CPA Archives | Page 12 of 15

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.

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.

Electing to be an S-Corporation

A client wanted to turn invoke an S-Corporation election for tax reasons. The only problem was that he was about two months too late for the current fiscal year. Ten years ago, that would have been a large problem, but with the IRS’s new positions, that problem is not so big. Recent regulations have been issued that allows shareholders relief in late elections.

But, if you want to elect an S-Corporation, make sure that you have looked at all aspects like personal tax benefits, you tax basis for taking losses, medical costs deductions, etc. Most business persons only look at the first benefit and disregard the rest. If you are into the minutia, here is an interesting, but technical article from the AICPA.

Above all, if you elect to be an S-Corporation, play by the rules. I wrote a blog on this not too long ago. Take a look at it for some advice, but always consult a tax advisor regarding your particular situation.

Is Social Media Marketing Worth Paying For?

Chances are, you are reading this blog because of our social networking efforts. Nice to meet you.

But, does that really matter? I mean, I am passing on information, but is social medial market really worth the time (and money if you hired a consultant or employee)? Check out this Inside Edge article that sheds some light on this question. But while you are reading that, I’d like to look at it from another point of view. I believe immediate ROI(return on investment) is not always the answer. The answer to this question lies in your horizon and, yes, history itself.

First the history. When I was a teenager (mid 1970s, OMG!), the yellow pages were my stepfather’s lifeline to his plumbing business. He would struggle on how much to invest, how big the ad, and which telephone books to appear in? The cash outlay was staggering for a small business. But he had to do it with the hope that some lady, who had sewage leaking from her ceiling, would find his ad, and call him in a panic. His horizon was short because the likelihood that this customer would have another plumbing problem, or find his number again, was remote. If the calls did not come in during the twelve months that he advertised, he lost his investment. During most calls, he or his plumbers could not build a lasting relationship. They just fixed the immediate problem.

Secondly, your horizon. Social networking is different. The whole medium is designed to build relationships. In addition, once you place an article, ad, or so forth in the viral-sphere, it lasts forever. You may be reading this blog on November 2011, one year after I posted it. So, the horizon is stretched beyond your eyesight. The longer the horizon (along with the timeliness of your information), the more likely your ROI will multiply. Combine this with SEO (search engine optimization), and your chances increase dramatically.

Lastly, If you are thinking of using social networking or SEO, keep in mind that you are on the edge of a new fronteir. You will be an industry leader. There are wagon ruts in the desert, but not all of them lead to Santa Monica. Some lead to Donners Pass. This is why you must constantly check your compass, map, and ration your provisions.

Phone Instead of Your Credit Card To Buy Something? Listen-up Small Businesses?

Hold on to your small business hats, things are moving even faster. Google Inc. Chief Executive Eric Schmidt said Monday that the smart phone will eventually replace the credit card. This may come as a surprise to you, but Bill Gates predicted that and a lot more over 15 years ago in his book, The Road Ahead. This advent of technology will have a lot of challenges to small business. Some of the issues are things like, will a business have to pay any credit card fees for the transaction? Obviously there shouldn’t be one of the merchant charges, because the phone may not be using the small business merchant’s number. What about security? If someone uses a stolen phone, can they access the owner’s bank account to purchase small business merchandise? Will the small business retain the same security as a credit card transaction?

The small and medium sized businesses should be looking at these developments closely, but not just compliance issues. This type of new technology could give a small and medium sized business a competitive advantage over their rivals. How? Let’s assume that these transactions will not impact the small business as much as a credit card transaction. That translates into a savings to the small business, and maybe the consumer.

Or, what about a small business advertising that they accept I-pad credit purchases? That service can bring customers into their establishment. Small and medium sized businesses can process their purchases without high-interest charging credit cards.

Small businesses must look at as many technological advancements as possible and ask the question, “How can this technology create a marketplace where the competition becomes irrelevant?” The small businesses that jumped on the first ATM machines created an edge for a short time. Now, you don’t need them.

CPAs help Emerging Small Businesses with their Tax Strategies

A recent Los Angeles Times article discussed why emerging small businesses need to engage in tax planning. The article rarely alluded to CPA’s as the solution. Instead, the article attempted to educate the small business person with some facts that a CPA could tell them in five minutes.

As a CPA, musicians used to be that my biggest challenge. With the advent of new technology, and so many people going into business, the challenge has changed to “ma-pa businesses. Musicians, of course, have the reputation of wanting to play their music and not be bothered with the mundane business end. That is still true in my CPA practice, but at least some musicians ask questions and want to understand what is happening with their money, and why. As a CPA, I applaud this.

In regards to ma-pa businesses, they are experts at the service or product they provide to the public. They seen to focus on two things: “What are my sales?” and “Do I have enough money to make payroll?” They are too inundated to engage a CPA strategist to help them plan for the future. (Read the E-Myth for a good example).

As a CPA, another issue with ma-pa businesses, is that they may not listen to tax advice. Some business owners tend to think that a CPA is against them because we tell them that they cannot deduct personal expenses. These deductions can be very dangerous for the business owner, and CPAs since we sign the tax returns. Secondly, it is bad from a business planning strategy because the business owner can never know the true health of their business. Lastly, hiding personal expenses in a business also reduces the small business owner’s income when it comes time to qualify for a loan. There are legal ways which CPA’s reduce taxes.

CPA’s can make a huge difference in a new business if brought in early. That is why many new business owners have taken advantage of our free one hour consulting offer.

Watch Out for These 7 Traps as You Cash Flow Your Holiday Shopping

“Cash flow,” don’t “credit flow” your holiday shopping this year. But, as you walk into your favorite outlet mall, look out for the 7 Sales Pitches that are looking to take your money. The Wall Street Journal article examined the nature of these pitches and why they work on consumers.

“Shop today and save 50% next week.”

“Limit five per person.”

“Our Big Sale ends tomorrow/today/in a few hours.”

“Get 23% off.”

“We have a great deal on the accessories for that, too.”

“Save $250! (New price: $500.)”

“Get a free gift with your $50 purchase.”

So many bruise their cash flow this time of year because they lose track of their spending. It is so easy to buy something for someone and pick up something else for yourself because, well, because you deserve it , right? One good strategy is to leave the credit card home and use cash. Don’t credit flow, cash flow your holidy shopping. Start by making your list of gift recipients. Second, set a limit of what you want to spend on all gifts. For example, if you have 10 people to buy gifts for, but only $300 to spend, then you will have to limit yourself to an average of $30 a gift. Sure, you may spend $40 on one person, and $20 on another, but you get the idea. Cash flowing your holiday season will keep that unpleasant surprise appearing in your January credit card bill.

There is another danger. Using your checking account and running into your overdraft. That is just as bad as credit flowing your purchases, because you end up using a high rate credit card instead. To cash flow your holiday, go take cash (that you have in your account), out of the ATM. This is your buying fund. As you check off your gifts, you use this cash only. Don’t spend it on lunch, or gas.

Cash flowing your holidays will also help you buy smarter and not impulsively. You know that you have only so much money to spend, and you will be forced to move on to another gift selection. If you cannot buy all the gifts by this pay day because of a cash shortage, wait until the next pay day to draw out the needed cash. The item you want to buy may still be there.

Let’s say your cash flow will only allow $30 per gift, but there is a $60 item a family member really needs. Call another family member and split it. This way the gift recipient gets the gift they need, and you stay within your budget.

In these days of lay-offs, furloughs, reduced sales, we all need to shop smarter.