Small Business Archives | Page 2 of 16

Affordable Care Act (Obamacare) Guidance is Coming to Employers

Employers who employ generally 50 full-time employees will have some guidance to the new tax act in regards to their new shared responsibility. Code section 6056 requires large employers to file information returns that contain:

Name
Date
FEIN
Certification as th whether the employer offers its full-time employees minimal coverage
Employment must be filed by month

For small business, some guidance has already been provided on the IRS sitewhich includes reporting on the employee’s W-2. Employers should seek out tax advisors and contact their payroll companies to make sure they are in compliance.

The affordable care act implementation is changing rapidly. As 2014 draws near, regulations will continue to mount. Small businesses will have to monitor each change and judge whether they are applicable to their small business.

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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.

Your Small Business Needs More than Futuristic Tattoos In Order to Take on a Life of its Own

Remember the old movie, The Illustrated Man with Rod Steiger? The book was based on Ray Bradbury stories. In the movie, the main character Carl was covered in tattoos from head to toe (not so unusual today). People who looked into his tattoos(illustrations) would see the future.

Carl didn’t have a good strategy that would allow his business (or hobby) to survive him. Once he passed on (or retired), so would his practice of fortune telling.

Mike Periu could have given Carl some good advice in 4 Ways to Make Sure Your Business Outlives You. In his article, he really sets out points that can be a part of a strategic plan:

Prepare a written succession plan
Document all important procedures
Gradually turn over control of key relationships and duties
Purchase a life insurance policy

These are good points, but they contain a hidden fatal assumption, which is that your small business can actually be transferred to another owner. Many small businesses, especially in the service sector, are really the owner’s alter ego. In other words, customers buy from these types of businesses because they want the skills of the owner, not the business. You can see these in the professional arena like doctors, and obviously in the artistic world like acting.

However, it doesn’t have to be that way. Take Oprah, for example. If she restricted her business strategy to acting or performing as a talk show host, then her product would only last as long as the tape plays, or reruns. However, she leveraged her talent to produce other programs and the “O” network. Arguably, the “O” network will continue after she stops working.

But what about a small business? Does it stop existing when the owner retires? That is up to the owner. If the owner of a small business restricts the development of others in the company, then he will restrict the marketability of the company when he sells.

An owner must delegate in a planned manner with a vision. If the product or service requires the owner to personally be involved in all aspects, then the small business owner must use that “talent” to leverage other products or services that do not require the owner’s hand-holding. Once this is found, then a strategic plan can be developed and implemented. Then, the fort points offered in Periu’s article can be incorporated into the plan.

Business Security in an Insecure World

Over twenty-five years ago I met with a new client who told me why he fired his last accounting firm. He received a phone call from a good samaritan that the person had found
my client’s tax records in a phone booth. Apparantly, his CPA (from one of the largest CPA firms) had left my client’s tax records when he stopped to make a call in a phone booth.

There are so many opportunties in every business week, to compromise security. The article, 3 big security blunders You don’t know you’re making by Angela Stringfellow set up some blunders, guidelines and solutions:

Not implementing a mobile security policy. Protable devices are a security nightmare. In our CPA firm, nobody is to keep client’s records on a USB drive. We require that if a CPA (or bookkeeper) transfers information from a client’s computer to a laptop computer to be worked on later, we require their USB drive be erased and access to the laptop have a password. In addition, if the CPA (or bookkeeper) are accounting records, the access to those records be secured by a password. The mobile device referred to in the article are devices like cell phones and ipads that can log into a company’s server. For those kind of security breaches, the author recommends NQ Mobile to secure all mobile devices across the board.
Using cloud-based applications without security precautions. More and more CPA and accounting applications are developed on a cloud. You wonder how secure they are, and how secure your connection is. The author recommends that you understand that a cloud has 24/7 security with an adequate staff. As CPA’s we are the hub of clients’ information, so our security should be deliberate.
Failing to test third-party applications. This flaw is more technical than most CPAs can understand, but what the author states is that eventhough third-party applications test for security, a company’s internal security system can be compromising them. “The most common—and most dangerous—security flaws introduced by third-party apps include SQL injection and Cross-Site Scripting (XSS),” according to the author. The bottom line is to hire a company to assess your security protocols, and how that interact with third-party software.

Your company’s data is your lifeblood. But your concern must go beyond the company’s computers and to those who share your data like your attorney and CPA. The analysis should also work its way to your company procedures and empolyees. As a CPA firm, we have different measures to secure client’s check stock, tax returns, financial statements, personal information, etc.

Dislodging Nipples in a New Market

During my teenage years, I worked for my step-father’s plumbing company. Of course there were times that I would get the disgusting jobs like going to the deepest part of a sewage spill to place a sub-pump. But at times, I would learn different ways to use common tools and objects. For example, sometimes we would repair sprinklers. like the times a sprinklerhead with a galvanized nipple (not plastic like today) was broken off. A portion of the nipple would be left in the fitting. To remove and replace this nipple, we would use something very unusual…a large (1/2 inch?) drill bit. I would pound the drill bit into the broken nipple and turn is with a pipe wrench unscrewing the nipple out of the fitting.

And within a couple of years, somebody adapted the shape of these drill bits to do such a job, adding a handle and such to make it a specialized device to remove broken nipples. IT was called an EZ out tool. It reminded me of my friend Seena Sharp where in her article of Sharp Insights wrote, ” The question is not just who needs what you are selling, but who else needs what you’re selling.” How can you find them? How can they find you?”

In other words, in my example, a drill bit company could have adapted their current product to tackle a new market that didn’t even remotely connect with drilling holes. To understand this though, the drill bit company would have to understand the customer’s needs of a whole different market, and the current trends of that need.

But the analysis doesn’t stop there. In addressing the current trends, the drill bit company would have to understand the changing industry. If they were to discover that the sprinkler industry was converting from galvanize to plastic, then their drill bit nipple remover could reach obsolescence before they recouped their investment in R & D.

Another trend could be that people are moving from sprinklers to drip systems. These types of market analysis can be the difference between a company blasting into a new market with successful results, and a company arriving too late to an industry that has changed.

Before moving into another market, understand it. Then develop your strategies.

The Strategy of Ordering the Larger Pie

Today, I had breakfast with my friend, Narciso. Narciso’s company deals in commodities. Now, I can’t really tell you much about what he deals in because I don’t want to compromise his strategy or position in his industry. However, his commodity has both financial and tax rewards.

Before continuing, here is a little history. Prior to the Reagan tax acts, tax-shelters were the name of the game. Now, I am not talking about moving money offshore to the Netherlands Antilles, or buying a pallet full of Bibles at a deep discount so you can donate them at FMV 12 months later.

No, I am speaking of apartment buildings, commercial strip malls, and commercial buildings carrying historical credits. Most of these “tax shelters” evaporated with the dodo bird since they were “passive losses” and could not be offset against your active income like W-2s and businesses.

However, there are some investments that are not restricted by passive losses, and are still included in investment portfolios of the very wealthy. The problem with the previous paragraph are the last two words, “very wealthy.”

So many investment salespeople tend to limit their strategy to a very small segment of our population who control 99% of the wealth. The salesperson’s rationale is, Why spend 10x more energy to get ten people to invest, when I can just work on one person who is 10x more wealthy?”

With the improving economy, I believe this is a poor strategy for these reasons:

Many competitors are jockeying for this small market.
If one of your large clients discontinue with your company, you most likely will feel the effect. Therefore, your risk is concentrated.
There may be a number of people in the top 90% that can use this product is delivered to them in an understandable way.

This reminds me of Jim Collin’s comments of why Nucor became the greatest at steel manufacturing. They started with new technology, a new internal culture and moved from producing the lowest gauge of steel to the best. Their competitors like Bethlehem Steel abandoned the lower markets, and as the Nucor tides rose, they also dominated the higher grades of steel.

In the same way, by developing a marketing strategy that addresses the top 10% of our population, instead of just the top 1% for this commodity tax shelter, the sales manager would be creating a “large pie.” According to Dr. Stanley Abraham’s book, Strategic Planning, this marketing analysis would incorporate this attribute of target market, with other attributes like degree of penetration, customer needs, and distribution channels.

Business should not be content with fighting for a larger share of a smaller pie. Many times, this strategy reduces all competitors to a commodity because the target market cannot distinguich one competitor’s offering to another competitor.

Staying Abreast of Stripper Tips Tax Deductibility

What!? I couldn’t believe the recorded message. A Fortune magazine writer left me a message requesting my opinion on the tax treatment of some rappers deducting tens of thousands of dollars on strippers. After a few comedic quips, I actually answered his questions. I forgot the whole interview took place until this: Fortune Magazine, April 29, 2012. My friend Seena text-ed me from an airport in Atlanta stating that my comments had appeared in Fortune.

But what does this short blurb say or not say about tax deductible items? It is true that the entertainment industry does offer tax deductions that other industries may not offer just by it’s nature. For example: Most industries would be challenged to deduct movie tickets and pay per view movies. Yet, for a producer these expenses are a necessity. Or, take a stuntman, they can make a good case for deducting gym expenses. However, an accountant was denied such deductions in recent memory.

Generally, tax deductions must be ordinary and necessary to the conduct of your business. Sometimes, you cannot deduct an expenditure (completely) in the year you spent the money because it may have a “tax life.” An example would be a building, furniture, and automobiles. There are some elections you can make that can even allow you to deduct some of these though in the first year.

These concepts should be something that you should be thinking about during the tax year, not after it when you are preparing your tax return.

In the case of the rappers they were drawing a nexus between then tipping the strippers and the rappers’songs they were dancing to. I heard that they felt it was necessary to tip the strippers in order to get their songs played.

In law, there is such thing as public policy. Sometimes, the spirit of the law trumps a literal application of it. The IRS and the tax court may say that these kind of expenses are against public policy, not to mention, unsubstantiated. You also may be required to show a connection between the expense and its ultimate generation of income or publicity. In other words, if audited, you may get caught with your pants down. Be careful.

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A Revelation: Bad Strategy of the Four Horsemen (Part 3 of 4)—“Mistaking Goals for Strategies”

In our last two installments, I mentioned how Knute Rockne compiled four sophomore football players in the Notre Dame backfield who became football lore. The Four Horsemen of Notre Dame destroyed almost any defense they faced from 1922 to 1924, only losing twice to Nebraska.

In a strange way, their image came to me when reading Richard P Rumelt’s Good Strategy/Bad Strategy and his four major aspects of bad strategy. Rumelt writes that you can detect bad strategy out of four hallmarks: “fluff, failure to face the challenge, mistaking goals for strategy, and bad strategic objectives.”

In this issue, we will discuss the third horseman, “mistaking goals for strategies.” Many bad strategies are just statements of desire rather than plans for overcoming obstacles. Many companies express their desires as goals, not strategy. For example:

We will be the industry company of choice
We will grow our revenues 10% per year
We will sustain a profit margin of 15% per year

The problem with this kind of pseudo strategic thinking is that it is looking at the trophy, not the method to earn it. A simple example is using two components of the SWOT tests (strengths, weaknesses, opportunities, and threats.) What strengths and opportunities are you going to use to build a strategy to get to those goals?

If you have a difficult time distinguishing a goal from a strategy, always think of a tightrope walker. Their goal, or vision, is to get to the other platform. Their use of a wire, training, a balancing pole, and other aspects feed into the overall strategy that will get to the other side.

But do we ignore numbers? Absolutely not. Metrics work as milestones or sign posts along the way. They can have the effect of measuring the strategy and altering tactics that can get you to your vision. But for these metrics to mean something there has to be an action that creates the conditions that will allow the company to reach its visionary goals.

Performance goals have little to do with strategy. But the real challenge is thinking strategically. Take the military, for example. Would this be a proper response by General Eisenhower to President Roosevelt in his strategy to defeat the Germans in WWII? “Mr. President, we plan to defeat the Germans in six months.” His response stated a goal, but not a strategy to getting to that goal.

The same can be said on how individuals “strategize.” In Los Angeles, a singer may say, “I want to get a recording contract.” Or, “I want to earn five platinum records by time I am 35.” These are not strategies, they are goals. The challenge is to go through the process of creating a basic roadway. This roadway joins where you are now to where you want to be.

A Revelation: Bad Strategy of the Four Horsemen(Part 2 of 4)–“Failure to Face the Challenge”

In our last episode, I mentioned how Knute Rockne compiled four sophomore football players in the Notre Dame backfield who became football lore. The Four Horsemen of Notre Dame destroyed almost any defense they faced from 1922 to 1924, only losing twice to Nebraska.

In this issue, we will discuss the second horseman, “failure to face challenge.” As Rumelt pointed out, “bad strategies fail to recognize or define the challenge,” thus preventing any chance of developing a strategy to improve it.

As as CPA, some of my clients have refused to identify a major challenge in their business. This “ostrich head in the sand” habit always frustrated me. These small and medium-sized business owners used many excuses to continue working in their comfort zone. They ignored the “lit fuse.” The fuse ultimately led to crises. Les McKeown in Predictable Success, labelled this as “The Big Rut” where “the organization has lost any desire to be creative or take risks, and is instead solely focused on maintaining and marginally improving how it has done business in the past.”

The problem that seems to recur is the failure to focus on the clients’ needs. Many strategy books discuss this point of view, but many organizations fail to see it. In other words, they have to turn the telescope around and stop looking at themselves. They must stop focussing on what THEY think the client need, and instead swing the telescope to point away from them.

Now, that is not to say to ignore “the elephant in the room.” That giant inefficient product, or process, that is running the company into the ground. But, by focusing on your customer in a strategic process, you may also see that the big expensive, inefficent elephant in your storage room will have to go.

This is why strategic planning is important to businesses of every size. The process offers a view that many businesses fail to even consider. A strategic plan doesn’t have to be a hundred page detail analysis with footnotes that takes a month and costs tens of thousands of dollars. Instead, a simple plan can only take a couple of hours, or if more brainstorming is needed, a couple of hours each day for a few days. The process could lead to a new business and the pasturing of the fourth horseman.

Our next issue will discuss horseman #3, mistaking goals for strategy.

A Revelation: Bad Strategy of the Four Horsemen(Part 1 of 4)

Knute Rockne compiled four sophomore football players in the Notre Dame backfield who became football lore. The Four Horsemen of Notre Dame destroyed almost any defense they faced from 1922 to 1924, only losing twice to Nebraska.

This was the image that came to me while reading Richard P Rumelt’s Good Strategy/Bad Strategy and his four major aspects of bad strategy. Rumelt writes that you can detect bad strategy out of four hallmarks: “fluff, failure to face the challenge, mistaking goals for strategy, and bad strategic objectives.”

In this first part of four, I will discuss “fluff.” “Fluff” uses $5.00 words with vague concepts. The industry that I have spent more than 25 years, the entertainment industry, thrives on such fluff. When leading strategic planning sessions in this industry, I explain that “creative people” are the best equipped to forge a new business strategy. However, I have to keep one foot in the crows nest for that verbose and esoteric creative person who can lead the session into non-existing waters. If you plan to lead a session, don’t be afraid to ask what a person means by the buzz words they use. It usually only takes two questions to uncover a person who is speaking just to be heard.

Fluff will spread like a plague if you let it get out of hand. Others will try to outshine the fluffer with their own fluff creating an epidemic of nonsense. A strategy session, and a strategy should always be as concise, and substantive. You can create a strategic plan that takes months or just hours. But, which every you choose, it must have a direction.

“The Most Stolen Song of All Time” Could Just Be A Common Small Business Pitfall

Bobby Owsinski’s article, The Most Stolen Song of All Time is a playful little article that talks about how a common four chord progression can be use for so many pop songs starting with “Don’t stop Believing” by Journey. For you musicians it is I, V, VIm, IV, or if you are playing on an ipad(iphone) keyboard, play F-C-Dm-Bflat. However, the chords just don’t make a song. You need melody, rhythm and usually lyrics.

But this isn’t so in the world of small and medium-sized businesses. So many play the same “chords”: “What are my sales, and do I have enough money to make payroll?” When I say this to business owners, most agree, but some think that because they are the best (or at least think they are the best) at what they do, then anything else is irrelevant. To this comment, I recall a quote from Michael Gerber’s The E-Myth’s fatal assumption: “if you understand the technical work of a business, you understand a business that does that technical work.”

This false assumption goes hand and hand with the owner that refuses to relinquish control and delegate. That owner does not think like an entrepreneur. Some may never reach this mind set. This mindset is strategic thinking. Like my friend, Dr. Stan Abraham writes in Strategic Planning, A Practical Guide for Competative Success:

The five principal dimensions of strategic thinking to consider are:

How to be different
Being entrepreneurial
How to find more opportunities
Being future-oriented
Whether to be collaborative

These points hardly occur to a technical business owner imprisoning him (or her) in a timeless cycle of mediocrity. Their whirlpool movements never get them to a destination because they don’t look for a destination. They just churn and churn and churn until they either go out of business, or quit.

Strategic planning is the best step to take in moving downstream. Business owners cannot play the same four chords expecting to create a new song.