Author Archives: CPAsteve

Best Way To Pay Yourself As The Business Owner

Determining how to pull money from your business is a critical step in small business ownership. Whether you take a draw or a salary, makes little difference if you are a sole proprietor. A combination of salary and draw is typically how most small businesses start. When the business is doing well, the draw can be easy to utilize, but remember that the business will need cash flow when times are leaner, so overdrawing on the business can cause issues down the road.  That’s where a controlled salary can help keep cash in the business and make it less tempting to take more cash out of the business than you really need. The owner’s draw is also taxable on the owner’s personal tax return and  owners must make estimated tax payments and self-employment taxes on any draws.

 

Your business type is critical.

 

If you are a sole proprietorship, you can take whatever amount you’d like for compensation, if the business has any money. If however, you use any other business type, the issue of compensation becomes much more complicated. If you have an S-corporation or a C-corporation, there are IRS rules regarding compensation and stock options that you need to be aware of and know the ins and outs of using. This is a great time to talk with a tax accountant about the differences and how to stay in compliance with all of the rules surrounding executive compensation limits.

 

To fully understand the salary versus draw decision, you must understand owner’s equity. When starting a business, the business owner contributes cash, equipment and other assets into the business.  Asset contributions elicit owner’s equity in the business. Accountants define equity in a simple formula:

 

Assets – liabilities = equity

 

Assets used in business include cash, equipment and inventory. Liabilities are the monies the business owes and includes bills that must be paid each month. If a business was to convert all of the company’s assets into cash and then used that cash to pay off any liabilities, any remaining dollars are considered the business’ equity. Calculating the business’ equity is a good way to determine the actual value of the business and then make a decision regarding taking a draw.

 

One-Third Rule

 

In order for your business to thrive, it’s important to remember that taking all of the profits out of the business in the form of a salary or a draw, will leave nothing for future growth or leaner times.  With that in mind, consider the one-third rule.  Take one-third of the business’ gross income and place it in a money market or business account. Take the second third of the income and use it to pay business expenses. The final third can be used to take personally or put back into the business for additional capital expenditures or growth.  This model won’t work for every business type, as businesses with greater capital outlay such as retail businesses have a much tighter margin than service related companies with smaller expenses.

 

Set your budgets – even in the beginning.

 

Get what you need to keep yourself and your family afloat. One of the leading causes of divorce is financial hardship. Bear that in mind when you go to your spouse and ask to strap the family for not just a short while, but for what could realistically turn into years. Also consider that if you carry the health insurance benefits through your salaried position now that either your spouse will need to pick up coverage, or you will have to seek other options. Sole proprietors, members of LLCs, and partners must each pay self-employment taxes on draws and any other distributions taken from the business.  S Corp shareholders do no pay self-employment taxes on distributions, but each owner who works as an employee of the company must be paid a ‘reasonable compensation’ before profits are paid.  Those employees will then pay taxes on the monies paid

 

Taxes, Man, Taxes.

 

Remember that no matter what kind of business entity you decide to create, Uncle Sam will always want his cut including Social Security and Medicare taxes (FICA).

 

Ultimately, the choice is yours, but before taking a draw or salary consider the following:

  • Business funding – Does the business have enough capital to operate sufficiently before you take the draw?
  • Taxes – Understanding tax liabilities, both for the business and personally is crucial to deciding whether to take a draw or a salary and through which type of business entity. There is no method that escapes the tax bill, so plan now for future draws and income.
  • Plan – Talk with a business tax specialist about the best ways to handle tax payments and individual liability based on your business type.

 

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Copyright 2018 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire.

Navigating the Treacherous Waters of Small Business Loans

If you own a small business, you’ve no doubt seen those ads promising quick and easy small business loans, usually for large dollar amounts. Should you really take out such a loan? Before you sign the loan agreement, there are a few key steps to protect yourself and your business.

 

Do your homework. The old adage,’ if it’s too good to be true, it probably is’ should be carefully adhered to. Take the time to read the fine print – ALL of it. It’s in these tiny details where you will find all of the responsibilities, commitments, interest rates and repayment rules. Meticulously review the details for additional fees, service charges and balloon payments that can easily double or triple in short time.  Depending on how quickly the loan is repaid, there may also be additional charges for early repayment. Surprise fees can quickly add up and take your business from thriving to life support.

 

It’s not uncommon to find different rates from lender to lender. Shopping around for rates and repayment options makes good financial sense.

 

When do you need the money?

 

If you think you might need cash at some point in the near future, start researching and applying for a loan now while your business’ cash flow looks good. The loan process takes time, generally four to eight weeks, requiring lots of documentation regarding your business’ finances, accounts, and often, personal finances as well. Be prepared and gather all of your documents before you start the application process. Going to a lender for money when your business is financially stretched puts the odds against you for an approval. If you present your business concept with a solid business plan when things are new or going well, you have a much better chance at success.  Borrowing when you don’t need the money, means that your business will have the available operating capital to plan through the leaner times, fueling even greater growth opportunities.

 

Find a financial Sherpa.

 

Trying to navigate the treacherous waters of small business financing can be a ‘swim at your own risk’ endeavor. The good news is that you don’t have to go it alone. There are countless resources available to entrepreneurs to help you on your journey.  The Small Business Association (www.SBA.gov) website is a tremendous resource for loan types, grants and other information. Additionally, small business owners can talk to consultants for free advice and even request a business mentor in their community or even in their business type, who can meet with them regularly and help provide a roadmap and framework for the growing enterprise. If the entrepreneur discovers that more ongoing guidance is needed, there are lists of resources and professional services also available.

 

Whatever route you decide to take to finance your business, remember that you never have to make the decisions alone.

 

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Copyright 2018 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire.

Magic Of Getting Cash From Your Customers Quicker

Freelancers have become an even larger part of the small business population since the great recession of 2009. According to a 2014 study commissioned by the Freelancers Union, some 34 percent of the total workforce is independent workers, or freelancers. That number is expected to rise to nearly 50 percent by 2020.  Many large companies who traditionally hired workers, now subcontract to freelancers, saving the company overhead for items like space, technology (computers, cell phones, printers, etc.) and benefits packages including health insurance, vacation and holiday pay. There are upsides to freelancing as well. Freelancers can set their own schedules, pick and choose projects and often experience greater creative freedom – but at a price. As more companies struggle to meet their own financial obligations, freelancers often end up on the bottom of the accounts receivable pile waiting 60 or 90 days or more to be paid.

 

Steps for improving your bottom line.

 

Freelancers often send an invoice and wait. While it may feel like much of the accounts payable is out of your control, there are steps you can take to improve payment frequency and the amount of dollars clients are paying you.

 

Contracts and deposits are your friends.

 

Rather than performing the work first and billing after completion, send a contract and initial deposit invoice prior to any work commencing. This works on many fronts. First the client will have a much clearer understanding of your relationship, when to expect work and when they will need to pay you. Secondly, there will be no doubt about the payment terms including any late payment fees, because you outlined them in the contract. Having a specific contract that covers each step of the project will also help to keep the project on time and on budget. Freelancers also face changes of scope on an almost daily basis. Instituting change orders is a great way to ensure that the scope of work and costs don’t exceed the initial project’s goals. How many times has a client stopped a project part way through making it nearly impossible to invoice for the work completed? Requesting an initial deposit, or regularly scheduled payments throughout the life of the project will help improve your cash flow while also keeping the client committed to the project. If the scope or goals do change, at least the client will understand that there is a process for that and know what to expect from you.

 

Take credit cards.

 

Clients may have the same cash flow issues you’re facing, but if you provide several different options for payment, odds are that you will see an increase in timely payments. Only a few years ago, credit card processing was only for larger companies, but with the advent of handheld card reading devices like Square, taking credit card payments is easy and cost-effective for any size business. Initial deposits, scheduled payments and final payments can all be set up in advance and automatically charged to your client by your accounting software, too. That way, you can spend more time working and less time processing invoices and payments.

 

Do your homework.

 

Consider if you were a financial lender and a client came to you to borrow money. You certainly wouldn’t give him thousands of your hard earned dollars without a contract outlining when he would pay you back. Nor would you just hand over the money without some type of credit check or personal history to ensure that he was credit worthy.  Just because you are an independent contractor shouldn’t mean that you hand over your time and talents without the same scrutiny. Taking the time to do a little homework on your clients’ credit history will prevent you from unwanted financial surprises down the road.  That doesn’t mean that surprises won’t still happen – they will.

Clients are business owners, too. Sometimes they need a helping hand just like you. It’s important to consider each client individually, Personal relationships are so important for small business owners. You may want to sit with your client and discuss a new payment strategy to help them over a hardship. In the end, you may achieve your goal of keeping that client and saving the relationship, too.

 

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Copyright 2018 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire.

The New Tax Act – What It Means To Small Business

For the first time since 1986, the U.S. Congress passed major tax changes affecting both individuals and businesses across the country. The Tax Cuts and Job Act of 2017 (TCJA) has far-reaching impact for many business types and individuals.

 

Business Taxes

  • The corporate income tax rate is permanently lowered from 35 to 21 percent starting in January 1, 2018.
  • Pass through businesses – A new 20 percent deduction of qualifying business income from some pass-through businesses in industries such as sole proprietorships, partnerships and S Corporations will now be available. According to the Brookings Institute, pass-through businesses, those businesses who have their income ‘pass through’ to their owners, account for approximately 95 percent of U.S. businesses, while only 5 percent are C-corporations. Previously, income for pass-through businesses was charged at the highest personal tax income rate of 39.6 percent. The new law allows for 20 percent of the pass-through to be deductible while the remainder is subject to tax at the individual marginal income tax rates to a new lower maximum of 37 percent. There are exclusions including health, law, and professional services organizations except for households with taxable income below $157,500 for single filers and $315,000 for married filers. For these filers, there is a restriction to pass one of two tests:
    • 50 percent of the wages paid by the pass-through entity; or
    • 25 percent of the wages paid plus 2.5 percent of the “tangible, depreciable property used by the pass-through entity to make income. These pass-through provisions will expire at the end of 2025.
  • AMT – The TCJA eliminates the corporate alternative minimum tax (AMT) allowing for full expensing of capital investments for the next five years.
  • Craft Beverage Modernization and Tax Reform Act – Part of the larger TCJA law, this change provides excise relief in the next two calendar years of 2018 and 2019. Brewers that produce less than 2 million barrels annually will be taxed at a rate of $3.50 per barrel on the first 60,000 barrels of beer produced, and $16 per barrel on any further barrels produced up to 6 million. This change will help to provide additional capital that previously would have been sent to the government enabling additional growth and profitability. This reduction also impacts wineries and distillers.
  • Section 179 deductions- Used for expensing capital assets for small business, the deduction thresholds have been raised from $500,000 to $1 million. Odds are most small businesses won’t be able to reinvest such a large amount of $500,000 to $1 million in capital expenditures in a single year, but the offer is nice.

 

Personal

  • Individual tax brackets – The Tax Cuts and Jobs Act retains the current seven individual income tax brackets, but modifies both the width and tax rates. The new brackets are reduced to 10%, 12%,22%, 24%, 32%, 35% and 37% respectively. The downside is that while these tax changes are permanent for corporate tax payers, the individual tax changes are temporary, running out in 2025. Additionally, the Tax Policy Center found that “while the average household would get a big initial cut, by 2027 households in the $50,000 to $75,000 income range would see an average increase of $30 compared with today.  Secondly, the bill is expected to add $1.4 trillion to the deficit. How will this be paid?  As mentioned by Speaker of House Paul Ryan, healthcare entitlements such as Medicare, Medicaid, and Social Security are the best way to handle the growing deficit.
  • Child Tax Credit – There is an increase in the child tax credit amount to $2,000 from the current$1,000. Families making up to approximately $400,000 will get to take the credit and more of the tax credit is refundable, meaning that families that work but don’t earn enough to actually owe federal income taxes will get a check back from the government.
  • ACA Penalty – Repeal of the individual healthcare mandate penalty for not having health insurance starting in 2019. How this will play out in uninsured Americans and increased health insurance costs down the road is yet to be seen.

 

The new tax changes did not simplify the tax code, rather it is now more complicated.  

 

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Copyright 2017 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire.

An Unwanted Surprise In Your Paycheck

The Treasury Department recently announced revisions to the 2018 withholding tables to reflect the changes spurred by the Tax Cuts and Jobs Act (TCJA).  Included in the law, employers can use worker’s existing W-4 Forms already on file to make the adjustments to their withholding.

 

What that means for employers:

Since it isn’t mandatory for employees to review their W-4 form after their initial employment, employers may want to reach out to workers to encourage them to thoroughly review their pay stubs after the first payroll with the new withholding rates. Additionally, new forms will be forthcoming from the IRS, so employers will need to again communicate with workers about completing the new form to update their individual withholdings.

 

What the changes mean for workers:

Some 90 percent of workers will see an increase in their weekly pay as a result of the TCJA according to Government estimates. The Tax Policy Center estimates that about 80 percent of all filers will see a tax cut, while approximately 5 percent will see an increase, and no change for the remaining 15 percent.

 

What’s the issue?

Many Americans haven’t reviewed or even seen their W-4 Form since they were hired, so changes to the withholding could have more serious impact on a family that has grown or shrank over the years. Tax payers who are either under or over-withholding aren’t going to see the full impact of the change until it comes time to pay their 2018 income taxes – too late to make what could be costly changes.  “The results could vary dramatically from one individual to the next,” says Steven Feinberg, CPA and owner of Appletree Business Services in Londonderry, NH. “We are encouraging both employers and employees to review their withholdings,  compare it to their current situation and make any necessary changes now rather than waiting a full year to see what the impact might be.”

 

New Tax Brackets for 2018

Single Rate Married
Above $500,000 37% Above $600,000
$200,001-$500,000 35% $400,001-$600,000
$157,501-$200,000 32% $315,001-$400,000
$82,501-$157,500 24% $165,001-$315,000
$38,701 -$82,500 22% $77,401-$165,000
$9,526-$38,700 12% $19,051-$77,400
Up to $9,525 10% Up to $19,050

Source: Joint Explanatory Statement of the Committee of Conference, H.R.1

 

The new withholding tables have been adjusted to include new larger standard deductions, lower tax rates and the repeal of the personal exemption. What the tables couldn’t include is how the changes would affect individuals differently. For example, the reducing alternative minimum tax, expanded child credits and repeal of deductions on the state and local levels. All of these items can come into play and impact what an individual might normally ‘expect’ for an annual tax refund.

 

Tax officials at the US Treasury and the IRS are working on a revised W-4 form, which they hope to release sometime in February 2018.

 

Those at risk for under-withholding could include employees who receive bonuses, stock options or commissions because the withholding rate for that population has dropped from 25 percent to 22 percent. Additionally, parents with dependents over the age of 17 are also losing a key tax credit of $2,000, replacing it with just $500. Couple that with the loss of the personal exemption, and those tax cuts aren’t looking nearly as attractive as they were on the surface.

 

Another item to remember is that the tax penalty for underpayment, meaning the requirement of taxpayers to pay in at least 90 percent of what they owe by April 15th still carries a 4 percent interest rate quarterly. “Waiting and finding out that you substantially owe more income taxes could be coupled with a pretty hefty penalty,” continues Feinberg.

 

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Copyright 2017 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire.

Should I be concerned about Net Neutrality?

Net neutrality is the concept that the internet service providers should provide equal access to web sites regardless of content or the source. The idea is that by allowing equal access everyone, big business or small, average Joe or superstar has the same access to information on the Net.   The current net neutrality laws were carried over in the Obama administration in February of 2015 with a vote of 3-2. Under the direction of Thomas Wheeler as chairman of the Federal Communications Commission, many were concerned that his lobbyist past and membership in the National Cable and Telecommunications Association would shift net neutrality in the direction of big corporate internet providers. What happened was a strong support for the American consumer. Zoom forward two years and net neutrality is once again up for debate as a new administration makes moves to threaten access. How can changes in net neutrality impact small business?

  • Internet Service Providers (ISPs) may have the ability to limit the speeds of the internet based on websites or apps frequented.
  • IPSs may be able to charge each website for data prioritization, which would give increased speeds while browsing that site.

Still puzzled about how shifts in net neutrality could impact you? Think of it this way, on the school playground there’s always a big, threatening kid who bullies the other smaller kids into giving over their lunches, paying for his snacks or some other egregious ‘fee’ for simply breathing in his space. ISPs, if left to their own devices, may become like those playground bullies, charging small businesses exorbitant fees just to play in the same playground as everyone else.

 

 

Worse yet, because your mom only gives you enough money to buy lunch but some kids have lunch money and an allowance, the playing field shifts further because they can afford to pay more for better access to the playground.

 

 

Net neutrality means that your small business gets the same internet speeds and access as Target, Walmart and your local diner. It’s fair and equal for all. Loss of net neutrality will cost your business in lost marketing opportunities, a tightened sales pipeline and less access and online sales.

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Copyright 2017 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire.

New Tax Bill – Three things you can do by 12-31 to save taxes

The “Tax Cuts and Jobs Act” at this writing has been approved by both houses of Congress and will be signed by the President by the end of this week.

 

 

As much as we all have opinions about this, our job is to now interpret this as best we can at this juncture and provide you with some last minute advice of things you could do by December 31 of 2017.

 

 

My first observation, as an accountant, is that this is the most significant amount of structural changes we have seen in the tax code since 1986, forcing us to rethink everything we know in terms of tax planning etc.. We have been in business since 1988.

 

 

The new law goes into effect January 1st  of 2018 for the most part. Beginning in 2018, the big game changer for individuals is the expansion of the standard deduction to $12,000 for a single person and $24,000 if you are married and filing jointly.  This means that if you do NOT have enough ‘itemized’ deductions that exceed the 12,000/24,000 mark such as mortgage interest, real estate taxes, state income taxes, charity and medical expenses, you will take the ‘standard’ deduction.

 

 

This also means in the future, most of us (including myself who owns a house) will no longer have a need or desire to keep track of their mortgage interest, real estate taxes, charity, or medical expenses for 2018 on.

 

 

The new law also sets a maximum amount of $10,000 per return of state income taxes and real estate taxes that could be itemized.

 

 

This does, however, provide a planning opportunity for 2017 to pay real estate taxes or state income taxes (such as the New Hampshire Interest / Dividends Tax or Massachusetts income tax) THIS year. For real estate taxes to be deductible, it must be ‘billed’ by your town and paid to the town, not just to your mortgage company. When in doubt, pay the town today, and get the money back from your mortgage company tomorrow.

 

 

With respect to any STATE (not FEDERAL) income taxes, we recommend that you make a ‘generous’ estimated tax payment in 2017, which would be deductible in 2017. In the event you were to overpay your tax, the overage would be income in 2018, but meanwhile you permanently saved taxes on the extra amount you paid in 2017.

 

 

Passthru income. If you have a partnership, an S corporation, or a sole proprietorship, we know that this will be taxed at a lower rate, with some sort of ‘deduction’ of 20%, but we still lack a lot of details on this. Tax planning can also be complicated in this area because of the interaction of the New Hampshire Business Profits tax on passthru income.

 

 

Given that we know that the rates on this type of income in 2018 should be lower than 2017, we are recommending that partnerships, S Corporations, and sole proprietorships attempt to PUSH income from 2017 into 2018 and to incur expenses in 2017 that you might be putting off until 2018. This advice does NOT apply to our C Corporation clients.

 

 

As we get more information on this tax act, we will keep you apprised on any issues that may affect you.

 

 

Thank you for your time, and we all wish you a very pleasant and Merry Christmas.

 

 

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Copyright 2017 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire.

What to do when you get an IRS letter

You filed your taxes, processed all of your W-2s and 1099-Cs and think your federal reporting is in great shape – until you receive the dreaded IRS tax letter. Your stomach knots, your mouth goes dry and suddenly a clammy panic takes hold. Now take a breath and be calm. There are all kinds of notices and letters the IRS can send, so review the letter carefully,  Often there are ample instructions on what the IRS needs a taxpayer to do.  The IRS sends notices and letters for a variety of reasons. The most common are:

 

 

There’s a balance due.

The taxpayer is due a larger or smaller refund that what was originally filed.

There is missing or unreported income from another source.

The IRS has a question regarding the tax return.

Random selection – that’s right, each year the IRS randomly selects taxpayer reviews based on a statistical algorithm.

The IRS needs to validate the taxpayer’s identity – i.e. the SSN doesn’t match the name.

The IRS made a correction or change to the return.

The IRS is notifying of a delay in the return.

Final notice of intent to levy and notice of your right to a hearing.
 

 

If your correspondence indicates that a response is requested, it is in your best interest to respond within the given time frame to help reduce or eliminate additional penalties, or preserve your right to appeal if you don’t agree with their findings.  If you are required to respond or take action in the letter, you will want to include the CP or LTR number found on either the top or bottom right-hand corner of the correspondence. Be sure to take down the agent’s ID number, name and the date and time you spoke. Let’s review the most common types of IRS letters and what they might mean for your situation.

 

 

CP2000 Notice – issued when the income and/or payment information doesn’t match information reported on the tax return.

 

 

CP11 – This letter is sent when there are changes to a tax return or a balance due.  The IRS has made a change to the tax return and there is now a balance due.

 

 

CP12 Notice – This notice is issued when the IRS corrects one or more mistakes on a taxpayer’s return and a payment has become an overpayment or an original overpayment amount has changed.

 

 

CP-90 – Final Notice of Intent to Levy and Notice of Your Right to a Hearing – This is the only notice that permits the IRS to take action against a taxpayer. If you have received this notice, you have already received several other communications from the IRS. Once this notice is delivered, you have 30-days before the IRS is legally entitled to take action. You can request a meeting with an IRS appeals officer or start collection due process. If you are required to pay additional taxes to the IRS and you agree with their findings, you still have a few options available to you:

 

Pay the amount due in its entirety

Pay a portion of what you owe

Apply for an Online Payment Agreement or Offer in Compromise.
 

 

A note about IRS letters: Beware of suspicious notices or letters that were designed to look like they came from the IRS. If you are suspicious, you can call the IRS hotline at 1-800-829-1040. Remember that the IRS will never ask taxpayers for personal information via email or social media sites.

 

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Copyright 2017 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire.

 

Profits are nice, but Cash Flow rules!!!

Every time we talk with a business about the taxes they owe on their profits, we hear “If my business is profitable why don’t I have any money?” The way cash flows in and out of your business is a lynchpin for understanding business finance.  There is also a huge difference between making money and managing it.  So often entrepreneurs start a business because they love creating a new widget, or offering a leading-edge service, but they have little to no business management experience. Terms like forecasting, budgeting and cash flow are meaningless until the monthly bills come due and payroll can’t be covered. Rather than waiting until there’s a problem, let’s make a pact to learn the basics for how profits and cash flow operate.

 

 

Lesson #1 Profit and Cash Flow are Different Profit is revenue minus expenses. That means any monies left over after all the bills are paid is considered profit. Conversely, cash flow refers to the influx and outflow of cash in the business, i.e. where is the money going and why. If you go to the store to buy milk and you have no money, you have a cash flow problem. If you have money expected to you in two months, that makes buying milk nearly impossible now even though profitability is promised at a later date.   The other crux is that a business selling additional widgets (i.e. increasing sales) does not necessarily immediately increase cash flow, in fact, more often than not, the increased sales will immediately reduce it. Now you’re thinking, if sales help to generate revenue, why wouldn’t I want more sales?  Sales, especially where widgets are concerned will require an immediate additional cash outlay to manufacture, package, and distribute the item(s). All of these steps must occur well in advance of delivery and invoicing and another ten to 45 days or more can go by before the company is paid for the products. That timeframe between production of the widget and payment of the widget is where cash flow management lives.

 

 

Lesson #2 – Look at your options. Precise cash flow management, much like a synchronized swimming routine, must occur in a timely, well-choreographed dance in order to keep the business operating, expenses covered and employees paid. Part of this monetary routine can include:

 

 

Collections – Where are your current account receivables? Are they current or in arrears and if so, how far? By placing your attention on existing receivables and making efforts to encourage payments, cash flow will be improved. For invoices that are more than 90 days past due, consider a collection agency or some other type of arrangement.

 

 

Delaying cash payments – Review how your orders are placed for materials with vendors. Can you set contracts for orders where a percentage is paid up front and the remaining balance paid in 15 or 30 days? This will improve cash flow as it will remain in-house longer.

 

 

Raising Additional Capital – If you cannot meet your financial obligations within the necessary time, it may be necessary to solicit additional cash through loans, issuing capital stock, employee ownership or some other type of arrangement.  Again, planning and attention to cash flow can help with strategic timing and more attractive interest rates and loan agreements. Covering debts in a crisis mode will inevitably mean less attractive interest payments and possibly selling more ownership than originally intended.  

 

 

Lesson #3 – Too much competition can kill revenue. That’s right, the one thing that makes capitalism work is competition, yet competition can be the very thing that can take a business under the quickest. How? When businesses are constantly bidding for business and trying to shave off profit margins in order to win the contract, those pennies, nickels and dollars can all add up to no actual profit at the end of the day. Yes, the business has lots of money moving through the business, but not much staying in the bank accounts. Try to be brutally honest with yourself and your bidding so that you know up-front if your business can afford to take a reduction in costs or even a loss in order to gain business.  Make sure that you are working from real numbers and in partnership with your finance team in order plan for losses on one contract and profits on another. There are volumes of books and doctoral theses on the process of cash flow and cash management which can be consulted. If you don’t have that kind of time, it may be time to bring in some additional financial advisory assistance.

 

 

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Copyright 2017 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire.

Baby Boomers Are Not Retiring And The Impact on Small Business

Baby Boomers are delaying retirement and continuing to stay in the workforce. This trend in postponed retirement can have substantial impact on other generations within the workforce seeking advancement and career changes. According to the ADP Workforce Vitality Report released in June 2017,  “[the boomer] age group experienced 4.8 percent job growth during the first quarter of 2017, more than any other age group.” Additionally, the Pew Research Foundation found that “nearly two-thirds of workers older than 65 hold full-time jobs” of 35 hours a week or more.  While there are many reasons for the delay in retirement, four primary catalyst include:

 

 

Finances – Baby Boomers are concerned that they do not have enough cash to last for their entire retired years. Shifts in employer pension programs to self-funded or corporate match 401k retirement programs means that less money is guaranteed or available in retirement years.  Plus, the more years worked, the fewer years need to be pulled in taking retirement dollars out of an account. Retirement accounts can continue to grow (yes, money must start being taken out by age 70 ½ ) but waiting longer can increase those payouts. Additionally, delays in retirement can also mean a delay in collecting Social Security. Waiting to take Social Security from age 62 to age 70 can mean an additional growth of 8 percent annually. In a recent Employee Benefit Research Institute study found that “26 percent of workers plan to work until age 70, and another 6 percent say they will never be able to retire.”  With less and less workers able to save for retirement or have not nearly enough to carry them through their retirement years, they continue to work full time and extend their careers well into their 70s.

 

 

Healthcare – Staying on the company health plan can mean better health plans as well as other ancillary benefits like group and voluntary life and disability insurance and even access to critical illness, accident, hospital or whole life plans, not to mention the ongoing employer contributions to a 401k.  Studies have also found that continuing to work has health benefits, too.  Researchers at Oregon State University found that in an ongoing study of individuals age 50 and older, those who continued to work had an 11 percent lower chance of death from all causes than their ‘retired’ counterparts.

 

 

Demand – Employers need the experience and institutional knowledge of the baby boomer generation. Much of this knowledge has not been passed down to younger generations, leaving a large gap in training and experience that employers are willing to pay to keep.

 

 

Lifestyle – The average life expectancy has increased substantially allowing baby boomers a healthier life and more productive time to continue working. Older employees who once targeted 55, 60 or 65 as a retirement age are now looking to 70 or 75. Employers wanting to keep those experienced workers on hand are offering more creative ways to stay engaged at the organizations while providing flexibility and even reduced work weeks.

 

 

How can you keep your baby boomers engaged? Think about developing a talent retention program. Like Millennials who have certain expectations from their employers, baby boomers may need a few tweaks to their employment terms to stay happy and focused. Flexibility is the biggest request. Consider providing a flexible work schedule or even offering full-time 30+ employment benefits so baby boomers can ease into a slightly shorter work week while still providing experience, leadership and a great work ethic to the organization.

 

 

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Copyright 2017 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire.