a small business owner, you should impliment it faithfully.

Charismatic Business Leaders: What to do afterwards? A Problem to Be Avoided

Rick_E_Norris,_An_Accountancy_Corporation_Charismic_Business_Leaders_What_To_Do_Afterwards_A_Problem_To_Be_AvoidedI can remember back in the late 1970s when only engineers and escentrics operated an apple computer.  My neighbor brought me over and tried to explain how the large odd-shaped device worked.  MS-DOS was not invented, and  my attention span waned.

Business has embraced many aspects of Apple, along with the consumer, driving it beyond Microsoft’s highest endeavours.

But what happens  without Steve Jobs at the helm, and how does this series of events relate to small and medium-sized businesses?

Kathleen Pender speaks of this issue in   Maintaining success after exit of a charistmatic CEO.  However, she really is not addressing the right questions.  Does a company need a charasmatic leader?  Or, what kind of personl should lead a company?

Jim Collins writes about these in his two books, Good to Great and Built to Last.  In Built to Last he states that visionary companies do not require great charismatic visionary leaders.  “In fact, [they] can be detrimental to a company’s long-term prospects.  Some of the most significant CEOs in the history of visionary companies did not fit the model of the high-profile, charismatic leader.”

In Good to Great, Jim states what kind of leaders should lead a company.  Level 5 leadership during pivotal transitional years “refers to a five-level hierarchy of executive capabilities, with Level 5 at the top.  Level 5 leaders embody a paradoxical mix of personal humility and professional will.  They are ambitious, to be sure, but ambitous first and foremost for the company, not themselves.”

Steve Jobs seemed to fit this definition.  He seemed to push the company, not himself which will help foster the Apple tradition long after he departs from it.

Small and medium-sized business owners should take note of this distinction.  I find that so many owners sell their personas, not the company.  This is almost fatal in two respects:

  1. When the owner wants to sell the business.
  2. When the owner dies.

In both cases, the inherent value of the company is tied to the owner, not the balance sheet.  If he goes, it goes.

So, how do you get out of this vicious circle.  I recommend:

  1. Read the E-Myth by Michael Gerber.  The author descrives the owner’s chokehold on a business, and why a business of that type struggles to grow.
  2. Train, train, train others to do specific tasks that you perform.  If you are worried about losing your customers to you employees, create a system of divided labor where each person performs specific tasks, but you still hold the key to putting it all together.
  3. Set out a timeline for an exit plan.  When do you plan to sell the busiess?  How big does your business have to be before you sell it?  What annual metrics can you measure to make sure you are on your path?

Quantify you feelings.  Don’t dream of a company that you cannot measure its success or milestones.  You can be a visionary, but the it is not about you, it is about your business.

Strategic Thinking: Don’t Confuse Tactics for Strategy

Rick_E_Norris,_An_Accountancy_Corporation_Strategic_Thinking_Don't_Confuse_Tactics_For_Strategy“There’s nothing worse than a sharp picture of a fuzzy concept.”  —Ansel Adams

“There is nothing more wasteful than becoming highly efficient at doing the wrong thing.” –Peter Drucker

Mike Michalowicz’s article The 90-Day Method: A Strategy For Business Growth in Difficult Times offers some suggestions for business to strategize.  He says that a business owner should ask what they have done in the last 90 days that has brought results, and then replicate those things that were successful.  Even though these may sound like sage advice, they can be interpreted as tactics instead of strategy.

I found that Bill Birnbaum’s book, Strategic Thinking, A Four Piece Puzzle, distinguished between the two very well.  Bill defines strategic thinking as a top-down big picture.  When thinking strategically, you are not concerned about whether you ran a double-shift to produce your product.  That would fall under Mike Michalowicz’s “things you did right,” but would be a tactic.  Instead, Bill Birnbaum argues to think strategically, “you would consider the needs of your customer, the benefits you offer that customer, and the reason your customer buys your products or services.”  In other words, you’d be concerned with doing the right things, rather than doing things right.

Another way Bill put it was that you use strategic thinking in deciding what to do, and tactical thinking in deciding how to do it.

Thinking tactically is very tempting because most managers and owners are in the trenches “putting out fires” and fixing problems.

But why is it important to think strategically?  Strategic thinking is important because it results in a strategic vision that is shared among your management team which is based on the team’s deep understanding of the business.

Don’t get me wrong.  Strategic planning is a highly structured process with well thought-out objectives and a number of strategies  designed to accomplish these objectives.

So, what is the easiest way to think strategically?  A commonly used tool is the SWOT matrix.  Most managers know that it stands for strengths, weaknesses, opportunities, and threats.  However, where business people miss their marks is  that they don’t consider these four attributes in line with their key success factors. According to Bill, you must list these factors this way. For our organization to be successful, we must be especially good at the following three activities…

Taking these steps will help a lot in getting business owners to think strategically in order to see the horizon, and not technically in order to just avoid the pot hole in front of you.

Are Business Strategies Obsolete? Does it Matter?

ISTANBUL - 23 JULY: Vintage furniture, art objects and antiques in popular second hand store of Cukurcuma district. Cukurcuma of Beyoglu quarter is the city's oldest antiques district

My wife and I have started a new hobby of collecting and reselling small antiques. We really enjoy “the hunt,” but one of the most rewarding aspects is our increased knowledge of 100 year old household tools.  One such item was a nickle/steel handle with a cone cup on the end.  The cone cup had a butterfly handle on the end of the cone that turned blades inside the cone,  scraping the sides.

Almost nobody guessed its function, which was a Delmonico ice cream scoop.

Today, the basic operation of the Delmonico ice cream scoop is the same, scoop it up, and scrape it out.

The McKinsey Quarterly published an article by Bradley, Hirt, and Smit entitled Have you tested your strategy lately? The article listed ten tests of which most companies strategies failed.  The first test was the most comprehensive, “Will your strategy beat the market?”

Looking at my Delmonico ice cream scoop, I question whether any of today’s companies can execute a strategy that can produce a product or service that can be an industry standard 100 years from now.

A major complaint about American corporations is that in the last 25 years, they have been striving for the short-term profits, and not planning for the distant future.  We have seen that in the auto industry.

But what about small/medium-sized business strategies?  Will they follow in the footsteps of the some of the large corporations?

That all depends. If you are like most small/medium-sized businesses, you are only concerned about Sales and whether you have enough cash to meet payroll.

Bradley’s ten tests may be a good place whether you are in the business plan or seasoned stage.   In my experience, most businesses of these sizes could not pass three of these tests.

Managers and owners must review their strategies continuously during its implementation.  Too many fall into The E Myth (Michael Gerber) and have the business run them, and not them running the business.  Or as Gerber puts it, ” working on your business” as to “working in your business.”

When it comes to strategy, Bradley et al proclaim that it is not the newest strategy that a business owner should find, but flaws in their current strategy.

Business Acumen: Beware of Useless Advice

Check financial health. Businessman check money health stethoscope and magnifying glass. Finance health, stethoscope finance, magnifying glass finance health, care finance health illustration

There are brilliant people that study for years to provide brilliant advice based on solid, empirical evidence.  Then, there are others that just talk well.

Financing, Outsourcing And 7 Other Tips from an Expertby Shira Levine, touts the advice of two business women, Amy Abrams, and Adelaide Lancaster who are releasing a book in September based on 100 interviews of entrepreneurs.

The article sets forth the following advice:

  1. You’re never finished with your homework
  2. Really ask yourself what you want out of your business
  3. Focus on what is meaningful to you vs. what you are passionate about
  4. Figure out your business goals
  5. Determine what to outsource
  6. Find access to capital
  7. Specialization is key

Now, I have not read the book.  And based on these seven points, I probably won’t buy it.  The reason is because these points don’t present a case that is no more than common sense.  Business people do not need motivational speakers or cheerleaders.  Instead, they need experience, knowledgeable and trained people to give them real advice of what, how, and when to do things.

To prove my point, if you were to buy this book, may I suggest that you spend an extra $50 and buy the following:

Good to Great  by Jim Collins

Blue Ocean Strategy by W. Chan Kim and Renee’ Maugorgne

Predictable Success by Les McKeown

If you do not have the time or budget to read those, at least buy a smaller guide, Achieving Strategic Alignment by Barry MacKechanie.

Most of these books are critically acclaimed with sound business advice based on years of research by highly educated and experienced strategists.  In these books, you will find recurring themes.

Compare what they say to Abrams/Adelaide book if you choose to buy it.  Small business owners cannot hire the seasoned professional, but can learn from them through their writings.  Business acumen has a price, but the inability to develop it has a much bigger price.

Startup Strategy: Are You Playing the Same Old Tune?

Jazz trio playing jazz composition with saxophone, piano and trumpet

My college-aged son played “Satin Doll” with his jazz band in a local upscale restaurant last week.  I turned to my wife and told her I played that song in a big band music group back in 1969.  The 1953 Duke Ellington song is still timeless.  But the same old tune doesn’t work for business startups.

The Digital Music News reported that nearly $15 million dollars was thrown at music startups in July bringing the year-to-date total to $143 million, Spotfly representing almost 1/4th of the total.

So far this year, about a half a dozen startup record companies have approached me to design a strategy and business plan for their new music venture.  They always have the same plan: 360 deals, sign up and write for other bands, run on a shoestring budget.

I always reply, “So, what are you going to do different than the other companies, because their business models are broken.”

I always get a blank look because they only seek to do what others have done unsuccessfully before them.  This of course allows me to do my Blue Ocean Strategy speach.  I also thrown in my bad strategy caution.

A large componet that I stress to startups is that you must focus on your consumer.  What is the consumer asking for?  What are your competators giving the consumer that they don’t want?  Are you able to create a strategy where you can extracate those things the consumer is not asking for and present a product or a service to the consumer that they are not getting from your competators?

Business consultants seem to produce the same framework for startups.  To think like those who have come before you will not turn your startup into a resounding success.   I am not saying that you should launch a startup based on some hairbrained scheme that you have not researched.  No, instead, you should make informed decisions and take calculated risks with your startup.

In addition, don’t paint only a rosy picture of your startup, but present scenarios that show breakeven, normal, and pie-in-the-sky financial projections.