CPA Firm Los Angeles Archives | Page 8 of 9

Strategy: Local Connections? Then Why Do We Need The Web?

Just as Dorothy said, “There is no place like home.” But Dorothy didn’t have a facebook account. So, is that still true? Do we have to nurture local relationships in order to conduct our personal and business strategies, or can we just “talk” on the social networks?

I came across this local arts article that argued that every part of the world, and in our cities, have their own art personality. The article pointed out that with cover bands and reality TV, we can pretty much watch and hear the same thing regardless of which part of the country we are in.

The article makes a point, but only on the surface. For example, I co-founded a local non-profit in Manhattan Beach, CA, that promotes local arts, music, dance, and literature back in 2009. The strategy is showing promise as we exhibit local artists and their wares. But, the interesting thing is the local connections have been made both on the web, and the old fashioned way. Patch.com has promoted our events, in addition to the local newspaper, The Beach Reporter. Our organization is using the web as a new way to connect with the locals, yet it is nourished through personal contact. The resulting strategy has been a technology handshake. Businesses, especially businesses located in the cities, need this combination strategy if you plan to pursue something other that e-commerce.

For example, if you do not use the web, you will lose the ability to capture clients in the the long tail (see my previous article). I landed a Los Angeles client because her mother in Canada found me through Google. Our relationship has developed to where I am her business confidant in a new business venture. Likewise, if you just take in clients off the web and do not meet anyone, you will not nurture relationships and strategic alliances in your own neighborhood. I am in daily contact with business strategic alliances that I know from different areas of my life. When people know you, they have a better chance of trusting you.

With all of this said, though, you must strategize. Where are you now, where do you want to be, and how are you going to get there? Then do it. Strategy that is just academic, does nothing but kill time. You must put shoe leather on it, but use both conventional and web-based connections in order to have two shoes.

The strategy has to be a two-pronged approach in the current age.

Healthcare Reform: If It Walks Like a Duck and Quacks Like a Duck…We’ll Call it a Toad

I just returned from a great informative panel on healthcare reform presented the by the LA chapter of the Association of Strategic Planning. I was surprised to learn that many large and smaller companies are trying to use the independent contractor designation to reduce healthcare benefits for employees. I wrote about a similar topic in the National Healthcare Reform Magazine back in August. My article warned employers about the misclassification of an employee, and how it could sabotage their tax credit.

What I didn’t think of, were companies intentionally trying to circumvent the tax laws in order to save healthcare insurance. This can be very risky. The IRS is no stranger to businesses trying to reclassify employees as independent contractors in order to save payroll taxes. The rules are complex and employee definitions differ from state to state. However, I tell clients that if you tell your “contractor” how to do his/her job, you run the risk of the person being classified as an employee(thunbnail definition.)

Now, I can imagine these companies trying to align themselves with the Fedex case where the U S District Court ruled the drivers as independent contractors instead of employees. But now the risks involved in this aggressive stance is not only healthcare insurance penalties, but payroll taxes, and workers’ compensation issues(not to mention labor law issues.)

Be very careful when classifying those who work for you. A tax professional may be your best friend in keeping you out of “fowl” play.

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Business Plans: Some Tips to Financing Your Own Business (or How to Waterski)

When I was nine years old, I learned to water ski. My uncle and aunt (Jim and Eva Smith) owned a boat. My cousins were already skiing on two skis, so in Lake Isabella, California, my time had come. My uncle did some “dry runs” on the sand (in order for me to experience the “feel”) by pulling me up, by hand, with a ski rope. Then came time for the boat. Nothing could have prepared me for a high horse power outboard motor. My first half dozen attempts were “face-plants.” The next half dozen were “butt-plants.” I was getting discouraged and embarrassed. But my uncle didn’t flinch. He said he had all day and would stick with me until I got up. And finally, around the fifteenth attempt, I made it. Oh, not for long, for at least 50 yards. What a feeling. After that, I moved into the groove over the years, and eventually graduated to one ski, carving my temporary signature outside the boat’s wake like the others.

The AMEX forum article How to Raise Capital For Your Business reminded me of this experience. Our firm is frequently approached by entrepreneurs to prepare a business plan for their investors. The article breaks out the type of investors for a business plan and at what stage they may enter into your future.

Friends, families, and fools: The initial idea stage, the label says the rest.
Vendor financing: Acquire the product, sell it, then pay for it. You’ll need to create a strategic relationship with vendors who believe in you, and sell on consignment. This is done in the art world
Bootstrap: Well, if you have the money to risk, but it is always better to risk other’s money.
Venture capitalists: For others to invest, you have to show, in your business plan, that you have risked your own resources. Also, you will impress them if you manage some level of success on such meager self-financing. Never present a business plan that pays yourself back before the investors.
Partner: If there is another business who could be a stakeholder, they may want to risk a little with you.

In order to develop a credible business plan, you must be conservative and have some foundation for your numbers. One such idea is to use another business (or business plan) that is similar, and mirror its sales and profit. Usually, that is hard to come by, so you would have to make some assumptions in your business plan notes. Tell investors what your break-even point is, show them your first year’s monthly cash flow, and most of all, show them when and how much they will get paid.

In my water skiing overature, I had all the components of a new business plan:

I invested my own time and humility.
I was determined to succeed.
My uncle believed in me and invested his time and boat in my dream.
I didn’t have unreasonable expectations.
My uncle understood his investment in me, and the time needed to reach success.

Business plans are just a start, not a finished product. But, if you have all the business plan components, your credibility and investor comfort level rise.

Are You Brave Enough to Cannibalize Your Business in Order to Save it?

I love it when companies shape a strategy in order to save themselves. Usually, when companies make drastic changes they usually just downsize(e.g., lay off the receptionist and the file clerk.) This was a common story in 2010. But not for The Atlantic. Gigaom recaps the resurrection of the Atlantic after it had not showed a profit for over a decade. In 2010, The Atlantic implemented a revolutionary strategy that resulted in a $2 million profit. I will not repeat the article but outline some ideas that you can take to your business.

Be an industry leader, not a follower. (see my previous blog on Looking in the Rear View Mirror).
Make a cash flow budget over the next year, but don’t use that as a strategy. It should only aid your tactics to stay in business until you execute your new strategy. If you are a business in the black, make one anyway. It may help you run more efficiently.
Investigate the concept of shifting some of your operations from a brick and mortar business to a viral business. For example, if you own a restaurant, at first glance, you may not see any opportunity to avoid the brick and motor business because you need a place for your customers to sit. However, have you thought of packaging meals for web orders? This strategy may only account for 15% of your business, but it could have a 20% higher net profit return. There are many options.
Review your target customer. Are you meeting their real needs, or you just trying to sell them what is most profitable for you? Do you need to target a new clientele? A good example of this is the Five Crowns Restaurant in Corona del Mar. The restaurant was established in 1965 and has catered to an older clientele. About 2 years ago, they allocated a portion of their restaurant with a seperate entrance called The Side Door. This pub-style, fun-loving division has been popular with the younger crowd.
Adjust your operations to your strategy, not your strategy to your operations.

In these difficult times, there are still opportunities for those who dare to take the initiative.

Finance Your Business with your Future Income? Ask the US Government, they Do It All of the Time

So, you have a business plan and you are looking for financing? But the banks want nothing to do with you. Hey, what about your nice steady income of royalties? Ya, that’s the ticket! So, you jump to the Wall Street Journal and read the article on how others are doing it. Yes, you can do it! You can sacrifice your royalty income as collateral for the loan.

So, you meet with a company that specializes in this and they offer $7 million @ 14% interest, plus a stock option and 2% of your incremental revenue. Why not? The US Government are using future income to finance current debt.

As a preparer of strategic plans and business plans, I initially see a potential problem in this story. And that is the decision-maker is emotionally involved in starting the company, but is considering sacrificing secure income for a speculative one. Considering the success rate of new businesses, the downside is not a pretty picture.

Compare this to venture capital, where the business owner is giving away a large chunk of the business. In this second option, the risk is spread among a number of companies or individuals, the reward is smaller, but in a worst case, the business owner can still rely on the royalty income if the whole venture crashes.

Business owners always have to look at the downside of any decision to measure the risk. In addition they should have someone who is not emotionally involved that can give them a straight answer.

So, what should you do? Well, one thing to consider is, to do both. Take in some venture capital, sacrifice a little royalty income, and give away a smaller amount of equity. This way, your upside is not as large, but your downside is protected. Every deal is different, but don’t forget to measure your personal risk when deciding which avenue to take.

The New Tax Bill, Don’t Squander the Opportunity

By now, you must have heard that the new tax bill passed both houses and is sure to be signed by the President. But what opportunities does the new tax bill have for you? Well, from a tax standpoint it depends. The impact of the tax bill is different for individuals depending on their tax bracket. For example, if you have children and are not in the top tax bracket, you may still qualify under the new tax bill for your $1,000 child tax credit. Or, if invest a lot in stocks, the new tax bill will allow you to still get your qualified dividends taxed a favorable 15% tax rate. But the main impact of the new tax bill that will affect all taxpayers is the reduction in social security withholdings. I don’t recall Congress passing a tax bill like this in the 30 plus years I have been preparing tax returns.

However, since the tax bill is throwing social security gift to you, you have an opportunity for some cash flow or retirement planning. You can start 2011 by paying down the credit cards that have accumulated over this economic downturn with your extra cash. Likewise, you can increase your retirement contributions by your savings. The trick in cash flow is to live within your means, and if you are not careful, you may squander your tax bill savings. Opportunities like this do not come along often, so use it to your advantage by planning.

Discuss your situation with your tax professional before making any decisions.

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Are there Too Many People Between You and Your Fans(or Clients)?

I stumbled across this article, There’s No Long Tail on Hypebot.com. The article mostly bored me until I got to the last paragraph regarding business. It stated, “The way the [music] industry is structured today there are too many people and organizations between the artist and the fan, which has the result of increasing the numbers of marginal businesses where the income is spread too thinly.”

Though this may be true in many cases, in the internet business world of today, the concept of the middle man is going the way of the cassett tape. Back in the 1980’s a band needed a record company (consisting of an army of persons), a promoter, a personal manager, a business manager, a tour manager, a publicist, etc., just to have a chance of being heard by their fans. A frustrating thought, unless you compare the record business to my father’s day in the 1950’s. He (Bobby Norris) signed as a Rockabilly vocalist with Capitol Records, and couldn’t even get substantial airplay without paying the stations “payolla.” (Ironically, today, eight years after his death, his records are in a Capitol Records Rockabilly album, and are playing, and sold on the internet.)

The way of the middle man, as we know it will deminish in some business industries (like music), and surface in other business industries like mobile apps. In regards to your business and industry, what role will a middle man play? Social networking and search engine optomization(SEO) has played an important role, but will the SEO business industry be edged out as more people use their apps to find information (like Yelp!) instead of Google?

So, what should you do? First, in your industry, take a step back and see what your fanbase or customer is looking for? Are they looking for more fireworks on stage like KISS, or a band that can act as a bellweather, like the Beatles, in a changing culture? Are you just following the pack, or is there another way to get to your fan (or clients) that others have not addressed. Don’t follow the flow. Have the flow follow you. Second, find your blue ocean and make your competition irrelevant.

Is Your Viral Strategy Becoming Obsolete?

A little while ago, I wrote an blog that borrowed a quote from from Wayne Gretsky, who said he is successful because he skated to where the puck was going to be, not where was is at. Now, a recent study makes a claim that can affect every business that uses Search Engine Optimization methods. Currently, businesses use various methods to increase their visability on search engines. Some of these tactics include the expensive “pay-per-click.”

The article, Consumers under 35 Ditching Browsers for Apps, disusses a recent study that millennials choose mobile apps over search engines. However, before you fire your SEO consultant, read the article closely. The survey question was not asked properly to arrive at this conclusion.

Still, notwithstanding the article’s basic point, there is a bellwether here. In certain situations, the Mobile App may be the only viable tool for web search. When you are looking for a Starbucks in the car, would you use Yelp! or Google? Most mobile app users I know, at any age, use Yelp! To use Google is way too long and less refined for the area you are searching. This example can be replicated for many situations. The real question is, whether your tactics have been adjusted in light of it. How can your viral strategic plan be implemented as the consumer habits change? Strategic Planning is a circular process. Quantitative results will play a major role (Sales, profit, customer increases), but they must be looked at in context of your strategy, and the every changing landscape.

Business Plans. The greatest of the Great American Novel. (I’ve done both.)

Business Plans. The greatest of the Great American Novel. I should know, I’ve done both.

I came across this timely article A Music Business Plan from Music Think Tank. The author made an honest attempt in trying to simplify a slippery subject while plugging his business plan book. That is OK, I didn’t mind. But, the article really didn’t tell me too much. The example he displayed was what I call a Red Ocean business. In other words, using the Blue Ocean Strategy theory, his business plan did not render the competition irrelevant.

Irrelevant competition is the goal, not the business plan.

The lack of ingenuity in business plans concern me because the music industry has always been one of the most creative industries. Others are taking a risk and trying to achieve this. See a prior blog where this is happening.

So, instead of telling you how to write a business plan, I will provide some tips on strategies:

Don’t follow the pack. Yes, I know, record companies, literary agents, and Mother Superior want you to follow tried and true practices. You can learn from the past, but you don’t have to repeat it, if it is not working. The music industry is currently searching for a new business model, but until they find one, they’ll keep doing the same things they have always done.
Focus your business plan on what your audience wants, but is not getting. During the 1960’s, is the reason why the Beatles rocketed to fame(beside their great rhythms) is because they portrayed themselves as cultural leaders to a generation that was searching for an identity? Just look at the impact they had on my generation with Helter Skelter, Eleanor Rigby, Hey Jude, Come Together, Revolution, Lucy in the Sky with Diamonds, and many more. Some impacts were positive, others not.
Utilize every talent you have for your business plan. Can you draw? Can you write poetry? How about cook? I don’t know, just take stock of your core competencies and see how they can send your music and strategy in a new direction.

As a professional that writes business plans, I cannot tell you the answer. You have to discover that yourself. My job, is to lead you in this strategy as a sounding board, and then quantify it into something others will understand.

Budget Time: Managing Your Money During the Next Thirty Days

This time of year brings out a lot of good articles regarding saving money. I found this one in the Wall Street Journal. 7 Smart Holiday Moves for the Holiday This article amplifies what I have suggested for the last year in various articles. The main word to keep in mind is BUDGET. How much can you afford, and not to be burdened by guilt because you did not spend enough money on someones gift. Even though Black Friday has passed, there are still a lot of good deals out there if you start early and look for them. For example, today, I decided to invest in LED Christmas lights. They use far less energy than normal lights. I didn’t want to replace all of my lights at once because of the cost, so I bought 4 boxes. Not only will this save money on electricity, but the exchanging of my normal lights got me a 30% discount at Home Depot. So, I saved money on the purchase, bought within my budget, and will save money on electricity for the next 30 days.

The same can be done for small and medium businesses. Plan and buy smart. Your bottom line will surprise you, not to mention your lower credit card bill in January.