Tag: business finance

Breaking Tax News: IRS Provides Relief for Employer Healthcare Reporting

Rick_E_Norris,_An_Accountancy_Corporation_Breaking_Tax_News_IRS_Provides_Relief_For_Employer_Healthcare_Reporting

Under the Affordable Care Act employers are required to report the cost of employer-provided health care coverage on the Form W-2. Notice 2010-69, issued last fall.  The initial act required employers to report this for 2011, and issued on W-2s mailed in 2012.    In today’s guidance, the IRS is providing relief for smaller employers (those filing fewer than 250 W-2 forms).  The requirement will now be optional for them at least for 2012 (i.e., for 2012 Forms W-2 that generally would be furnished to employees in January 2013) until further guidance is issued.

We currently struggle with educating large payroll providers like ADP and Paychex to conform to laws that were enacted 10 years ago.  As tax consultants and business managers, this helped us a lot with our smaller clients.

For further analysis see https://www.accountingtoday.com/news/IRS-Offers-Guidance-Relief-Health-Coverage-Reporting-Requirements-57843-1.html?ET=webcpa:e1367:73200a:&st=email

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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.

The IRS Loves Us! They Really Love Us! Read Their Warnings on Tax Scams

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I have had some great experiences dealing with the IRS, especially when a client was present.  One time I walked in with a client who was the daughter of a well-known actor.  She actually resembled her father, too.  The first thing the IRS appeals agent said was, “I have been a fan of your father for years!”  I knew we had just won our case.  In fact, within ten minutes we had agreed with the IRS agent on excellent terms.

Then my client start talking, and talking, and talking….I kicked her under

the table.  Luckily, this stopped the vocal hemoraging before any real damage was done.

Even though the IRS is our adversary many times, they also put out some items trying to protect the taxpayer from unscrupulous people.  The IRS 2010 Dirty Tax Scams  listed areas where taxpayers can be screwed by someone other than the IRS.  It actually is very informative:

  1. Return Preparer Fraud:  Unfortunately some tax preparers skim off their client’s refunds.  Other preparers tell clients that they can get big refunds, and end up preparing a bad return that creates problems down the line.  Check out your tax preparer.  I have corrected many.
  2. Hiding Income Offshore:  This is a no-brain-er. Don’t play games.  I turned down a client who wanted me to prepare financial statements for a questionable offshore insurance vehicle.
  3. Phising:  Anytime you get an email, phone call, or letter from the IRS, do not disclose any information no matter how threatening they sound.  Call a professional to check it out.  The IRS never calls for information like a credit card to pay taxes over the phone.  Ask their permission to record the conversation and see how fast they hang up.
  4. Filing False and Misleading Forms:  The low income earned income tax credit is a favorite by schemers.  The IRS is having a hard time tracking them down.  Also, phony forms 1099 (OID).
  5. Non-taxable Social Security and withholdings: I have not pesonally seen this.
  6. Abuse of Charitable Organizations and Deductions: As a co-founder of FOLA (Foundation of Local Arts), I can tell you the IRS makes you jump through a lot of hoops for your 501(c) (3) letter.  If you plan to star an organization, find a good tax lawyer.
  7. Frivolous Arguments: Don’t listen to scheming ideas and constitutional arguments.  Remember, taxes pay the courts.  They are certainly not going to buy your argument that Congress does not have the right to tax.
  8. Abusive Retirement Plans: Don’t over contribute to your IRAs, and have a pension professional help set one up for you.
  9. Disguised Corporate Ownership: Nevada corporation and you live in LA?  Sure, the California Franchise Tax Board is looking for you.  The IRS wonders why, too.
  10. Zero Wages:  This is a new one to me.  Using forms to correct W-2s and 1099s as a way of hiding income.
  11. Misuse of Trusts: Private Annuity Trusts, and foreign trusts to deduct private expenses are fertile ground for the IRS.
  12. Fuel Tax Credit Scams: If you run a business with vehicles, look out.  Claiming an unreasonable amount will put you on the radar.

So, the IRS does have some value other than take your money.  Tax scams will always be here, so arm yourself with professionals and don’t do anything without consulting us.

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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.

Inventory Defined: Money Wasting Away

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My wife likes “Pawn Stars,” on the History Channel. She watches the antics of Rick Harrison, the “old man,” “Big Hoss,” and my favorite, “Chumlee,” deal with people who bring odd things to sell them.  One aspect these pawn stars consider in a potential purchase, is whether they can sell it.  I really can’t tell by looking at the TV, but it seems there is a lot of inventory that sits in that shop.  My interest always perks up when Rick speaks to the camera.  Behind him are always the same four guitars.  One of them looks like a vintage Fender Stratocaster.  Now, I have been a Gibson man my whole life, but I would like to add a nice 1960s era Strat to my collection, depending on his price.

In any event, the guitars, and whatever the stars have on display, may be wasting money.  It would be interesting to run metrics and see what the “number of days inventory ratio.”  In other words, how long does this stuff stick around before they sell it?  If your ratio is too high, you have tied up your working capital (or debt) in inventory.  The longer inventory stays around, the less return your investment in that inventory.

In regards to inventory, I came across this article 9 Tips on Managing Inventory by Katie Morell.  She gave some good advice on moving inventory.  However, before you read her column think of another option spelled out in, The Long Tail by Chris Anderson.  Chris analyzes  Rhapsody Music, Amazon, and other such companies that avoid the “brick and mortar” set up, with inventory that is held by others, or is digital inventory.

Now, you may not have  products that has to be stored, but is ALL of your inventory imprisoned in your brick and mortar building, or can you eliminate some by changing your business plan?  If you can removal some line of inventory from your custodial care, you solve a whole host of issues: Pilfering, rent, utilities, security, insurance, etc.

Still, I would like to see if Rick is willing to sell that Strat at a discount.  The longer it sits around, the more money he loses.

BackYard Blog a Deux: Ok, So Your Backyard isn’t so Exciting…Try This

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Pardon my French, but French isn’t my second language…English is.  I’m still looking for the first.

At the time I was getting blog comments on my article, In Starting a New Business, You Shouldn’t Leave Your Backyard, I came across a section in Jim Collin’s book, Good to Great, that added another dimension.  The chapter was the Three Circles of the Hedgehog Concept.  Now, as a form of background, Jim advocated that you want to be a hedgehog, not a fox in business.  Foxes are cunning and complicated; Hedgehogs are simple and effective…they just roll up in a ball of spikes every time, and it works.

A good example of this occurred twenty years ago with client, Michael Feinstein.  Michael, in the early 90’s or late 80’s was a piano bar guy playing and singing Gertschwin.  Using this passion, he was able to parlay this simple act into an internationally recognized performance.  (He is still doing it today.)  I will apply Jim’s philosophy to Micheal, but let me discuss Jim’s book, first.

Jim’s book illustrated a three intersecting circles diagram on how to be a great company, not just a good one.  The first two circles were similar to what I mentioned in the last blog where I quoted the Susan Reid article.  1) Do what you are deeply passionate about, and 2) Do something that drives your economic engine.  Now, where Jim differs in the message of the blog was the third circle.  3) Do something that you can be the best in the world at.

Now, that’s a tall requirement.

The first thing many would say is, “Yes, your core competency.”  But Jim wouldn’t agree.  He says, “Clearly, a Hedgehog Concept is not the same as a core competence.  You can have a core competence at something but not necessarily have the potential to be the best in the world at it.”

Now, let’s get back to Michael.  When he started he played his passion, Gershwin.  His dad introduced him the musical genre when he was much younger.  Second, his style and voice allowed him to make an economic living.  But the third circle is what differentiated him from the others.  He sought to design his performance, not to be the best pianist in the world, not to be the best singer or entertainer in the world, but to be the best Gershwin entertainer in the world.  He found his blue ocean, and fulfilled the third circle requirement.

That tripartite strategy is the strategy to success, fulfillment, and greatness.  The question is, do you have the business ambition to take the calculated risk?

In Starting a New Business, You Shouldn’t Leave Your Backyard

 

SRick_E_Norris,_An_Accountancy_Corporation_In_Starting_A_New_Business_You_Shouldnt_Leave_Your_Backyardeveral years ago, I was trying to convince a client who specialized in small business credit to join with us in using the EXIMBANK to finance movies.  His response was, “Well, that seems a little out of my backyard.  I have to stay within reach of what I know.”  I always kept that in mind when one of my brother-in-laws offered up with “a great small business opportunity.”  First, it was their digital psychiatric counselling to prisoners; then they dreamed of a shrimp farm in the middle of the desert; and a few weeks ago, it was converting abandoned cars in Kauai to scrap metal and selling it in Honolulu.  Needless to say, I am not moving abandoned cars, or shovelling shrimp from a flooded sandpit.

Susan Reid, in her article, Stay within 2 degrees in starting a new business, touched on this concept(no, not shrimping).  She broke it down a good list to follow in order to identify a good business fit for you:

Step 1: Identify the things you love to do: This is a rule that I told my sons.  The first son is going into graduate school for poetry, the second son is starting at U C Irvine as a jazz pianist, the third, well, he’s chasing girls in high school.  I told them that there is money to be made almost anywhere your heart it.  You just have to find your blue ocean and go for it in a strategic manner.

Step 2: Identify businesses that match your current interests: I don’t necessarily agree with this point.  I don’t advocate following in the path of other small businesses, but to learn from them.  American ingenuity did not thrive by doing the same thing someone else did, but better.  Instead, look at the small businesses and focus on the customer’s wants and needs that are not being met in other businesses.  You may create a new industry.

Step 3: Talk to other small business owners: Just like above, learn but don’t emulate.

If you want more of an approach, go to my Blue Ocean article.  In small business, go with your passion, stay in your backyard as far as your core competency, learn from others, and implement a strategy.

Small Business: A Plumber Should Never Be Caught With His Pants Down

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I remember when my stepfather struggled to pay his small business plumbing company material bill.  In most cases, cash was short in his business.  But the one thing I remembered was my mother protecting their credit rating.  She did it as a matter of principle, but in the end, it helped his small business get out of some tough spots.

A pretty good article Good Credit Rating can Pay off for Small Firms in Many Ways by Cyndia Zwahlen popped up in the L A Times, recently.  She preached the benefits of  a small business  of keeping their good credit rating.  Oh sure, a good credit rating works wonders for getting a loan, but there was more according to her.

  1. Better payment terms for vendors:  If you are a new small business, or engaging a new vendor, your bad credit rating can place you in an undesirable catagory.  I remember when I transferred between schools when I was 10.  I was a good student, but the new school didn’t know it.  So, they place me in the “lower” math class.   I had to fight for good grades and recognition to get to the advanced class.  The same goes for your credit history.  You might be the most timely customer the vendor has seen, but your credit history tells another story.  Don’t be caught in the “lower” credit rating.  A good credit score can add to your bottom line with better terms.
  2. Safety credit line:  The article emphasizes the strategy of getting a credit line when you don’t need it.  If your credit is good, the rate and points could be lower.  Thus, when an economic downturn hits, you have a safety net to bridge your small business.
  3. Buying another small business:  The article does not mention this, but if your business is growing and you are trying to acquire a new business on installments, a bad business credit score can work against you in the negotiations.  The higher the risk you are, the more uneasy the seller will be willing to come down to your price.

Small businesses must be good stewards of their money and credit.  The good will they can produce can help in acquiring new clients, or servicing the clients they currently own.

Finding a Coconut in the Jungle of Small Business Financing

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One thing I keep telling my clients is that even in this economic jungle we are in, there are pockets food caches hidden for those who are more creative.  Take receivables financing, for example.  In the old days, one way a business financed their cash flow was to factor their receivables.  In other words, run them through an account that was collateral for a bridge loan.  The end result, the company received (somewhat) immediate cash for a large chunk of its receivable.  In other words, they used a reduced amount of  future cash to finance current business.

Sounds familiar?  Look at our US Government; they’re experts at it.

A recent new technique in a CFO Magazine article, Fast Cash for Small Business by Alix Stuart has gained popularity.  It is called The Receivables Exchange.  A small business can transfer only a portion of their receivables to this exchange which auctions them off.  The company receives 91%-96% of the receivable’s value in  less than a week.  This method of financing is much more streamlined than factoring.

So, is that good for your company?

That depends.

First, your financial people will have to run the numbers to make sure you are not mortgaging yourself into bankruptcy, especially if you only have a 6% net profit ratio.

Second, what is your strategy?  Where is your company going? Plan out beyond the loan and see where you want to go and if this financial tactic gets you there, or pulls you off target.

Third, are you just getting a bridge loan to meet payroll?  Why? You may be borrowing to cover up poor financial planning.  The receivable financing may only be a band-aid for a hemorrhage, and we all know how bad a hemorrhage can be in a jungle.

Small Business: The Cinderella to their Global Step-Sister Corporations

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Kenny Johnson, a friend of mine, sent me an interesting Cobert Report interview.  On the show, Steven Cobert drilled Jeffrey Leonard, the author of Do Small Business A Favor which appeared in the Washington Monthly.  Steven Cobert and Mr. Leonard jostled for the upper hand on whether President Obama should give a helping hand to small businesses in collecting receivables from big corporations.  Mr. Leonard presented evidence that the big corporations were “borrowing” from small businesses by floating their receivables.

There are some tactics that small business can use in minimizing this risk, but before getting to that, I wanted to make a political observation.  Mr. Leonard’s position to help small business does not fall on deft ears, however, I doubt that he will receive anything more than sympathy.  In an era where a substantial part of the electorate are clamoring for a smaller government, the idea of President Obama maneuvering the US government into business affairs, is Utopian.  The political atmosphere, fuelled by the Tea Party movement and  the Koch bothers’ millions, has created a subjective anti-government movement among the electorate.  In other words, the polls show that government intervention into the lives of individuals is only welcome if they promote that individuals interests. Otherwise, the consensus will be that government is bad, and overreaching.  So, it is with Mr. Leonard’s position.  Small business trade groups will continue to fight government regulation unless it benefits their specific interests.

However, putting the politics aside, what can we learn from this delemia and how can we fix the problem.  Here are some of my questions and recommendations:

  1. Is a disproportionate share of your business locked into one major client?  For example, is 20% or more of your income coming from one customer?
  2. Is your business strategy dependent on one customer employee representative?
  3. Are you drawing on your business credit line to stay in business because your major customer is not paying you within 30-45 days?
  4. Are you afraid to call your major customer for payment for fear of losing them?
  5. Are you dependent on one of your sales people for the majority of your business?

If you, as a small business owner, answer ‘yes’ to any of these, you need to alter your business strategy.  When starting a business, it is hard to not be dependent on a couple of big clients, unless you are a volume-type business.  The time to alter your strategy is now, and not when your big clients fires you.  So, what do you do?

  1. May I suggest Good to Great by Jim Collins.  The book compares companies that took a leap to greatness.  Some of these points can be translated even to the smaller company, like building a team first, then deciding where to go.
  2. Another good book, more applicable to small business, is The E-Myth Revisited. This book demonstrates that a small business  cannot grow when owners run the small business by themselves.
  3. These books can create a good foundation, but the small business success is not just the strategy, but the implementation.  Once you set a course on how to grow your business beyond a major customer, you must work the strategy for a long time.  You cannot take your eye off the horizon for one week.
  4. There are many blog articles on our site on tips to creating and implimenting a good small business strategy.  One thing you cannot depend on, is the US government helping you.

Whatever Your Passion, Treat Your FaceBook Followers Like Fans

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So, you play Guitar Hero?  Chances are, you don’t even think about building a fan base, but what if you did?  How would you reach out to your fans on Facebook?  Well, put your Fender Strat down for a second because I came across this article Growing your Fanbase of Facebook by Robin Daley, and realized that if you substituted “fan” for “client,” you can use the same rules for promoting your rock band as you can to present your business on Facebook.

Hard to believe?  Well, in your business, you are a rock star to your clients when you do great things for them.  Here are the tips from the article, translated into the business world, as opposed to the rock world.

1.    REELING THEM IN.  Someone liking you on Facebook business doesn’t make them an instant client. It really means very little unless you can draw them further into your buisness and expertise.  This can be done by drawing them into your web page, blog, or future speaking engagements.

2.    UNDERSTAND THE LIKE. When a post of yours is liked, it is important to take a step back from that. Don’t think too highly of yourself for saying something that enticed a click on the “Like” button.  Respond to the comment, and thank them for taking the time.  You may also mention a future posting coming up for your business.

3.    TAP INTO THEIR EMOTION. A post that makes them laugh, think, or invokes some sort of emotion will make them much more likely to check out what your business has to offer.  Boring bullet points without application is like the tootsie pop with out the tootsie roll in the middle.

4.    DRAW THEM IN DEEPER. Everybody is faced with the same fears about business (whether big or small) and these themes are universal. They are looking for a place to take something away, and ultimately be reassured that there is a strategy that they can follow in their business.  Somehow you, through both your business and your connection to you clients, have to be uplifting.

5.   The Take Away. Your business is an extension of you, and the best business information becomes a conversation with the fan. The more they understand and relate to your thoughts , the deeper their conversation about your business will become.

So pick what you say wisely; don’t bombard people with “Buy our product” posts. Ease them in with something that gets their brains stimulated. If you can do that, then you are on the way to ultimately making your clients believe in you. More importantly, you will have successfully set in motion the most powerful business tool in marketing – word of mouth.

Don’t Embrace the Dark Side of the Force, Luke

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Now, I’m not saying that you will have your hand cut off, or that some big, ugly, helmeted guy with asthma will claim to be your father, but bad things can bite you in the end if you choose to cheat.  Take J C Penny, for example, The New York Times article  The Dirty Little Secrets of Search byDavid Segal talks about J C Penny’s unusual rise to the top of the search engines using “Black hat” optimization.  Among those tactics were thousands of links by hundreds of global sites.

This is a good example of character.  Occasionally, I have to lightly lecture a client on character and the value of doing things right.  Some people like to reduce their taxes by the following means:

  1. Defer income by putting checks in their drawer for a month, or so in December.
  2. Run personal expenses through a business.
  3. Write off expenses that should clearly be capitalized, or charged to another company.
  4. Pay their employees “under the table.”

I am a strong advocate of counselling clients on how to save taxes.  But that doesn’t mean tax fraud. Clients don’t realize that when they cheat on taxes they rob themselves of the very information that can tell them how their business is thriving or failing.  A business owner cannot make that determination without the proper data.  In addition, when a business owner tries to qualify for a bank loan, they may not.  So, in reality, a business owner who tries to cheat his way through taxes may injure him/herself far more in other areas.

Likewise, in the J C Penny situation (regardless of their denial of any interest) of cheating on search engines, they will become branded in the internet.  Many people who read that article, or this one, may skip over their site after understanding that they haven’t practice ethically.

Now, don’t get me wrong.  There is nothing wrong with “white hat” social networking consultants social bookmarking your site.  This can be done by employees, consultants, fans, vendors, and family.  But, when you take the social bookmarking and linking to an extreme, it destroys the purpose of what the Google algorithms were designed to do, show popularity.

The conclusion is that character counts not only in personal lives, but business lives.  To violate this rule is like mixing yeast in bread.  It starts off real pretty, but when left unattended, it grows ugly.