business finance Archives

Financial Rhabarberbarbar (“Rubarb Barbara” in German) and How to Navigate the Financial World’s Terminology

Do financial terms seem like another language to you? Check out this link for a little play on German words for a real brain-teaser https://www.youtube.com/watch?v=gG62zay3kck .

If you struggle with financial terms, and don’t have time to take business classes, there are some resources that you can grab quickly.

Investopedia: www.investopedia.com/dictionary. This site explains a wide range of business terms if you are looking for a quick definition. It is organized alphabetically for easy research.
Business Dictionary: www.businessdictionary.com. This dictionary carries more weight than just a list. It also displays terms as used in certain financial areas.
Periodical and Media Sources: Popular periodicals also have joined the group of educating the public. www.theguardian.com/business/glossaryatoz. www.washingtonpost.com/wp-dyn/business/specials/glossary/index.html www.money.cnn.com/services/glossary/a.html just to name a few.
Desktop Table Books: There are books that write about terms and concepts in more depth. The Book on Business from A to Z, The 260 Most Important Answers You Need To Know, speaks about different concepts from Accounting to Z-Score. (I wrote the chapter on Accounting). This book, like others, is also available as E-books.

These sources can help you understand terms and concepts, so you can ask more intelligent questions in your personal and business transactions.

So in business, just as in movies, don’t be ignorant of terminology. I had to check “Never rub another man’s rhubarb!” said by Jack Nicholson as the “Joker” in Batman.

The First Two Strategy Sessions of the Association for Strategic Planning (Los Angeles Chapter)

I was adrift in a sea of strategists. Recently I conducted two strategy morning sessions for the Association for Strategic Planning, Los Angeles Chapter. Of the fourteen strategists in the room, we produced fifteen opinions. What a blast to be in a room with so many bright and creative people. We were able to hammer out a vision and mission with components of who were the customers (members) and what benefits we could offer them.

It wasn’t until tonight that I realized that we operated our session EXACTLY the way Barry MacKechnie suggested in Achieving Strategic Alignment. Barry wrote that there were six critical elements of a successful strategic planning session:

Define your expected outcome: Our academic compass Daniel Degravel from Cal State Northridge specialized in strategy and established a map that we were to follow.
Pre-planning session meeting with your executive team: There was a four person executive team: Daniel, Erik Bleitz, Rodney Stone, and myself that discussed the course we were to take during the broader strategy session. The phone calls were a logical step to the map laid out by Daniel.
Create an agenda: The agenda was created, but the timetable was left open. As the facilitator, I had to keep the process going or risk it running aground. The attendees made this easy for me since so many were focused. We knew we could not get this done in one three hour session. It looks like it may last three-three hour sessions.
Mandate participation:This step was also easy for me because nobody was required to attend. The attendees were both members and non-members who wanted to be a part of the Los Angeles Chapter’s future. As Barry stated in his book, “A great strategy planning session requires an atmosphere of open dialogue with a free exchange of ideas within an environment of creativity and common goal setting.”
Set expectations for clearly defined results: As stated, we knew where we were going but were not unrealistic on how long it will take us to get there. I estimate two more sessions should result not only in the plan, but the goals, assignments, and desired outcome. Barry set the timeline in his book at two full days. We may beat that estimate a little, but aim to implement the strategy with confidence.

Small Business Fraud: We Have A Situation Here

Over the last 30 years I have investigated a few situations where fraud was suspected. However, my favorite story actually happened well before my CPA career. I worked for a person who verbally abused everyone around him, not the least of that, his wife. She handled the books of his company. Unbeknownst to him, she skimmed a little cash each month for many years. One day, she took the kids, the money and disappeared.

Another situation occurred when I was speaking to a friend who owned a bakery. Her bookkeeper worked there for fifteen years and never took a vacation or got sick. She was also the only person that knew the accounts receivable. I responded, “Sounds like a text-book example for fraud.” My friend laughed.

One day the bookkeeper abruptly quit leaving the accounts receivable ledgers in disarray. The bookkeeper had been using funds from one customer to pay other customer’s balance because she had been embezzling funds for quite a long time.

I always have recommended that small business owners run their businesses instead of the other way around. The risk in making this transition is that in relinquishing many aspects of the business like accounts receivable, inventory, accounts payable, and inventory control, may lead the owner to delegate control.

That is not the way to delegate. Nobody should be given a task that does not have internal controls regardless if they are friends, family, or experts. You should review your controls with a professional, however, here is a sample of a few areas:

Generally:
1. Create an accounting procedures manual
2. Used pre-numbered forms
3. Limit access to certain areas
4. Require vacations
5. Separate record keeping
Cash on hand
1. Have custodian responsibilities
2. Require backup for any checks or cash spent
3. The custodian should not have access to accounting records
Cash Receipts
1. Have your bank call your cell phone anytime a check is to be cashed.
2. Reconcile cash daily
3. Separate cashier and accounting duties
Accounts Receivables
1. Require all credit approvals
2. Reconcile sales to inventory
3. Separate sales, AR, recipts, billing, and shipping

This just scratches the surface. There are many other areas that need controls, but this should give you an idea of how detailed your controls should be. The survival of your business may depend on it someday.

Rock Band Business Mentality: Band Together, or Risk Rocking the Boat

Jame’s Obrien’s article, What your small business can learn from a rock bank caught my attention for a short while. I thought he would report more then some basic business legal advice. So, playing in rock bands my whole life, and practicing as a CPA business consultant, I will take a shot at it.

Your business partnership and rock bands are marriages: Like in any marriage, don’t focus on what the other person can’t (or won’t) do for you. Instead, focus on the things that compliment you. It is not important that one person is successful, only the sum of the parties.
Don’t be afraid to use the standard SWOT analysis for each partner: Strengths, Weaknesses, Opportunities, and Threats of each partner can bolster a strategy when confronted up front. Each person realizing their limitations will help other partners to fill in the gaps.
Find the business ‘s rhythm: My jazz piano son and I agree, people who clap their hands on the 1st and 3rd beats of a song are annoying. Clapping on the 2nd and 4th count drives the song. Likewise, every business has its rhythm, and every partner has to stay in sync.
Everyone should agree when the song will end: I remember watching an opening act for Boston in the 1980s. It took me two songs to figure out that the musicians did not know when the song was end until the lead singer-guitarist jumped up in the air coming down on the last beat of the song. In partnerships, there should always be a documented plan of what will happen to the business if certain events happen–like a partner dying.
A new instrument will not necessarily make you play better, if you haven’t mastered the old one: Too many businesses capitalize with unnecessary assets. Look critically at everything from office space to equipment, to insurance.

As as CPA business consultant, I have seen many partnerships fail in theory before they get started. Like a marriage or rock band, some of the best music is made years after the beginning.

Creativity and the Business of Cretans

I grew up in the 1960’s. What a world. JFK, RFK, and MLK assassinations, Watts riots, Man landing on the moon, anti war protests, nuclear proliferation, Beatles; Hendricks, Dylan,Andy Warhol, bell bottoms, and psychadelic drugs.

Yet through all of this culture-changing events and people, we were lectured about watching “The boob tube.”

I recall when the color TV came out,how cool. But, we still only had a handful of channels to watch in LA: channels 2, 4,and 7 were CBS, NBC, and the new-comer ABC. Outside of those were the rerun channels, 5, 9, 11, and 13. We hardly looked at UHF because nobody could adjust the circle antenae sticking out of the back of the TV for good reception.

Mathew Ingram’s Is modern technology creating a culture of distraction? discusses studies which paint our society as prolificating false online relationships, and short attention spans. Raising four children, I can see that argument, but don’t agree that modern technology is the culpret.

Creative business people will blossum regardless of the era. Fifty years ago, non-creative business people were just doing what was done by those before them. They would not necessarily fail, but would not prospher like their competitor who used technology or personal resources to advance their strategic goals.

This is the same for today, except that technology has identified the business cretan. If you choose to just do what those did before you, then your business will not surpass what they accomplished. The fast moving technology will amplify and accelerate your demise.

Is this new technology turning business creators into cretans? I would think not. The creative business person will leverage technology and not usually succomb to the temptation of cretanism. I have worked with many business owners and executives that cannot see the cretan mentality. They only want to know about two things about their businesses: 1) What are their sales; 2) Do they have enough cash to make payroll.

This buisiness mindset must be broken. The E-myth book is a good start. If you find that you are not normally creative, find someone who is, but participate in the business creative process, don’t ignore it.

Business and the Artist: The Butterflies of our Society

You’ve probably heard of the story about an old man and the cocoon. He watched the cocoon for days, and then it started to move. The butterfly struggled, so the old man slit the cocoon to let the butterfly out. The butterfly emerged underdeveloped with weak wings. The reason was that the butterfly needed to forcefully squeeze through a small whole to open circulation to its wings. The man deprived it of this process. The struggle for life gave it life.

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:

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.
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.
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.
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.
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.
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.

Global Strategy and Italian Speeding Tickets

In 2010, our family vacationed in Paris, Italy, and London. We had a great time, especially visiting with our cousins in Italy. A few months after I got home, I received a parking ticket from Bologna, and a small speeding ticket from Rome. I never saw the parking ticket on my car during the pouring rain. In addition, contrary to my diligent efforts to drive under the speed limits (which were confusing), I possibly was picked up for speeding, driving on the wrong street, or something by a camera. I never saw the picture, but I was in Rome driving at that time. My visiting Italian friend was able to translate the ticket for me. Regardless, my wife had created a great vacation strategy.

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.

CPA Reminder: 2012 Self-employed Healthcare Credit

Yes, I know. Health insurance is very high and a drag on the small business. So, lessen the pain by taking the healthcare credit if you qualify. Here are the facts:

Starting in tax year 2011, you take the credit on Form 1040.

However, you must be one of the following to qualify:

A self-employed individual with a net profit reported
on Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ
(Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit
or Loss From Farming.
A partner with net earnings from self-employment
reported on Schedule K-1 (Form 1065), Partner’s Share of Income,
Deductions, Credits, etc., box 14, code A.
A shareholder owning more than 2 percent of the
outstanding stock of an S corporation with wages from the corporation
reported on Form W-2, Wage and Tax Statement. This last situation catches clients off guard because they have to do an odd adjustment to their W-2. Our bookkeepers work with clients to properly report their payroll. If you did not properly include the health insurance in your W-2, then you should amend it.

The insurance plan must be established under your business.

For self-employed individuals filing a Schedule C,
C-EZ, or F, the policy can be either in the name of the business or in the
name of the individual.
For partners, the policy can be either in the name of
the partnership or in the name of the partner. You can either pay the
premiums yourself or your partnership can pay them and report the premium
amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included
in your gross income. However, if the policy is in your name and you pay
the premiums yourself, the partnership must reimburse you and report the
premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be
included in your gross income. Otherwise, the insurance plan will not be
considered to be established under your business.
For more-than-2-percent shareholders, the policy can be
either in the name of the S corporation or in the name of the shareholder.
You can either pay the premiums yourself or your S corporation can pay
them and report the premium amounts on Form W-2 as wages to be included in
your gross income. However, if the policy is in your name and you pay the
premiums yourself, the S corporation must reimburse you and report the
premium amounts on Form W-2 as wages to be included in your gross income.
Otherwise, the insurance plan will not be considered to be established
under your business.

If this in confusing, speak to your CPA. The deduction is too good to pass up.

IRS Source

______________________________________________________________________________

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.

Small Business and the Social Media Complaint Game

Last week, I joined a conference call with an individual that can help my client’s entertainment business. What we found out after the call was that this individual and his company had two scathing unanswered criticisms reported online. Immediately, red flags went up.

Then yesterday, a client set up a meeting with another individual in the entertainment industry. When I looked up his name, guess what? In bold print was a scathing feedback on Yelp, it too was unanswered.

Courtney Rubin’s article, Why Every Minute Counts When It Comes to Social Media Complaints reminded me of the social media dangers in any industry. She wrote, “A whopping 88 percent of customers said that if confronted with unanswered complaints on a company’s social media site, they’d be either somewhat less likely or far less likely to do business with the company in the future.”

Any a small business, especially in the entertainment industry, must be vigilant about what is posted on line. If you grow to a size where the Twitter and Face Book comments become too numerous, you may have to hire a company to do this for you.

So, let’s say you are a small company and don’t have the resources to hire a company to find these comments. What I suggest is you do it yourself. Type your name, or your company’s name with the term, “scam,” “Ripoff,” or “review” and see what comes up. Make sure you go through a few pages and not just page one.

If you find one, address it professionally. Take the high road, and reply to the concern. Use the platform to state your company’s values like how customer satisfaction comes first. Don’t beat up on the complainer no matter how abusive they are. Give examples on how you remedied issues.

Another thing you can do is have some of your good customers write a response to the posting, along with yours. The positive comments should outweigh the negative one.

Any small business, and especially one in the entertainment industry, should be aware of what is said about them in social media. Don’t be a ostrich and ignore it.

Changes: Bowie Was Right, Look Out You Rock n Rollers

“Still don’t know what I was waiting for

And my times was running wild

A million dead-end streets and

Every time I thought I’d got it made

It seemed the taste was not so sweet.”

–David Bowie, Changes from the Hunky Dory album

This song ran through my head when I read the article, Just-in-time strategy for a turbulent world by Lowell L. Bryan. Bryan tackles the corporate world, but the same principles would apply to artists or small businesses. Basically, change is good and time can be on your side.

One unique concept he proposes in his article is “for businesses to take full advantage of their best opportunities without taking unnecessary risks.” Bryan implements this concept by advocating that businesses set up a portfolio of initiatives.

In a nutshell, his concept states that businesses should not develop a single-minded strategy that requires a bucket full of resources. Instead, develop smaller pilot programs at much smaller price tags, and re-evaluate constantly. The small business or artist will be able to switch directions quicker because they will not be so heavily invested in any one.

This concept can be achieved more today, than any time in the last one hundred years because of technology. Technology, most notably the Internet, allows artists and small businesses to reach their target audiences in real time. This ability will accelerate changes and require an artist or small business to adapt quickly.

So, how do you get started? Using Bryan’s illustrations, all initiatives should adapt the artist’s and small business’s core competencies. In other words, you have to know what you don’t know. If you are developing your core competency, than the time frame can be much shorter, even less than one year. The risk would be lower.

Conversely, if you are venturing into unfamiliar territories, then your time frame should be 2-3 years before it comes to fruition. The less you know about an initiative, the larger the risk.

But, should you invest entirely in longer time frames? The answer obviously is no. You have to make sure you balance your longer term initiatives with your immediate ones so you can provide adequate cash flow for all of them.

Now that you have picked out your initiatives and time frames, how should you implement the plan? Bryan suggests four steps: Search, execute, monitor progress, and reassess the initiative portfolios. This procedure is no different than what I have been writing about all year. In any of your initiatives, you have to measure what you are doing against benchmarks and milestones. The old adage is if you can’t measure it, you can’t manage it.

Artists and small businesses should consider adapting this method of strategy in the fast-moving world. Who would have believed 20 years ago that you would be able to access the world in a little handheld device?