Summer Jobs

My nephew started a job this summer at Bay Beach, which led me to post this video from the IRS. It reminds part time or seasonal workers to file a tax return, even if you think you don’t have to. Remember, the IRS has the right to audit you ANY year you fail to file a tax return.

Hobby or business

I have a lot of clients that start a side business and wonder how many years they can take those losses on their tax return. Here’s a great article on what the IRS deems as a business or a hobby:

https://www.irs.gov/uac/hobby-or-business-irs-offers-tips-to-decide

Where’s my refund?

This year the IRS is holding back refunds for those tax payers who claim the earned income credit, child tax credit and education credits.  This video shows how to use the “Where’s my refund” tool at the IRS web site.

Some Refunds Delayed in 2017

Beginning in 2017, a new law approved by Congress requires the IRS to hold refunds on tax returns claiming the EITC or the ACTC until mid-February. The IRS must hold the entire refund – even the portion not associated with the EITC and ACTC — until at least Feb. 15. This change helps ensure that taxpayers get the refund they are owed by giving the agency more time to help detect and prevent fraud.

”This is an important change as some of these taxpayers are used to getting an early refund,” said IRS Commissioner John Koskinen said. “We want people to be aware of the change for their planning purposes during the holidays. We don’t want anyone caught by surprise if they get their refund a few weeks later than in previous years.”

New Private Debt Collection Program to Begin Next Spring; IRS to Contract with Four Agencies

WASHINGTON – The Internal Revenue Service announced today that it plans to begin private collection of certain overdue federal tax debts next spring and has selected four contractors to implement the new program.

The new program, authorized under a federal law enacted by Congress last December, enables these designated contractors to collect, on the government’s behalf, outstanding inactive tax receivables. As a condition of receiving a contract, these agencies must respect taxpayer rights including, among other things, abiding by the consumer protection provisions of the Fair Debt Collection Practices Act. The IRS has selected the following contractors to carry out this program:

CBE Group 1309 Technology Pkwy Cedar Falls, IA 50613

Conserve 200 CrossKeys Office park Fairport, NY 14450

Performant 333 N Canyons Pkwy Livermore, CA 94551

Pioneer 325 Daniel Zenker Dr Horseheads, NY 14845

These private collection agencies will work on accounts where taxpayers owe money, but the IRS is no longer actively working their accounts. Several factors contribute to the IRS assigning these accounts to private collection agencies, including older, overdue tax accounts or lack of resources preventing the IRS from working the cases.

The IRS will give each taxpayer and their representative written notice that their account is being transferred to a private collection agency. The agency will then send a second, separate letter to the taxpayer and their representative confirming this transfer.

Private collection agencies will be able to identify themselves as contractors of the IRS collecting taxes. Employees of these collection agencies must follow the provisions of the Fair Debt Collection Practices Act and must be courteous and respect taxpayer rights.

The IRS will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, particularly in light of continual phone scams where callers impersonate IRS agents and request immediate payment.

Private collection agencies will not ask for payment on a prepaid debit card. Taxpayers will be informed about electronic payment options for taxpayers on IRS.gov/Pay Your Tax Bill. Payment by check should be payable to the U.S. Treasury and sent directly to IRS, not the private collection agency.

The IRS will continue to keep taxpayers informed about scams and provide tips for protecting themselves. The IRS encourages taxpayers to visit IRS.gov for information including the “Tax Scams and Consumer Alerts” page.

For more information visit the Private Debt Collection page on IRS.gov.

IRS Warns of Back-to-School Scams; Encourages Students, Parents, Schools to Stay Alert

IRS Warns of Back-to-School Scams; Encourages Students, Parents, Schools to Stay Alert

WASHINGTON — The Internal Revenue Service today warned taxpayers against telephone scammers targeting students and parents during the back-to-school season and demanding payments for non-existent taxes, such as the “Federal Student Tax.”

People should be on the lookout for IRS impersonators calling students and demanding that they wire money immediately to pay a fake “federal student tax.” If the person does not comply, the scammer becomes aggressive and threatens to report the student to the police to be arrested. As schools around the nation prepare to re-open, it is important for taxpayers to be particularly aware of this scheme going after students and parents.

“Although variations of the IRS impersonation scam continue year-round, they tend to peak when scammers find prime opportunities to strike”, said IRS Commissioner John Koskinen. “As students and parents enter the new school year, they should remain alert to bogus calls, including those demanding fake tax payments from students.”

The IRS encourages college and school communities to share this information so that students, parents and their families are aware of these scams.

Scammers are constantly identifying new tactics to carry out their crimes in new and unsuspecting ways. This year, the IRS has seen scammers use a variety of schemes to fool taxpayers into paying money or giving up personal information. Some of these include:

  • Altering the caller ID on incoming phone calls in a “spoofing” attempt to make it seem like the IRS, the local police or another agency is calling
  • Imitating software providers to trick tax professionals–IR-2016-103
  • Demanding fake tax payments using iTunes gift cards–IR-2016-99
  • Soliciting W-2 information from payroll and human resources professionals–IR-2016-34
  • “Verifying” tax return information over the phone–IR-2016-40
  • Pretending to be from the tax preparation industry–IR-2016-28

If you receive an unexpected call from someone claiming to be from the IRS, here are  some of the telltale signs to help protect yourself.

The IRS Will Never:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail you a bill if you owe any taxes.
  • Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Ask for credit or debit card numbers over the phone.

How do you distinguish between a business and a hobby?

Often times people open businesses and believe they will some day make something of it, or perhaps, just incur losses on purpose to reduce their taxable income doing something they enjoy.  The IRS has 9 rules on how to determine whether you actually own a business or a hobby:

  • Whether you carry on the activity in a businesslike manner.
  • Whether the time and effort you put into the activity indicate you intend to make it profitable.
  • Whether you depend on income from the activity for your livelihood.
  • Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
  • Whether you change your methods of operation in an attempt to improve profitability.
  • Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
  • Whether you were successful in making a profit in similar activities in the past.
  • Whether the activity makes a profit in some years and how much profit it makes.
  • Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

IRS Warns Taxpayers of Summer Surge in Automated Phone Scam Calls

IRS Warns Taxpayers of Summer Surge in Automated Phone Scam Calls; Requests for Fake Tax Payments Using iTunes Gift Cards

WASHINGTON — The Internal Revenue Service today warned taxpayers to stay vigilant against an increase of IRS impersonation scams in the form of automated calls and new tactics from scammers demanding tax payments on iTunes and other gift cards.

The IRS has seen an increase in “robo-calls” where scammers leave urgent callback requests through the phone telling taxpayers to call back to settle their “tax bill.” These fake calls generally claim to be the last warning before legal action is taken. Once the victim calls back, the scammers may threaten to arrest, deport or revoke the driver’s license of the victim if they don’t agree to pay.

“It used to be that most of these bogus calls would come from a live-person. Scammers are evolving and using more and more automated calls in an effort to reach the largest number of victims possible,” said IRS Commissioner John Koskinen. “Taxpayers should remain alert for this summer surge of phone scams, and watch for clear warning signs as these scammers change tactics.”

In the latest trend, IRS impersonators are demanding payments on iTunes and other gift cards. The IRS reminds taxpayers that any request to settle a tax bill by putting money on  any form of gift card is a clear indication of a scam.

Some examples of the varied tactics seen this year are:

  • Demanding payment for a “Federal Student Tax”–IR-2016-81
  • Demanding immediate tax payment for taxes owed on an iTunes or other type of gift card
  • Soliciting W-2 information from payroll and human resources professionals–IR-2016-34
  • “Verifying” tax return information over the phone–IR-2016-40
  • Pretending to be from the tax preparation industry–IR-2016-28

Since these bogus calls can take many forms and scammers are constantly changing their strategies, knowing the telltale signs is the best way to avoid becoming a victim.

The IRS Will Never:

  • Call to demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
  • Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Require you to use a specific payment method for your taxes, such as a prepaid debit card, gift card or wire transfer.
  • Ask for credit or debit card numbers over the phone.

If you get a phone call from someone claiming to be from the IRS and asking for money and you don’t owe taxes, here’s what you should do:

  • Do not give out any information. Hang up immediately.
  • Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page or call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.
  • If you think you might owe taxes, call the IRS directly at 800-829-1040.

IRS Warns Consumers of Possible Scams Relating to Orlando Mass-Shooting

WASHINGTON ― The Internal Revenue Service today issued a consumer alert about possible fake charity scams emerging due to last weekend’s mass-shooting in Orlando, Fla., and encouraged taxpayers to seek out recognized charitable groups.

When making donations to assist victims of last weekend’s terrible tragedy, there are simple steps taxpayers can take to ensure their hard-earned money goes to legitimate charities. IRS.gov has the tools taxpayers need to quickly and easily check out the status of charitable organizations.

While there has been an enormous wave of support across the country for the victims and families of Orlando, it is common for scam artists to take advantage of this generosity by impersonating charities to get money or private information from well-meaning taxpayers. Such fraudulent schemes may involve contact by telephone, social media, e-mail or in-person solicitations.

The IRS cautions donors to follow these tips:

  • Be sure to donate to recognized charities.
  • Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. The IRS website at IRS.gov has a search feature, Exempt Organizations Select Check, through which people may find qualified charities; donations to these charities may be tax-deductible.
  • Don’t give out personal financial information — such as Social Security numbers or credit card and bank account numbers and passwords — to anyone who solicits a contribution. Scam artists may use this information to steal a donor’s identity and money.
  • Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.
  • Consult IRS Publication 526, Charitable Contributions, available on IRS.gov.   This free booklet describes the tax rules that apply to making tax-deductible donations. Among other things, it also provides complete details on what records to keep.

Bogus websites may solicit funds for victims of this tragedy. These sites frequently mimic the sites of, or use names similar to, legitimate charities, or claim to be affiliated with legitimate charities in order to persuade people to send money or provide personal financial information that can be used to steal identities or financial resources.

Additionally, scammers often send emails that steer recipients to bogus websites that appear to be affiliated with legitimate charitable causes.

Taxpayers suspecting fraud by email should visit IRS.gov and search for the keywords “Report Phishing.”

More information about tax scams and schemes may be found at IRS.gov using the keywords “scams and schemes.”

IRS Update

Hi Everyone,

Just as an FYI, I did receive this from the IRS today regarding clients that qualify for the earned income credit and additional child tax credit:

“Effective in 2017, a new law requires the IRS to hold all Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) refunds until Feb. 15. This is likely to affect some returns submitted early in the tax filing season.”

In short, there will be a longer waiting time for a refund if your refund is in part or whole due to the EITC or ACTC.

Are you making your list and checking it twice?

As 2015 comes to a close, it’s important to make a checklist of things your business needs to wrap up prior to closing the year and preparing for the corporate tax return.  Below is a list of a common items that clients need to address before the current year ends:

1.  Do the equipment and/or vehicle loans balance?
2.  Were there any personal loans given to the company?
3.  Did you buy any fixed assets not listed on the balance sheet?
4.  How was health insurance handled for the business?
5.  Does the owner need any additional payroll?
6.  Do you want to contribute more to an IRA prior to the year closing?
7.  Did you record any personal miles driven?

If you are looking for guidance on closing your business books for 2015 please contact us at your earliest convenience.

Pro_data_Christmas

Merry Christmas to all of our clients, friends, colleagues and family members.  May you all have a wonderful holiday season!

 

Cash Flow Is King

We pound our fists on the table all the time talking about how important cash flow is to small business owners (and individuals as well).  While we have a mentality in Wisconsin that paying something off and being debt free is the way to go, coming up short on cash can crush a company very quickly.  Whenever you need money, often times it’s difficult to get it.  Here’s an article explaining how one company grew too fast and didn’t follow the cash flow rule:

http://www.cnbc.com/2015/11/04/a-serial-entrepreneur-shares-a-humbling-lesson.html

Subs Are Necessary

BNI is a great referral organization, we generate a lot of business from the relationships built in each of the 3 groups we are part of.  Even when one of us can’t make a meeting, another Pro Data employee goes and represents.  Here’s Margie taking Eric’s spot two weeks ago, standing out (and up) is part of her MO.

MargieBNI

Small Business Expo Today

Today is the 3rd N.E.W. Small Business Expo, starting at 3 PM and runs until 8 PM.  Meet us at Stadium View for the first “Guppy Bowl” and to visit dozens of small businesses exhibitors.

pro_data_business_expo

Fun With Taxes

As tax payers and business owners, no one likes to owe the IRS money on April 15th.  But why should you have to pay in?

*  Did you underestimate your income or not withhold enough on your payrolls?
*  Did you not take all the deductions you should have on your tax return?
*  Were not set up properly as an S-Corp or other formation?

If a client owes (for example) $2000 in April, I ask them why did this happen?  More times than not it’s not because they forgot mileage, didn’t contribute to an IRA, or had some erroneous accounting error (even though these things can happen).  The biggest error business owners make is not planning ahead for April, especially seasonal businesses like construction or landscaping.

Our advise is to be pro active, put small amounts of money away monthly, every month, all year round.  In this example, paying an extra $200 per month into federal withholding means this client would have gotten a small refund and not been frustrated in April.  While most business owners can afford $200 per month to prepay their federal withholding, coming up with a chunk of $2000 is difficult to do.  For those business owners that wait until the last minute to file their taxes, this amplifies their problem ten fold because they don’t have any time to generate additional cash to pay off their taxes.

If you or another business owner you know has to pay in every year on April 15th, we’d love to sit down with them and see what sort of planning can be done to eliminate this problem.  We have great success managing client cash flow and tax obligations, almost all of our clients get refunds each and every year.

pro_data_money

Think Before You Act

No business owner wants to make a bad decision, especially when that decision can impact your bottom line negatively.  However, sometimes people rush into action without fulling thinking about the consequences of said actions.

Whether you want to move your company to a different location, hire new employees (or fire existing ones), add a new line of services or even decide to sell your business – all of these major decisions require a good amount of discussion with peers and colleagues to come to a sound conclusion.

We highly recommend you think long and hard about major decisions for your company, too often bad decisions lead to a landslide of costly fees or can even close the business down.  Call us today if you are teetering on a major decision for your company, we’ll be happy to help.

pro_data_think

Is it really that important?

One of the first things we recommend to any new business owner is to open a business checking account.  You would be surprised to see how many sole props and LLC’s co-mingle their business and personal income/expenses.

If you have a separate checking account for your business and only route business activity through it, it makes an audit from the state or federal government significantly easier for you to track down checks, debits and deposits.

In addition, reconciling a business checking account should be done at least once a month.  Often times business owners are so busy they don’t recognize when money is taken out of their account without their authorization.  If you aren’t balancing your checkbook then there’s no way to know if something has gone wrong with your banking.

In short, always always always have a business checking account no matter what type of business you have.  Make sure you only push business activity through that account and reconcile it at least once a month.

pro_data_checking

Affordable Health Care Issues

We have discovered from a congressman that keeps in contact with our company, that the subsidies for the Affordable Health Care Act that will assist people in certain income brackets will not be deducted immediately, but at the end of the year when a tax return is filed. A recent article on CNN goes over some other issues with the new law:

http://money.cnn.com/2013/10/21/news/economy/obamacare-complaints/index.html?hpt=hp_t1

Business Owners Write Off Everything, Right?

It’s often misunderstood that business owners get to “write off” 100% of their business expenses. When you do the math, these write offs only equate to 15-25% of the actual cash spent on equipment, office supplies, insurance, etc.

For example, if a business owner buys a tool for $100, they have to pay full price for the tool (which is money they made from sales) and gets a 15-25% expense write off at the end of the year. In this situation, the business owner saves $15 to $25 on that tool based on the tax bracket their personal income fits into.

So next time you hear someone say business owner’s get to “write everything off”, only certain items are able to be written off and only a percentage of said item.

IRS Shut Down

The IRS cannot be gotten a hold of while the government shut down is in effect.  We tried to contact the local office here in Green Bay today and were notified by recording they were not in service.  We will keep you posted as to when the IRS is back in operation.

The Next ‘Big’ Thing in Small Biz Marketing

By /Growing Your Business/Published May 22, 2013/FOXBusiness

Not too long ago, my eight year old and I were cruising through the grocery store. We came across a strawberry soft drink. He asked me about the “artificial” verbiage on the juice container.

“Why do they always put fake flavors in stuff? Why not just use the real thing?” he said.

I then proceeded to explain the logic behind faux ingredients; however he would have none of it.

“But it’s strawberry! Where are the strawberries?” he abruptly retorted. Apparently, I wasn’t going to get very far in explaining away the absence of this craved ingredient.

His frustration with this common occurrence mirrors the increasing agitation consumers experience in dealing with businesses everyday – particularly in the area of sales, marketing and communications. The driving force for this discontentment can easily be attributed to emerging technology. Please don’t get me wrong – I’m not badmouthing online, digital and mobile marketing technologies.  However, I am saying that their overwhelming presence in our daily lives has created an unintended problem – an audience that longs for something authentic and real.

If you’re looking to give your small business an edge in this saturated environment, I believe you may find your advantage with a low-tech approach – human interaction.

Earlier this year I received an email from a small business owner who was looking to advertise. He’d indicated that he wanted to collect more details about my organization and our record of accomplishment. Upon seeing the email, I immediately clicked the reply button and began typing my response.  Midway into my message, I stopped and thought that a simple call would be most appropriate. So that’s what I did. Subsequently, our firm was invited out to meet face-to-face.  It was at that meeting we learned their company sent out multiple inquires that day.  We happened to be the only firm to actually pick up the phone and have a conversation. In this instance, I was told my phone call was the determining factor in our company being selected.

If you are looking for the next big thing in marketing, might I suggest it’s you? It is your ability to engage your audience without the crutches of new marketing widgets.

Though the following may take a bit more time and yield fewer impressions, these tips may be the very things that give your small brand the buoyancy needed to stay afloat in the immense ocean of marketing chatter:

  • Give customers a way to talk to you. Put your direct phone number on customer feedback forms.
  • Send a signed thank-you card via snail-mail
  • Stop hiding behind a title. If you’re the company president that’s always in meetings and guarded by administrative assistants, you are destined to be disconnected from those who fuel your business – the customer. Step away from the desk and make yourself available to those that matter most.
  • Send key customers personalized invitations/specials
  • Engage. Whether you receive praise or a lambasting online, address it specifically – letting reviewers know that you’re personally paying attention.

Again, technology is great; however, in this highly-communicated, digital age, a human connection is greater.

Why You’re Not Advancing

Joel Garfinkle on May 20th, 2013

There seems to be an innate drive to success that burns within us. If not, there are hundreds of images and announcements that extol the value of advancement. Videos and the Internet lure with the delights of riches.

People around us seem to slide into success. It looks so easy for them.

But what do you do when you find yourself treading water? What is the mud sucking at your feet and keeping you mired in one place?

Check these four reasons and find solutions.

1. You’ve lost your passion. We need to know where our passions and strengths lie and then work to advance them. When we blindly follow the upward path because everyone is doing it, we fizzle.

When trying to identify your passion, the easiest place to begin is to ask yourself: “What interests me and what are interests? Interests are those things that grab your attention ever so gently without you even noticing. Think about those occasions when you find yourself speaking to friends for hours on end about subjects you find fascinating or times when performing a specific task was so enjoyable that it became effortless.

You have interests that if properly channeled can be the spark to ignite your inner passion to light the way to your dream career. In other words, what you find the most interesting can lead to personal enrichment and self-fulfillment in your life.

While not everyone can love everything about their job — moving up and away from what you enjoy will bring dissatisfaction and loss of motivation.

2. You’ve gotten comfortable and quit trying. Admit it. Sometimes we get to a very comfortable place. We know the job. We have a pattern to life. And moving forward feels risky. Overcome that fear with simple mini-steps. First decide to create a goal to move forward. Envision it. Take other steps. Seek a mentor. Step up your team player skills. Enlarge your network. Ask for feedback.

Then communicate your goal to progress with your manager and ask for help and guidance. “Share your aspirations with your manager or superiors in the company, so that management can help establish goals and benchmark for determining when is the right time to promote you,” says Lisa Kojis, managing partner for staffing firm Princeton One.

3. It isn’t where you want to go. You may look at what your boss is doing and think, I don’t want to do that! Recognize moving into that spot is not the only career direction available. There may be other careers paths available in the company. If not, look to choices in other companies or even other fields.

Also understand that while your boss might handle that job by working 70 hours a week or by running the team in a draconian manner– that doesn’t mean you would need to lead that way.

Explore choices and find the options that ignite your drive to advance.

4. You think the price is too high. Sometimes it seems that high success costs marriages, health, time and the things you hold valuable in life. It’s true that more workers feel overstressed and unable to unplug. But it doesn’t have to be that way.

A mentor or coach can offer strategies and life-balance changes that allow you to succeed while keeping that which is most important to you.

Answers to Your Frequently Asked Questions About Incorporation

By Nellie Akalp   April 3, 2013

Do you know the difference between an S Corp and a C Corp? Have you ever wondered if you should form an LLC for your business or where you should incorporate? Or maybe you’re not sure if you need to create a non-profit for your activities? These are just a few of the frequently asked questions about incorporation.

Assembled below are all the answers to the most frequently asked questions when it comes to incorporating your business. If you’re a small business owner, read on to learn more about the various business structures and how you should incorporate your business.

Frequently Asked Questions About Incorporation

1. What are the benefits of incorporation?

The main reason to incorporate (or form an LLC) is to minimize your personal liability. Once your business is incorporated (either by forming an LLC or Corporation), it exists as a separate business entity. Essentially, you put a wall separating your personal assets from anything in the business.

Of course, there are other benefits too. Here are the top reasons to incorporate:

1. Minimize your personal liability and protect your personal assets.

2. Get more flexibility when it comes to taxes (talk to your CPA or tax advisor for specific advice on your personal situation).

3. Boost the credibility of your small business.

4. Add a layer of privacy (don’t use your personal name and home address to represent your business).

5. Start building your business credit.

6. Protect your business name and brand at the state level.

2. What are the drawbacks of incorporation?

The only real “drawback” of incorporating is that you’ll need to operate your business at a higher administrative level than you’re used to as a sole proprietorship. In addition, incorporating as a C Corporation can result in higher taxes for some small business scenarios due to double taxation.

With a C Corporation, the business needs to pay taxes on any profits, and then owners are also taxed when any profits are distributed to them. Obviously, if you’re looking to put your small business profits into your own pocket, you may end up paying a lot in taxes. However, as the following question shows, there are ways to avoid double taxation while still getting some of the benefits of incorporation.

3. What’s the difference between a C Corp and an S Corp?

As mentioned above, the C Corporation’s tax structure isn’t optimal for many small businesses, since business owners often are taxed twice on the profits. However, Corporations can elect for “S Corporation” tax treatment. Often called a “pass-through” entity, an S Corporation doesn’t file its own taxes. Rather, profits and losses of the business are passed through and reported on the business owner’s personal tax return.

To qualify for S Corporation tax treatment, you’ll need to fill out Form 2553 with the IRS. You’ll need to do this no more than 75 days from the date of incorporation, or no more than 75 days from the start of the current tax year.

Be aware that not every business can qualify to be an S Corporation. For example, an S Corporation cannot have more than 100 shareholders and shareholders must be U.S. citizens or residents.

4. What’s an LLC?

An LLC (Limited Liability Company) is a hybrid of a sole proprietorship/partnership and corporation. This structure is very popular among small businesses, and for good reason. The LLC limits the personal liability of the owners, but doesn’t require much of the heavy formality and paperwork of the corporation. This makes it a great choice for business owners that want liability protection but don’t want to deal with exhaustive meeting minutes, addendum filings or other paperwork you’d need to file as a corporation.

You can structure your LLC to be taxed as an S Corporation (as described above) where company profits flow through to the owners and are taxed at the personal income rate.

5. What’s a non-profit corporation?

A nonprofit is created for charitable, educational or other purposes (actually there are five recognized purposes: charitable, religious, scientific, educational and literary). Nonprofits cannot benefit the owners: all money above operating costs must be used to further the goals of the nonprofit. This allows nonprofits to operate tax-free. Approval is needed at both at the State and Federal (IRS) level.

Just like with other corporations or LLCs, a nonprofit corporation offers a corporate shield that helps protect the personal assets of the nonprofit’s stakeholders. In most cases, as long as the legal structure remains correct, stakeholders of nonprofit corporations are immune from individual liability.

6. Where should I incorporate?

You often hear of companies incorporating in Delaware, Wyoming or Nevada. That’s because Delaware offers flexible, pro-business statutes, while Wyoming and Nevada feature low filing fees as well as no state corporate income, franchise or personal income taxes.

However, as a general rule of thumb, if your business will have fewer than five shareholders, you should incorporate in the state where you actually live or where your business has a physical presence (such as an office.) When you incorporate in a different state from your physical presence, you’ll need to deal with added fees and paperwork, since you’re considered “operating out of state.” And for most small businesses, the added hassle and fees just aren’t worth it.

7. When is the best time to incorporate?

In most cases, it’s best to incorporate or form an LLC as soon as possible. After all, the main benefit is liability protection and by waiting to incorporate, you can be exposing yourself to liability.

Keep in mind that your corporation’s start date is not retroactive. This typically means filing two business income tax returns for the year. For example, if your corporation was formed on June 1, you’ll need to file as a sole proprietor (or whatever your previous entity may have been) from Jan. 1 – May 31 and then file as a corporation from June 1 – Dec. 31.

8. How can I incorporate?

There are three common methods for incorporating or forming an LLC. Each has its pros and cons, depending on your needs:

  • Do-it-yourself: DIY is the lowest cost method, but you’ll need to do everything yourself. This is the best option if you’re more interested in saving money than time. With this route, you need to be able to deal with lots of details and arbitrary rules.
  • Online legal filing service: This option is slightly more expensive than DIY. An online legal filing service will complete and file the documentation for you. Like any legal document, the articles of incorporation and application are full of tedious details. A professional service can make sure that your application is done right and processed smoothly.
  • Lawyer: This is the most expensive option, but may be necessary in certain situations. For example, if you have complex requirements for how your stock should be allocated or you are working with millions of dollars, then you should turn to expert advice.

Whichever method you choose, you may want to speak with a tax professional to determine what business structure will be the best for your particular circumstances.

 
 

Why, When, What and How to Outsource Tasks

 Richard White  March 22, 2013

Is it a good idea for a small business to outsource some tasks?

Contrary to what many small business entrepreneurs think, it is often a great idea to outsource certain tasks to others. But, before you make any decisions to outsource, here are a few things you need to think about.

Why Outsource Tasks?

You may have the talent to do it all. However, if you indeed do it all, it may become difficult to achieve the ultimate objective – to enhance the prospects of your business. While you may be able to handle everything on your own, you may not be able to focus on the more essential elements of the business.

It is possible to streamline your business if you outsource certain tasks to vendors. By doing this, you will be able to concentrate on the core areas of your business. The first step may be a little difficult, however, in the long run it will lead to an increase in efficiency.

Another advantage is the cost-effectiveness of outsourcing. When you decide to outsource specific tasks to others, you need not employ a large number of people or buy or rent office space to accommodate them. This can considerably reduce the burden of overhead and cut business costs.

Advanced technology has made it easier to appoint professionals from any part of the world for specific tasks. The availability of highly skilled freelancers combined with the accessibility of their services enhances the suitability of the option to outsource.

When to Outsource Tasks

For small businesses, outsourcing can be advantageous from the beginning. When you start a business, you need to make sure that you do not lose your focus. In such circumstances, if you have to handle tasks such as attending to calls or bookkeeping, you may not be able to do justice to the more important tasks at hand.

There is no right time for a business to outsource. The way your business works, the staff members you have and the tasks they need to handle daily play a significant role in the decision about when to outsource.

While a very small business can capitalize on the advantages of outsourcing from the very beginning, a medium-sized business may not need to outsource daily tasks considering this option only if they cannot handle new projects on their own.  However, this may only be appropriate if appointing a full-time employee is not justified.

If you feel that you are the only one who can manage everything efficiently, but do not find adequate time for the most important tasks of your business, it may be the right time to let go of your complete control over certain tasks and outsource them.

What Tasks to Outsource?

The first thing is to identify the core areas of your business. Any tasks directly associated with these areas must not be in the list of tasks to be outsourced. If the core business areas are outsourced, your clients may not be able to get anything unique from you – a mistake a small business cannot afford to make.

For example, a web design business must refrain from using third-party providers for any tasks related to web designing, the focal point of the business. However, the business can outsource tasks such as payroll management or inventory management to contractors.

The common tasks that small businesses may choose to outsource include the following:

  • Repetitive tasks: Data entry is a good example of a highly repetitive task. While you may use your in-house staff for this, it may be a better idea to outsource this and employ the in-house staff for more useful work.
  • Specialized tasks: IT support can be the right example of this type of task. While you may need IT support for your network, you may not need to appoint a full-time employee for this purpose. In such a situation, a contractor may be ideal for this specialized work.
  • Expert tasks: Financial analyst is a good example of a position requiring a high level of expertise, but that you can still easily outsource. It may be difficult for a small business to pay for highly-skilled executives. However, you can appoint a financial analyst on a contractual basis at a much lower cost.

How to Outsource Tasks

After you have decided when and what to outsource, the next job is to find the right partner. The best way to do this is to get recommendations from your business associates and contacts. You may also find a number of contractors from online platforms dedicated to connecting businesses with outsourcing partners.

Finding the right partner is all about understanding whether your requirements correspond to their specializations. After you have selected a contractor to outsource to, the next task is to draft a contract to specify every detail of the outsourced tasks.

The best way to ensure that the partnership works out is to be clear about everything. Because you are the one providing instructions, you may be the one to blame in case of any misunderstanding. To ensure proper communication between your business and your outsourcing partner, it is best not to leave anything to assumptions.

Keep in mind that the contractors you appoint may need some time to adjust to your work processes. Also, keep away from micromanagement as it may hinder your outsourcing efforts.

The entire idea of outsourcing is to save time – and focus on the core aspects of your business.

Ignorance is not bliss when it comes to federal employment laws

By Ann Bowden-Hollis — The Journal of South Mississippi Business

Growing businesses frequently become subject to a variety of federal employment laws because of increasing the number of employees “on the payroll.” Unfortunately, sometimes the growth occurs so quickly the business misses having crossed a threshold of coverage. In this instance, ignorance is not bliss; an employer’s lack of awareness of being subject to a federal employment law is not a defense to a violation of that law.

Title VII of the 1964 Civil Rights Act (Title VII) makes it unlawful to discriminate in the terms or conditions of employment on the bases of race, color, national origin, religion, and sex, including harassment on one of these bases. Coverage by Title VII applies to all employers that have at least 15 employees on the payroll for any 20 weeks during a current or the preceding calendar year. “On the payroll” means just that — the employee does not have to be full-time, part-time, or actively engaged at work. An individual who is carried on the payroll counts.

The Americans with Disabilities Act, enacted in the early 1990s, prohibits discrimination against employees and applicants based on disability. Employer coverage under the ADA also is based on the same “15 employees on the payroll” test.

The Age Discrimination in Employment Act, which initially made law in 1967 and substantially revised in the 1970s and again in the 1990s, generally makes unlawful discrimination in the terms and conditions of employment on the basis of age, for individuals who are 40 years of age or older. The threshold number of employees is 20 for coverage of employers by the ADEA, and coverage is determined by the same “on the payroll” test.

Finally, the Genetic Information Nondiscrimination Act of 2008 generally prohibits employment discrimination based on genetic information and applies to employers having 15 or more employees on the payroll.

The U.S. Equal Employment Opportunity Commission administers all of these laws. Another threshold sometimes missed by growing businesses is reaching 100 employees on the payroll. At that point, private employers subject to Title VII are required to begin filing an annual report with the EEOC, which is commonly referred to as an “EEO-1.” The EEO-1 is a “compliance survey report” which requires certain employment (but not applicant) data divided into categories: race/ethnicity, gender and job category. The deadline for such reports is Sept. 30 of each year. Businesses filing the EEO-1 for the first time can call a toll free number, 866-286-6440, or email el.techassistance@eeoc.gov, for assistance. The form can be filed online.

For more information about any of these laws or the EEO-1 report, go to www.eeoc.gov, a user-friendly website with considerable information to inform employers, other covered entities and employees of the rights and obligations under the laws.

Deposit Payroll Taxes

By /Published October 12, 2012/FOXBusiness

Small business owners must deposit payroll taxes on a regular basis with the IRS using Electronic Federal Tax Payment System (EFTPS). Your schedule of deposits depends upon the amount of payroll taxes you accumulate. The IRS uses a look back system to decide. If your payroll tax liability is $50,000 or less during the look back period, you must deposit taxes by the 15th of the month following the month of the liability. If your total tax liability is greater than $50,000, taxes must be deposited on a semi-weekly schedule.

To identify your look back period go to Publication 15.

Once you have your schedule, you must determine your liability. Include only payments made during the month, and exclude pay periods ending during the month with paydays in the subsequent month. Note that all taxes withheld and matching for paychecks prepared during the month of September are due on Oct. 15. Only include checks remitted during that month; the pay period ending date is not an issue. For example, the period ending date is Sept. 30 and payday is Oct. 5. Do not include any withholdings or matching taxes for that pay period in the September payroll.

If you are on the semi-weekly schedule, you must deposit payroll taxes each pay period. The due date of the deposit depends on the payday. If the pay day is Wednesday, Thursday, or Friday then you must deposit the tax liability by the following Wednesday. If your pay day is Saturday, Sunday, Monday, or Tuesday, you must deposit the taxes by the following Friday.

Banks no longer accept payroll tax deposits, they must be remitted online. To enroll at EFTPS, click here.

Not making deposits in a timely manner can result in substantial penalties. At one time or another almost every business owner has faced the decision of either turning over the payroll taxes to the government or paying rent. Invariably, the rent gets paid. Later when payroll tax liabilities mount to an insurmountable figure, panic sets in. Now the IRS is knocking at the door and they are not in a good mood.

The IRS considers nonpayment of payroll tax liabilities a much more serious transgression than nonpayment of income taxes because it involves money that does not belong to the employer.  The gross pay that you promise to an employee includes taxes that must be turned over to the government – federal and state withholding, state disability, FICA and Medicare. These monies are trust fund monies and belong rightfully to your employee.

If an employer fails to deposit these taxes and simply uses them for working capital, or worse, to take a lavish vacation, the government will penalize this employer possibly with a 100% civil penalty, plus interest. Ouch.

If you run into a financial pit so deep that you can’t deposit the payroll taxes, look for other ways to make the payment. If you can make a partial deposit, make sure you deposit the trust fund portion and worry about the employer share later on. This will help you avoid that 100% civil penalty.

And don’t think that an offer in compromise is going to save you. The IRS oftentimes accepts pennies on the dollar, but that’s usually in settlement of an income tax liability. They will consider a reduced offer toward payroll tax liabilities if the company is out of business. The civil penalty is usually levied against the individuals responsible for turning over the funds. This can be you, your bookkeeper or other employee. Because the civil penalty is levied at the individual level, you would have to seek an offer in compromise at that level. The offer must be based either on doubt as to liability or because you are suffering a hardship and likely have no ability to repay.

Consideration of offers for payroll tax liabilities are not considered under the IRS’ new Fresh Start Program.

How Business Owners Can Write Off Employee Tips and Meals

By Bonnie Lee
Published August 17, 2012
FOXBusiness

Owners of restaurants, bars and other establishments that offer services subject to tips and who provide free meals to their employees face clear rules when it comes to tax write offs.  

Many owners of smaller establishments don’t want to be bothered with the tax aspects of these transactions, and most of them don’t realize there are rules governing free meals.

Many owners mistakenly take the stance that taxes on cash tips earned by workers is between a worker and the IRS. Unfortunately, the IRS doesn’t see it that way and deems tips as paid by the employer. The agency looks to you, the employer, when determining responsibility.

Tips

If your employees earn tips, you are subject to special rules regarding the taxation of the tips.

Tips earned in excess of $20 per month are considered a form of wage and subject to payroll taxes withholding for the employee and additional payroll tax liability for the employer.

Employees must provide employers a written statement of their cash tips by the 10th of the month for the preceding month’s earnings. Click on this link to find the IRS form your worker can use to provide you with the total tips earned Employee’s Daily Tip Record. If employees fail to report cash tips to you, they must report them on Form 4137 on their own income tax returns.

If your establishment accepts credit cards, be sure to include the amount of tips reported on the charge slips in the employee’s pay. If you have a tip-sharing arrangement, be sure to include those tips as well. Then calculate payroll and payroll taxes for each employee. Tips are included with other forms of remuneration when determining if the employee has reached the Social Security maximum wage base. The wage base for 2012 is $110,100.

Tips are also included when calculating FUTA tax and must be reported at year end on Form 940. On your quarterly payroll tax return, Form 941, report wages paid and on Form W2 tips are listed separately from other forms of pay. Check with your state taxing agency to determine what taxes are incurred on tip income.

If you run a large food establishment with 10 or more employees, you may be obliged to report allocated tips. See IRS Form 8027 for more information.

Meals

Most restaurants provide meals to their employees. The value of these meals is not considered taxable income to the employee and is not subject to withholding or employer share payroll taxes. This applies only if the meals are provided for the “convenience of the employer.” This particular phrase signifies something other than the fact that it’s more convenient to pay the employee in food rather than currency. You need them on premises for other business reasons to legitimize this form of compensation. If 50% or more of the employees are provided meals based on the convenience of the employer the IRS will deem that all meals are provided in that manner.

The IRS disallowed meals as a freebie in one instance when the meals were provided for free even when the employee was not scheduled to work. Because the employee could come in on her day off and eat for free, it was obviously not a meal provided for the convenience of the employer. It was instead viewed as a taxable fringe benefit. 

Check with your state taxing agency to find out if the value of meals must be included in wages when calculating withholding and employer paid taxes.

Can Small Business Owners Really Do It All?

/ Jul 17, 2012

Are you chief cook and bottle-washer at your small business? A new survey by business insurance company Hiscox found that the majority of entrepreneurs handle just about every task in their businesses – from making deliveries and creating invoices to cleaning the office and ordering supplies. But are you being penny-wise and pound-foolish when you try to do it all yourself?

Hiscox found that although 64 percent of small business owners agree legal issues should be handled by professionals, just 26 percent actually use legal and/or accounting help. Overall, entrepreneurs in the survey admitted they lacked key knowledge in areas including legal (56 percent), taxes (36 percent), IT (34 percent) and insurance (31 percent). But only 8 percent employ a full-time accountant.

The small business owners aren’t worried, however—more than 75 percent believe that either their skills gap is not a threat or that they would be able to plug the gap with professional expertise when needed. But although the entrepreneurs in the survey say their passion for the business enables them to “do it all,” are they fooling themselves?

Trying to handle all facets of your business yourself can put your company at risk—especially when it comes to legal, tax or insurance matters. Don’t let your passion for your business blind you to the reality that sometimes, you might need outside help. If you can’t afford to hire a full-time employee to deal with issues like accounting, and you’re not good at it yourself, at least consider getting some part-time help or meeting with your accountant once a quarter.

The good news for the small business owners who don’t know it all, (and that’s most of us, right?) is that there are plenty of experts out there to help—including the mentors at SCORE. Visit the SCORE website to get matched with a mentor and get free business advice 24/7. You’ll find the expertise you need—and put your business on a much safer path to success.

Do You Have to Pay Unauthorized Overtime?

By Stephanie Rabiner, Esq. on June 6, 2012 5:02 AM

As an employer, you likely go to great lengths to budget payroll. You calculate just how much you have to spend and schedule everyone accordingly.

But everyone has that one employee who works off-the-clock even though they weren’t asked to. Or that employee who overstays their daily welcome, triggering overtime wage laws.

What can you do? Do you have to pay unauthorized overtime?

Generally speaking, yes. If you are aware that the employee worked off-the-clock or longer than she was supposed to, you are responsible for any related wages. This is true even if it’s overtime and unauthorized. If you don’t pay your employee, you may find yourself the subject of a wage complaint.

Keep in mind that the duty to pay unauthorized overtime does not limit your ability to discipline employees who put you in such a situation. There is no federal law, and likely no state law, that prohibits an employer from drafting or enforcing an overtime policy.

Such a policy should include rules about when overtime will be allowed and how it needs to be approved. It should also set forth the disciplinary measures employees will face should they fail to comply. While such measures should not include non-payment, they can include write-ups, suspension or even termination.

When implementing such an overtime policy, it’s important to let your employees know about the rules and to be clear about the repercussions. While you legally must pay unauthorized overtime, you don’t have to continue to employ someone who busts your budget.

Why Business Owners Need to Keep Thorough Records

By Bonnie Lee/Published April 20, 2012/FOXBusiness

No one likes to pay more in income tax than they have to, but it happens all the time thanks to inadequate record keeping.

If a business owner doesn’t understand the accounting process and the basic skeleton of a good set of books, costly errors can go undetected. Business income is a common area to make mistakes, so here are a few tips designed to eliminate potential problems.

Sales are the primary source of taxable income for most small businesses, and this is the only income that should be shown at the top of the Profit and Loss Statement. Sales can be broken down into several line items if you wish. For example, a clothing store may break out sales numbers by broad categories of items, such as, women’s clothing, men’s clothing, accessories, jewelry, shoes, etc…

 What I often find when drilling down into the gross sales reported on the profit and loss is income that is not taxable at all: loans, capital contributions, deposits of gifts from parents or loan repayments. If a tax pro uses the total reported on the profit and loss statement and the total contains these types of transactions, the business owner will pay more in taxes than required.

To prevent confusion, monies from sources other than sales when deposited into the business bank account must be classified according to the type of income they represent. Take a look at the chart of accounts on your accounting software. If you are using QuickBooks, go to the top ruler bar, click on lists, and chart of accounts. Note that all accounts are categorized on the right hand side by type of account: bank, assets, liabilities, equity, sales, expenses, other income and other expenses, etc. Whenever you post a transaction, QuickBooks will provide you with the name of the account as well as the type of account it is. Start paying attention to this feature.

Capital Contributions: Any time you transfer money from a personal account or deposit cash from your pocket into a business bank account, you have increased your equity position in the business. Therefore, the transaction should be classified as a capital contribution. On your chart of accounts under equity, you may see this listed under a similar name such as owner investments, paid in capital (corporation) or owner contributions.

Owner Loans: If you are a sole proprietor, you are the business and don’t need to set up a liability account payable to yourself. Not only is this not the method to be used to record monies you “lend” to yourself, the business, but it will falsely decrease your equity position. Post these items as capital contributions.

However, if your legal form is corporate, you may wish to classify these transactions as loans. In this case, set up a liability account (short term – payable in one year or less or long term – payable in more than one year). Check with your tax pro to determine if it would be better to show the transaction as a loan or as paid in capital.

Bank Interest: When your business accounts earn interest, these amounts should be shown on the profit and loss statement but at the very bottom of that statement under Other Income. You are not required to pay self-employment tax on interest earned on business accounts, therefore do not report this income on your Schedule C. It belongs on Schedule B of the tax return.

Credit Card Cash Advances and Consumer Loans: I can’t believe how many times I’ve seen these transactions mixed up in sales. Not only might the business owner, who obviously needed a cash infusion to begin with, hurt himself further financially by paying taxes on nontaxable income, but he is losing a valuable interest deduction by not properly tracking the repayment of the loan or cash advance. Set up this account as a credit card liability. When the monthly statement arrives, record the interest expense as well as any new charges. It is best to have a credit card devoted 100% to business. But if personal charges occur then post them to your draw (also an equity account).

Reconcile the credit card or loan account monthly in the same way you would reconcile your checking account to ensure the correct balance is carried forward. QuickBooks allows the reconciliation of liability and credit card accounts including full reports.

Periodic Income:

Say you have a vending machine on the premises that you cash out every couple of months, that income is taxable and should be recorded as “Other Income” at the bottom of the profit and loss statement.

Or perhaps you receive a check from the insurance company for flood damage at your business, this reimbursement will be recorded as “Other Income” and included on your Schedule C. Of course, so will the offsetting expenses to clean up the damage. It’s usually a push.

Rebates on equipment, business vehicles, etc. are not reported as income. Instead they reduce the basis of the item purchased. The rebate should be recorded as an asset in the same account that the purchase resides.

Gifts from friends and family members can be attributed to your owner capital contribution account.

Business loans from family members – see consumer loans above.

Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn’t Want You to Know.”

8 Core Beliefs of Extraordinary Bosses

Apr 23, 2012| Geoffrey James

Apr 23, 2012

A few years back, I interviewed some of the most successful CEOs in the world in order to discover their management secrets. I learned that the “best of the best” tend to share the following eight core beliefs.

1. Business is an ecosystem, not a battlefield.

Average bosses see business as a conflict between companies, departments and groups. They build huge armies of “troops” to order about, demonize competitors as “enemies,” and treat customers as “territory” to be conquered.

Extraordinary bosses see business as a symbiosis where the most diverse firm is most likely to survive and thrive. They naturally create teams that adapt easily to new markets and can quickly form partnerships with other companies, customers … and even competitors.

2. A company is a community, not a machine.

Average bosses consider their company to be a machine with employees as cogs. They create rigid structures with rigid rules and then try to maintain control by “pulling levers” and “steering the ship.”

Extraordinary bosses see their company as a collection of individual hopes and dreams, all connected to a higher purpose. They inspire employees to dedicate themselves to the success of their peers and therefore to the community–and company–at large.

3. Management is service, not control.

Average bosses want employees to do exactly what they’re told. They’re hyper-aware of anything that smacks of insubordination and create environments where individual initiative is squelched by the “wait and see what the boss says” mentality.

Extraordinary bosses set a general direction and then commit themselves to obtaining the resources that their employees need to get the job done. They push decision making downward, allowing teams form their own rules and intervening only in emergencies.

4. My employees are my peers, not my children.

Average bosses see employees as inferior, immature beings who simply can’t be trusted if not overseen by a patriarchal management. Employees take their cues from this attitude, expend energy on looking busy and covering their behinds.

Extraordinary bosses treat every employee as if he or she were the most important person in the firm. Excellence is expected everywhere, from the loading dock to the boardroom. As a result, employees at all levels take charge of their own destinies.

5. Motivation comes from vision, not from fear.

Average bosses see fear–of getting fired, of ridicule, of loss of privilege–as a crucial way to motivate people.  As a result, employees and managers alike become paralyzed and unable to make risky decisions.

Extraordinary bosses inspire people to see a better future and how they’ll be a part of it.  As a result, employees work harder because they believe in the organization’s goals, truly enjoy what they’re doing and (of course) know they’ll share in the rewards.

6. Change equals growth, not pain.

Average bosses see change as both complicated and threatening, something to be endured only when a firm is in desperate shape. They subconsciously torpedo change … until it’s too late.

Extraordinary bosses see change as an inevitable part of life. While they don’t value change for its own sake, they know that success is only possible if employees and organization embrace new ideas and new ways of doing business.

7. Technology offers empowerment, not automation.

Average bosses adhere to the old IT-centric view that technology is primarily a way to strengthen management control and increase predictability. They install centralized computer systems that dehumanize and antagonize employees.

Extraordinary bosses see technology as a way to free human beings to be creative and to build better relationships. They adapt their back-office systems to the tools, like smartphones and tablets, that people actually want to use.

8. Work should be fun, not mere toil.

Average bosses buy into the notion that work is, at best, a necessary evil. They fully expect employees to resent having to work, and therefore tend to subconsciously define themselves as oppressors and their employees as victims. Everyone then behaves accordingly.

Extraordinary bosses see work as something that should be inherently enjoyable–and believe therefore that the most important job of manager is, as far as possible, to put people in jobs that can and will make them truly happy.

Last-minute Tax Tips You Can’t Afford to Miss

René Shimada Siegel  Apr 13, 2012

Ahh, the tax man cometh again. Just when you were feeling good about how much business improved in 2011, the IRS shows up to grab its share. More profits for you equals more taxes for Uncle. Damn.

I asked Brad, my Tax Man, if we were doing all we could to reduce our healthy taxable income. He slowly drew a small rectangle and filled the rectangle with a few vertical lines. “See that?” he said. “That’s jail. The good news is you made more money last year. The better news is the tax rate is still far less than 100 percent.” Ah, got it.

Now, I’m not a tax professional and I’m certainly not offering advice about your specific tax situation but I will tell you that you can’t deduct your grocery bill from Costco, or the Petco bill for grooming your lap dog, nor can you deduct your children’s private school education.

Brad and super-accountant Tammy are a strategic part of my business team. I trust them to make sure we pay our fair share and minimize the pain of tax time. Here are common and legit tax savings for small businesses that my favorite number crunchers say too many business owners overlook. (If not for Brad and Tammy, I might have missed them, too!).

Car expenses. The rule is you can deduct the costs of operating a car only when that car is being used for business purposes. Keep track of the miles you drive and add them up at the end of the year. The deduction rate in 2011 was 50.5 cents per mile and in 2012 is 55.5 cents per mile for business-related driving.

Travel. In addition to car travel, you can also deduct the cost of plane fare, taxis, lodging and meals as long as the trip was undertaken primarily for a business purpose.  Additionally, travel expenses paid or incurred in connection with a temporary work assignment away from home are deductible.

Education.  As a small business owner, staying up to date on the complexities of your industry is imperative for operating a successful business. Author Stephen Covey calls this “sharpening the saw,” investing in yourself to become smarter and more effective. You can deduct education expenses if the courses you take are related to your field and help you run your business.

Software.  Most software programs bought for business purposes have to be depreciated over a period of 36 months. But if the software is only useful for less than a year, you can deduct its cost as a business expense in the year that you buy it.  With rapid changes in technology and software constantly being updated and replaced, this is becoming a more common source of tax savings.

New Equipment. The key here is “new.” Section 179 deduction can sometimes allow a small business owner to write-off the full costs of new equipment in the same year they were purchased. This year you can write-off up to $139,000 in expenses, and half of what you spend above that amount. The writeoff starts to decline once your total spending exceeds $560,000.

Profit Sharing.  It’s nice the Uncle Sam lets you deduct a key tool for attracting and retaining high-quality employees and increasing productivity. That’s right: A profit sharing plan does this for us, and more.  Your contributions to retirement plans (and often plan expenses) are generally tax-deductible.  You may also be eligible for a tax credit for establishing a qualified retirement plan.

Carryback. In addition to tax-deductible expenses, executing a net operating loss (NOL) carryback is another good way to recoup some of the losses you suffered during the recent economic crisis.  This deduction allows you to offset one year’s losses against another year’s income.  Calculating a NOL can be tricky and we suggest that, if you have one, you consult a tax professional to help ensure you do it correctly.

Have more questions? The IRS is actively working to make information more easily accessible, and believe it or not, they have social media tools that describe tax changes, initiatives, products and services. Check out the IRS2Go phone app (for iPhone and Android phones), YouTube, Twitter, Facebook, and free IRS podcasts on iTunes.

René Shimada Siegel is Founder and President of High Tech Connect, a specialized consultant placement firm for marketing and communications experts.

Tips to Help You Claim a Home-Office Deduction .

By BARBARA WELTMAN

About 52% of all businesses are run from home. The number of teleworkers is growing annually.

It’s good to know that some tax savings can result from this work arrangement.

A portion of personal expenses for your home can be turned into a business deduction — if you meet certain rules.

To claim a home-office deduction, you must use the space in your residence as a principal place of business, as a place to meet or deal with customers on a regular basis, or as a separate structure used for the business.

You also must do the above regularly and exclusively for business.

If you’re an employee, you must use the space for your employer’s convenience and not for your own preference. Working after hours at home rather than staying late at the office is probably your own choice and not for your employer’s convenience.

Usually, “employer’s convenience” means that the employer does not have space for you on the company’s premises.

But while the home-office deduction rules are written in black and white, there are some uncertainties that could affect your home office deduction. Think of them as gray areas.

One is the meaning of exclusive use. Clearly, the space must be available 24/7 for business and cannot be used by you or your family for personal reasons at any time during the day or night. Thus, if you use a TV room as an office during the day and your family watches TV there in the evening, you fail the exclusive-use test.

But what about walking through a room? The Tax Court has said that even occasional use of space, such as using a bathroom by family or guests, means your business use is not exclusive. However, the court has also said that incidental use of space, such as family members walking through the office to get to another part of the home, is minimal and won’t cause you to fail the exclusive use test.

What’s the difference between occasional and incidental use?

This is a gray area, but it seems that passing through is not equivalent to using the space.

Storage of some personal items in a space claimed as a home office won’t violate the exclusive-use test. The court has allowed a home office deduction for a garage in which some personal items were kept. So, people, no. Things, yes.

A common belief is that claiming a home office deduction is a red flag to the IRS, practically inviting an audit. There is no IRS data to support this belief and, unfortunately, the belief may be responsible for some taxpayers forgoing the deduction needlessly even though they are otherwise eligible for it.

The best course of action is to talk over your personal situation with a tax advisor to make sure you meet the home office deduction rules.

Keep good records of all expenses related to the home office, and take a photo of the space used as a home office. The photo can help in case the IRS questions your return after you’ve stopped using the space for business.

To learn more about the home-office deduction rules, see IRS Publication 587, Business Use of Your Home.

Hiding Income? Look Out, Here Comes the 1099-K

By

Starting this month, business owners will begin getting new tax forms issued by their credit-card and online-payment processors and intended to keep businesses from hiding income. The form, called 1099-K, will document all 2011 transactions processed for sellers with more than 200 transactions and $20,000 in annual gross receipts. The IRS estimates that 53 million forms will be issued by such processors as eBay, PayPal, and Amazon as well as credit-card companies, says Steven Aldrich, chief executive officer of Outright.com, which makes online bookkeeping applications for self-employed people and small business owners. Aldrich spoke with Smart Answers columnist Karen E. Klein about how small business owners should handle the new forms. Edited excerpts of their conversation follow.

The new 1099-K requirement was signed into law by President George W. Bush in 2008 but is just now taking effect. Why is the government mandating this?

Electronic payments are a growing part of our economy, but up to now they have not been officially reported to the IRS. People were on their scout’s honor to report this income. This new form is designed to help close the gap between what businesses and individuals owe the IRS and what they actually pay. It is expected to bring about $9.5 billion into the U.S. Treasury over 10 years by taxing revenue flowing through electronic networks.

That’s a big number.

It is a big number, but our concern is keeping the burden on small business low enough so they don’t lose their competitiveness and don’t have a big burden of extra time they have to put into dealing with this. All businesses will get these, not just small businesses, but larger businesses have got tax teams and people to handle these matters and small business people usually do not. Our concern is that small business owners could be distracted and worried when they get this form and not know what to do with it.

This is going out for the first time to individuals such as eBay and Etsy online sellers. Have they gotten any notice about the form?

The payment processors were required to obtain sellers’ tax identification numbers for these forms, so many of them sent out notices last year when they were verifying the information and making sure the right people got the right form.

What information will the form list?

It’s actually very simple. At the top is a box with your total gross revenue for the year, processed by PayPal or whichever payment processor you use. Beneath that box is a breakdown of revenue month by month.

How is that number going to be compared with what’s reported on an individual’s tax return?

The IRS will look at the gross sales amount reported on the 1099-K and compare it with the total gross receipts reported on an individual’s Schedule C. The amount on the tax return has to be at least as much as what’s reported on the 1099-K.

The interesting thing is that these amounts reported to the IRS are gross sales numbers. But businesses never actually make their gross sales because of refunds, frauds, exchanges, and returns. But none of those expenses are taken out of the gross sales amount.

And business owners don’t pay taxes on gross income, but on net income.

Exactly. So it will be incumbent on the business owner to take the gross amount reported on the 1099-K and capture all the transaction fees, charges, and returns, in addition to the other expenses of running their business, in their tax reporting.

Is that going to be a big burden for micro-businesses?

It’s not going to be a big deal if you have good record keeping. The problem is that most small business owners are still using paper and pencil and spreadsheets to track their business data. This reporting is really a clarion call to move those people into the digital age. Certainly, if you’re taking electronic payments, you need to move to a digital form of keeping your books.

Are there other pitfalls related to the 1099-K?

For service providers, like consultants, who are taking advantage of electronic payment systems, they might get a 1099-MISC for some part of their consulting revenue. But that income would also show up on the 1099-K if it was processed electronically. That could result in double counting that income, so that’s something to be very careful about, especially as more people in the service industry are starting to use services such as PayPal or mobile credit-card readers instead of taking cash or check payments.

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

Still Don’t Get Social Media? Here’s What To Do About It

Ivana Taylor, Marketing Strategist, DIY Marketers,  November 28, 2011

Do you stay quiet on social media because if you admit that you don’t get it, social media experts look at you like you have three heads? You are not alone.

A lot of business owners feel that this marketing tool is beyond their understanding and will remain so. If you secretly feel hopeless or stupid about social media marketing, read on. You’ll find a strategy and a day-to-day plan that will get results.

Focus on objectives, purpose and brand

First, stop worrying about individual social media applications and tools, and get clear on the purpose of your business and your brand.

  • What does your business do for customers?
  • What is your brand promise?
  • What do you want to be known for?

Don’t over-think these questions, just jot down a few notes and thoughts. They will become your talking points as you step into the Twitter, Facebook, LinkedIn and Google+ worlds.

Think of social media applications as rooms

Once you’re clear on your message and your talking points, imagine each social media application as a room at an event. Walking into any social media space is like walking into a bar.

When you walk into a bar, you might join a group of friends and chat with them. TVs tuned to the news have a newsfeed running across the bottom. (The links that people share on social media sites are like that newsfeed.) You might also hear tidbits of conversations from the people around you. You may leave one conversation for another, or just listen to several conversations.

When you think about it this way, it’s obvious what your behavior on social media sites should be and what kind of information you might want to share with people. You wouldn’t think about blatantly selling anything at a bar because a bar is not a retail outlet. But you would share your experience with a product or service. You should be active in social media to interact, learn and inform others—casually.

Give your business or your brand a voice

Maybe you’re used to relating to marketing communications as a company instead of as a person. In the past, we’ve been conditioned to separate our personal lives from our business lives. But social media marketing emphasizes personal voices inside brands.

Every social media platform was originally designed for individual communication—for people, not companies. Think about what it is that you have to share that supports your business and your brand.

One of my favorite examples is Shashi Bellamkonda, director of social media at Network Solutions (@ShashiB). He is committed both personally and professionally to small business and its participation online. His personal expertise and experience fully support that of the larger Network Solutions brand. Visit his Twitter profile and notice how comfortable he is in this room.

Focus on your marketing objectives and results

Many small business owners try to use social media to achieve sales objectives instead of marketing objectives. Selling on social media is not only ineffective, it’s a sure way to put people off instead of attracting them to your brand.

From a marketing perspective, what are you trying to achieve, and who are you trying to attract?

Suggestions by business type

  • Business-to-consumer or retail: Build relationships with your local community to attract local people. Use Twitter and Facebook to communicate what’s going on at your location.
  • Professional: Build your credibility and expertise by sharing information and educating your target audience. Participate in LinkedIn groups and Facebook groups and pages in your vertical markets. Build your focused network across regions if that’s appropriate for your business.
  • Business-to-business: Build relationships with relevant people in your networks. Use LinkedIn to find and connect with decision-makers and influencers inside the companies you work with and in your customers’ companies. Create lists on Twitter that include experts in your industry and conversations about the industry topics that you’re interested in. Google indexes Twitter conversations, so have those keyword-rich conversations there. Google+ is the latest social media tool that combines the benefits of Facebook and Twitter and makes it possible to collaborate and work in a social media environment.

Create a place for conversations to land and expand

You may not be successful with social media because you don’t have a clear place for these conversation to “land.” It’s hard to get any traction from social media when you don’t have an offer or an internet representation of what you’re talking about.

Don’t just link to your home page—that’s confusing for your audience. Write blog articles that clearly communicate your brand and your offer in a way that is useful, engaging and educational. Start conversations. You can capture people from the online world and add them to your own sales and marketing database by creating landing pages that have offers such as downloadable reports, e-courses, white papers, videos and templates.

Focus on a few key social media spaces and let go of the rest. If you do everything I’ve outlined here, you’ll come up with a few key sites that support your marketing strategies. Participate more fully in the areas that you’ve targeted based on your goals and objectives.

Base your social media policy on your marketing strategy

Writing a policy doesn’t have to be a big, scary, official thing. It’s a set of rules that you follow on social media that supports your goals and objectives. It keeps you focused on what you’ve decided to work on as you navigate social media spaces.

Have fun

Focus on your marketing objectives and then use social media marketing to engage with your audience in a way that generates interest and, ultimately, new customers. Use social media to build a community that is engaged in your brand because you are engaged in helping them understand and use your brand.

You’ll experience the satisfaction that comes from having access to your customers and influence in your market.

Ten Common Marketing Mistakes

By Steve McKee

I can’t tell you how many times I’ve heard this refrain, or a variation of it: “We tried _____ marketing tactic. It doesn’t work.” While it may be true that a given approach is ill-suited for a particular industry, audience, or situation, in my experience the tactic is less often to blame than the implementation of it. In fact, many companies make mistake after mistake based on gaps in their understanding of how marketing really works. Here’s a quick review of 10 of the most common errors to help you avoid the worst of them.

Aiming at everyone. No company can be all things to all people; as much of a cliché as that is, it’s true. Companies paint themselves into a corner because of a misplaced fear that by targeting one group they’ll be turning away others. But aiming at everyone is an oxymoron; the best marketers understand that by narrowing their target audience they can increase the intensity of their brand’s appeal, piquing interest and driving margins. You’re better off being the first choice of 10 percent of the population than being one of 10 options for everyone.

Betting on rationality. This mistake is subtle, but dangerous. Marketing planning is often a left-brain effort, where rational exercises like determining budgets and plotting strategy take place. But consumers don’t make decisions where logic and argument reside; research suggests that emotion not only influences most purchase decisions, it tends to trump reason along the way. Don’t try to convince your prospects; connect with them. They’re depending on their gut more than you realize.

Letting market research trump everything. Too many marketers invoke data as if information had mystical qualities. To say market research has its limitations is to understate the point; some of it can be flat-out misleading. Consumers don’t always realize how they feel, what they think, or why they do what they do, and even when they’re well aware they won’t always tell you the truth. Research is a valuable tool in a marketer’s shed, but used improperly it can cost you a finger (and perhaps your head).

Getting seduced by the new. We live in fast-paced, exciting times, with new marketing and media options sprouting up every day. While they’re all worth a look, none is worth upending your efforts for. It’s easy to be seduced by the siren songs of new tactics, but wisdom says to stick to what works while you evaluate what might. Some company has to be first to give something a shot, but it should rarely (if ever) be yours.

Advertising your aspirations. We all aspire to make quality job No. 1, offer uncompromising service, and demonstrate amazing results, but no company can fully achieve any of these. Advertising your aspirations only invites people to catch you failing to achieve them, and these days it’s easier than ever for them to spread the word. Aspirations are, by definition, promises that can’t be fully kept. Don’t announce them, just try to live by them—use them within the walls to rally your troops but don’t let them escape to rouse the ire of your customers.

Following the leader. Competition is awesome in the abstract. When it gets concrete it’s just plain hard, especially if your competitors are pounding the market with claims you think you can match or beat. It’s tempting to try and one-up the other guys, especially if they’re the market leader. Do so, however, and you may reinforce their strengths and derail your differentiation. Don’t try to be better. Just be different.

Seeking approval by committee. If you can’t agree with your family on what type of pie to serve at Thanksgiving, how can you expect a roomful of managers to agree on something as subjective as marketing communications? Everyone’s taste is unique, and the fewer people involved in the creative approval chain, the better. If you try to please everyone, you’ll end up with a gooey mess that nobody wants to eat. The best committee is a committee of one.

Starving the budget. An anemic marketing budget may save bucks but it will cost business. If you don’t have a line item on your profit and loss statement with a reasonable percentage allocated to marketing, you’re not a real business. Notice I said marketing, not advertising—paid media may very well not be right for your situation, but every company must somehow get its message out. Find the way and spend the money. And keep in mind that most do-it-yourself marketers shouldn’t be doing it themselves. Pay for professional help.

Anticipating customers will act very quickly. When was the last time you leapt out of your recliner to do exactly as an ad instructed? Marketing doesn’t work that way, and as consumers we all understand that. Yet when we slip into our desk chairs we somehow expect marketing to show immediate results. It takes time to seed a message, and credibility grows through consistency. Plan your efforts well, and stick with them. As obvious as it sounds, every time you start over, you’re starting over.

Chickening out. Plans are terrific, but plans are just words on paper. It’s amazing how much time and money companies spend getting their acts together, only to succumb to stage fright when it’s time for the curtain to rise. It’s easy to come up with reasons not to do something, surrendering to fear of the unknown. But just as writers aren’t writers unless they write, marketers aren’t marketers unless they market. Not everything you do will work, but with each mistake you’ll be learning and growing.

There you go. Ten tips that can save you time, money, and a lot of frustration as you learn from the mistakes of others. Now you’re free to make new mistakes of your own (when you do, I’d love to hear about them).

Steve McKee is president of McKee Wallwork Cleveland and author of When Growth Stalls: How It Happens, Why You’re Stuck, and What to Do About It. Find him on Twitter and LinkedIn.

8 Reasons Your Employees Don’t Care

By Jeff Haden | September 6, 2011

Pay only goes so far. Higher salaries are like the bigger house syndrome: Move into a bigger house and initially it feels roomier, but after awhile larger becomes the new normal.

Employees don’t automatically perform at higher levels if wages are higher because commitment, dedication, and motivation are not based on pay. No matter how high the salary, if you treat employees poorly they won’t care — about their jobs or your business.

Here are eight reasons employees don’t care:

1.No freedom. Best practices are definitely important, but not every task deserves a best practice or micro-managed approach. Autonomy breeds engagement and satisfaction. Autonomy also breeds innovation. Even manufacturing and heavily process-oriented positions have room for different approaches or paths. Decide which process battles are worth fighting; otherwise, let employees have some amount of freedom to work they way they work best.

2.No targets. Goals are fun. (I’ve never met anyone who wasn’t at least a little bit competitive.) Targets create a sense of purpose and add meaning to even the most repetitive tasks. Without a goal to shoot for, work is just work.

3.No sense of mission. We all like to feel a part of something bigger. Striving to be worthy of words like “best” or “largest” or “fastest” or “highest quality” provides a sense of purpose. Let employees know what you want the business to achieve; how can they care about your dreams if they don’t know your dreams?

4.No clear expectations. While every job should include decision-making latitude, every job also has basic expectations regarding the way certain situations should be handled. Criticize an employee for providing a refund today even though last week refunds were standard procedure and you’ve lost the employee. (How can I do a good job when I don’t know what doing a good job means?) When standards change, always communicate those changes first — then stick with them. And when you don’t, explain why this particular situation is different.

5.No input. Everyone wants to be smart. How do I show I’m smart? By offering suggestions and ideas. (Otherwise no matter how hard I work I just feel like a robot.) Deny me the opportunity to make suggestions, or shoot my suggestions down without consideration, and I’m just a robot — and robots don’t care. Make it easy for employees to present ideas and when an idea doesn’t have merit take the time to explain why. You can’t implement every idea, but you can make employees feel good every time they make a suggestion.

6.No connection. The company provides the paycheck, but employees work for people. A kind word, a short discussion about family, a brief check-in to see if they need anything… person-to-person moments are much more important than meetings or formal evaluations. Employees want to be seen as people, not numbers. Numbers don’t care. People care — especially when you care about them first.

7.No consistency. Most employees can deal with a boss who is demanding and quick to criticize… as long as she treats every employee the same way. (Think of it as the Vince Lombardi effect.) While it’s okay — in fact necessary — to treat employees differently, all employees must be treated fairly. Similar achievements should result in similar praise and rewards. Similar offenses should result in similar disciplinary actions. The key to maintaining consistency is to communicate; the more employees understand why a decision was made, the less likely they are to assume favoritism or unfair treatment.

8.No future. Every job should have the potential to lead to something better, either within or outside the company. I worked my way through college at a manufacturing plant. I had no future with the company because everyone understood I would only stay until I graduated. One day my boss said, “Hey, let me show you how we set up the job scheduling board.” I looked at him oddly; why show me instead of someone else? In response he said, “Some day, somewhere, you’ll be in charge of production. Might as well start learning now.” Take the time to develop employees for jobs they hope to fill — even if those positions are outside your company. They will care about your business because they know you care about them.

Selling for a Small Company: 8 Rules

By | August 15, 2011

Selling for a small firm presents challenges even for top sales professionals. Because your company is small, your prospects probably don’t know much about it. Money is tight, which means that you don’t have luxury of spending lavishly to develop an account. Your firm probably lack the sales support that reps in big firms take for granted. And so forth.

Even so, there are tremendous advantages to selling for a small firm… if you know the rules.  Here they are:

RULE #1: Never Apologize. Man sales reps in smaller firms scuttle their credibility by taking on an apologetic air, trying to explain away the inexperience or size of their firm, and then practically begging for the business. Savvy customers smell that kind of fear a mile away and are often more than willing to use it to their advantage by demanding steep discounts or even amusing themselves by making the hapless rep jump through meaningless hoops. Don’t let that happen to you.

RULE #2: Consider Yourself the Customer’s Equal.Rather than being apologetic, you must convince yourself of the value of what you and your firm has to offer. Rather than dwelling on your inexperience, constantly emphasize the unique value of a truly new approach to the customer’s problems. And rather than begging for business, be hard-nosed and ready to walk out the door. And as for jumping through hoops, your company is business not a dog and pony show.

RULE #3: Treat “Weaknesses” as Strengths. Customers may not know anything about your firm, but they don’t have any negative preconceptions, either. Money may be tight but customers are often negatively impressed when they see sales reps overspending. Support may be scarce in your firm, but that’s an opportunity to get creative and more independent.  Remember: many decision-makers who won’t talk to cookie-cutter sales reps from established firms will take the time to talk with somebody with original ideas and a new approach.

RULE #4: YOU Are the Brand. It’s a truism that customers buy from people they trust. When you’re selling for a small firm, YOU are the brand name, the reputation, the trust-ability, and the reliability that the customer is buying.  A sales rep working for, say, IBM needs only the label on a business card to create credibility. With a smaller firm, that trust and credibility must come from the person that you are and the way you present yourself to the business world.

RULE #5: Be an Entrepreneur. Because your firm lacks the support infrastructure of a larger firm, in most cases the only person you can really count on to get things done is yourself.  You’ll need to be extremely careful about your time and resources, and constantly finding creative ways to get things done quickly and easily. Remember: “activity” multiplied by “hours spent” must equal “sales results.” Make certain that everything you do leads towards the results that you seek.

RULE #6: Match Each Request with a Counter-Request. Insist that anything the customer asks you to do give you the right to ask the customer to do something comparable in return. That policy not only ensures that you’ll not be taken advantage of, but also gives you frequent opportunities to strengthen your competitive position and move the sales process forward. For example, if a customer asks you to provide them with an RFP based upon 35 pages of detailed questions, explain that you’ll only do so if you’re guaranteed a meeting with decision-makers to present your solution.

RULE #7: Be Willing to Say No. Never give in to a customer who’s being unreasonable or demanding things that don’t make sense for your company. Your larger competitor can perhaps afford to kowtow to get the business. You, however, don’t have the luxury of being anything less than the best – and the best in any industry NEVER truckle. That doesn’t mean that you shouldn’t be cooperative, but in all your dealings be aware of your worth and the worth of your company to the customer.

RULE #8: Never be afraid to bail. Don’t let wishful thinking propel you into wasted effort. If it becomes clear that the deal doesn’t make sense for your company or will take to much time and effort to close, it’s not worth pursuing. For example, if you’re being told you can’t meet with the decision-maker, you aren’t going to get the business. Period. So move on, without regrets.

The above is based on a conversation with sales trainer Bob Beck, who (unfortunately) has a track record of borrowing material from other sales trainers.  As a result, I don’t really know the ultimate origin of these rules.  They smack, however, of common sense, so that’s why I’m posting them anyway.

What’s deductible when working from home?

By Cyndia Zwahlen | August 15, 2011

Small-business owners who work at home might not have to worry about a commute, but figuring out their taxes could make the 405 Freeway at rush hour seem like a piece of cake.

Rules concerning home office deductions are hazy, experts said. For example, does a stereo or television in a home office qualify as a business-tax deduction? What about artwork on the walls, rugs on the floor or fresh flowers on the desk? What if the business owner lives and works on a boat?

 “People are so unclear about these issues,” said Jan Zobel, an Oakland tax preparer and author of “Minding Her Own Business: The Self-Employed Woman’s Essential Guide to Taxes and Financial Records.”

The Internal Revenue Service doesn’t publish black-and-white rules on every aspect of the topic. Instead it’s up to the small-business owner — and his or her tax preparer — to be able to make the case to the IRS as to whether something is a legitimate home-business expense and to what extent.

To be deductible, a home office space “has to be used on a regular basis and exclusively” for the business, said Sam Jarrar, a certified public accountant in Marina del Rey.

Even a corner of a room can meet that test and be deducted, he said. But no working on the family finances in the home office, not matter what size it is.

The deduction is based on what share of the total space in a dwelling the home office takes up. If it’s, say, 20%, then the business owner could deduct that portion of a number of indirect costs — such as utilities or real estate taxes — as a business expense. A renter could deduct that percentage of the rent payment.

If the home office deduction is taken, direct costs related only to the space, including repairs or wallpaper, can also be deducted.

When Denise Abdun-Nur set up an office in a spare room of her house for her Amazing Grace Organizing service in Ventura, she was able to deduct the cost of direct expenses for the room, such as new window blinds and paint for the walls.

She relied on a trusted accountant to make the calls as to what was tax deductible for her small business, and advised other business owners to do the same.

“That’s not my area of expertise, and I would rather pay for their service now than pay fines later,” Abdun-Nur said. “If you listen to other people, like friends and other business owners, you get a lot of different information.”

Even if the home office itself is deductible, not everything in it necessarily is.

“In order to deduct an expense, it needs to be necessary in order to bring the business owner more profit, and ordinary, in the sense that other business owners would have the same expense,” Zobel said “I didn’t deduct the TV or iPod I have in my exclusively used home office, but someone who’s more aggressive might have.”

If a business owner is using just a corner of a room, then something like a stereo or television is probably not a deductible business expense because it’s probably not used exclusively for the business. Zobel said that fresh flowers for the area probably wouldn’t be deductible, either.

Colleen Wainwright, who runs her social media consulting business, Communicatrix, out of her former dining room in Los Angeles, bought a small money tree for her space.

It’s supposed to be good for career success, she said, but Wainwright didn’t deduct the $4 cost.

“I am very fond of being conservative with the IRS,” she said. “Why invite trouble? It comes too often on its own.”

Tip Credits: Dept. of Labor Sued Over New Rule

By Cynthia Hsu on July 22, 2011 5:43 AM


As a small business owner, what do you know about tip credit rates for your tipped employees?
What about the tip credit rule, set down by the Department of Labor and recently affirmed by the 8th Circuit Court of Appeals?

If you’re unsure about tip credits and how they function for your business, you may want to read on. And, even if you’re sure you know the rules about tip credits, maybe you should think again – the Department of Labor recently revamped them.

Being informed on the rules may end up saving you money in the end. Skimping out on pay for tipped employees that you might not think you need to pay because of their tip income may land you in hot legal water down the road.

Tip credits generally work by offsetting the amount of minimum wage a business is required to pay tipped employees. Employees need to be notified and informed of tip credit before they can be applied, amongst other requirements under the Fair Labor Standards Act.

And, the new rules make it so that tipped workers who spend more than 20% of their time working on non-tip jobs like inventory or stock will need to be paid minimum wage for those non-tip hours. No tip credit can be taken during these non-tip duty hours.

Needless to say, business owners and restaurant franchises like Applebee’s were none too happy with the new rules. They filed suit against the regulations, but lost trial court. The 8th Circuit affirmed the trial court’s decision, according to the written opinion.

Small business owners, especially those with employees that receive tip income, should be aware of the new rules. Reading up on the rules and the notice requirements would likely be a good first step to avoid potential legal messes or wage and hour suits.

Since tipped workers who spend more than 20% of their time on non-tipped duties will need to be paid minimum wage, as no tip credits can be applied, employers should also take care to keep track of employees and their duties so as to not violate the new tip credit rules.

The Surprising Power of Promotional Products

July 18, 2011, By MP MUELLER

When my grandparents moved into a retirement center, I helped with the garage sale. My cousin Claire and I were joking about how best to display the odds and ends from their 60 years together when I stumbled upon a gift from the gods of high kitsch. It was a letter opener, but this was not your typical letter opener.

In the clear acrylic handle floated a mini uterus with two pills strategically placed where ovaries normally reside, alongside the drug’s name, Hormonin. This promotional product was a gift from a drug company representative to my granddad, a doctor in Laredo, Tex. I tried to imagine how this token must have been received by the taciturn Dr. Puig. “Thanks Hal, I’ll put this next to my collection of kidney stones.” Or, “Do you have that on a T-shirt in an extra large?” Highly doubtful. He probably focused on its utility and kept it right there on his desktop. Which is probably what the drug company’s marketing department was counting on.

Promotional products are, some say, the oldest form of advertising. American businesses spend $20 billion a year giving away stuff with logos, according to Jerry McLaughlin, president of Branders, one of the largest sellers of promotional products online. Which is pretty good evidence that it works. Mr. McLaughlin credits the effectiveness of promotional products to centuries old cultural norms around the rule of reciprocity. “If you give something, the recipient is honor bound to give something back,” he said. “In every language and culture, research has found there are really pejorative words for people who get and don’t give back. We humans are hard wired to respond if we get something.”

Are we really that easy? When you get that survey in the mail with a crisp dollar bill attached, do you fill the survey out or pocket the money and relegate the envelope’s contents to the circular file? I visited with Dr. Robert Cialdini, professor emeritus of psychology and marketing at Arizona State University. Dr. Cialdini, who has written a book on the topic, “Influence: The Psychology of Persuasion,” became interested in studying the rule of reciprocity out of self-defense. “All my life I’ve been a sucker,” he said.

Dr. Cialdini observed Hare Krishna Society members in airports, watching them foist paper flowers upon travelers. As soon as travelers accepted the flowers, they became more likely to reach into their pocketbooks and reciprocate with a donation. Sociologists and anthropologists have found, he said, that there is not a single society in the world that doesn’t train its people from childhood to this rule. “Marketers take advantage of this all the time,” he said. “Tupperware parties — one of the things that happen very early on — they play games so every one at the party wins a prize from the Tupperware representative. And they feel very obligated to give something back in return.”

A well-known veterans’ nonprofit group, the Disabled American Veterans, is a case in point. When the group sends a mailing for contributions, Dr. Cialdini said, it gets an 18-percent response rate. When the same letter is sent with personalized address labels, which cost about eight cents, the response rate goes up to 35 percent. “For the cost of the address labels they get almost a doubling of return,” he said. “It’s very powerful rule and very small things can trigger it.”

How do companies find the right promotional item? Here are four suggestions:

• Give items that members of your target audience will use in the environment where they make decisions about using your product or service. If you go after executives in corporations, give them something they will use in their offices, around their desktop so your company can be top of mind when they make decisions. Golf-related items are exceptions because lots of business happens on the golf course.

• Have it underscore your marketing message and differentiate your company. Mr. McLaughlin recounts a computer software client who makes antivirus software. The client put its logo on boxes of condoms and sent them to information technology types with the message, “Protect yourself, protect your computers.” Results? “Most I.T. people are male,” said Mr. McLaughlin, “and don’t really have girlfriends so that’s particularly titillating. They believe they got pretty good results.” A bit edgy for most companies, but you get the idea.

•Personalize them. While we are fond of our company logos, customers really like to use items that have their names on them. “People like seeing their own name above all else, said Mike Linderman, president of Express Pens, and former chairman of the Promotional Products Association International. His company makes pens in small quantities that can be imprinted with both your company’s logo and your client’s name.

• Skip the logoed water bottles and other items that will be quickly used and tossed. Make your promotional products investment something that will have a shelf life.

Some of the most popular promotional items these days are thumb drives, aluminum sports bottles, reusable grocery bags, and anything green or American made. But will this stuff really replace the calendars with alluring young women? “I don’t know who the folks were who figured out that men would look at pretty girls and if you put your tools, software or cars next to it, they will look at it. I don’t think that trend is going away,” Mr. McLaughin said.

Did receiving the uterus-enhanced letter opener prompt my granddad to write more Hormonin scripts for menopausal patients? Can’t say, but this promotional product made it 40 years without seeing a trash bin. And it’s now in a prominent place on my desk, right next to a Charlie the Tuna desk lamp.

MP Mueller is the founder of Door Number 3, a boutique advertising agency in Austin, Tex. Follow Door Number 3 on Facebook

The Price of Bad Pricing

July 6, 2011, 12:00 pm  By JAY GOLTZ

If there is an aspect of running a small business that doesn’t get enough attention, I think it’s pricing. Unfortunately, there’s a good reason for that: pricing is hard to do and easy to ignore. But that’s especially dangerous right now when there’s a good chance your own expenses are changing.

With most management decisions, your goals are pretty straight forward. Most of the time, you simply want to be the best at whatever you do. You want to have the best staff, the best service, the best marketing. But pricing is more complicated. You may say you want to offer the best price. But what does that mean? The lowest price for the customer? The price that will provide the best value for the customer? The price that will result in the highest profit for your company? The price that will result in the most sales for your company?

It can get even more complicated. To figure out the relationship between the price you charge and the profitability that results, you have to do some cost accounting. For instance, if you are manufacturing a product, you have to take into consideration reject rates, machine maintenance, insurance, rent, utilities and inventory carrying costs, just to name a few expenses. Maybe you own an auto parts store that specializes in carrying parts for older cars. You pride yourself on having the alternator for almost every car built since 1960. Surely that would suggest that you could charge a premium. But how much? What is the carrying cost of your huge inventory?

Even figuring out that inventory cost is not simple. If you finance the inventory with borrowed funds, is the carrying cost the interest you are charged? Or do you have to consider the other things you might have done with that money? What if you are at your borrowing limit and you could have spent the borrowed funds on something more profitable? What about the fact that some of those parts are never going to sell? That is called obsolete inventory, which will probably be calculated when you — or your descendants — sell your inventory during a liquidation sale, for pennies on the dollar.

Every business has costs that are related to making a sale, whether those costs are charge card transaction fees or packaging costs. They all need to be figured in, as well. There are also fixed costs that can be connected to the activity of selling a particular product. Maybe you could reduce overhead by getting rid of a particular product or service. But business does not operate in a vacuum. Your competition is vying for the same customers. Winning market share is a common goal, but at what cost? This is where an understanding of price elasticity becomes important. The higher the price, the less you will sell. Usually! I have seen and heard numerous examples of sales going up when the price of a product — a bottle of wine, say — is increased. Some products and services are clearly more elastic than others, meaning that price changes have a greater impact on sales. (Here is a small-business guide with some examples of how other business owners have handled their pricing.)

From my experience, many business owners do not do an analysis to calculate the effect a price increase might have on their bottom lines — again, for good reason. It is very difficult if not impossible to do. It’s more like guessing, perhaps an educated guess. I cannot tell you how to do it, but I can tell you what not to do. Do not rely on just your salespeople! Most will tell you that the sky will fall if you raise prices. They will tell you that customers are already complaining.

Salespeople mean well, but their job is to sell more product. It is the boss’s job to make sure the company makes money. That requires doing a break-even analysis on any potential price increases. If the company is not making money anyway, you may not have a lot to lose. Suppose you have a 35 percent gross margin, but that margin does not leave enough money to cover the overhead and provide a profit. If you increase prices 2 percent, you would have to lose more than 5 percent of your sales to lose money on the change. If you lose only 2 percent of sales, you will have about the same revenue but your cost of goods sold will fall 2 percent, as well. That might allow you to start making money. It will also mean that you will have less work to do because you will have fewer transactions. Obviously some industries are more price-sensitive than others, but it is worth doing the math, especially if you are in a low margin business.

Here’s the math: if you sell 100 widgets a week at $100 apiece and they cost you $65 apiece, you have a gross profit of $35 a widget or $3,500 a week. But because your fixed expenses have been rising and these are really good widgets, you decide you can charge $102 and still provide a good value to your customer. If you now sell only 95 widgets a week, you will have a gross profit of 95 x $37, or $3,515. But if you manage to sell 98, you will make $3,626. The point is that sales have to fall quite a bit for you not to come out ahead.

There is one other factor to consider. Price can be a very effective way to control volume. How are some lawyers and house painters able to charge double what other people charge? They have more customers than they can personally handle, so it is profitable for them to charge more and lose some business — rather than lose business by being overwhelmed.

Pricing is as important as any business decision, but frequently it is treated as if it were no decision at all. Business owners just keep doing whatever they have always done, for better or worse. They do this because they fear they will — as they’ve been told a thousand times — price themselves out of the market.

No one ever warns them not to underprice themselves out of business. But I think that happens far more often.

Jay Goltz owns five small businesses in Chicago.

Federal Wage Regulations Bring More Red Tape

May 5, 2011 by Diana Ransom

For small business owners who bristle over red tape, get ready to chafe.

A new regulation going into effect today requires employers of tipped workers to provide them with advance notice of what’s known in the hospitality biz as a “tip credit.”

In most states, federal law says that employers may pay tipped employees less than the minimum wage as long as employees earn tips that are above and beyond that amount, or at least $30 a month. The difference between the federal minimum hourly wage, $7.25, and the least an employer can pay a worker per hour, $2.13, is the tip credit. The maximum tip credit employers may receive per worker, per hour is $5.12.

The pendulum also swings in the opposite direction, however. If an employee doesn’t earn tips that match — or surpass — the minimum wage, the employer must pay the difference. Note further that, rules pertaining to the tip credit are different in every state. Follow this link to find out the tip credit rules for your state, which often trump federal rules.

According to the new rule, which was finalized in April and goes into effect today the Department of Labor outlined information an employer must provide employees if they want to take the tip credit. The notice, written or otherwise, must include the following:

  • The cash wage the employer will pay the employee, which cannot be less than $2.13 an hour
  • The amount of the tip credit, which cannot exceed the difference between the minimum wage and the cash wage nor the amount of tips received by the employee
  • The credit will not apply unless the employee has been informed of the provision
  • All tips must be retained by the employee — except in the case of a valid tip-pooling arrangement
  • Each time the credit changes, a written notice must be submitted to employees

Although there’s nothing new about the way the tip credit works, having to notify employees in advance is a change — and one that many owners aren’t prepared for, says Lee Schreter, an attorney and shareholder with the San Francisco-based employment and labor law firm Littler Mendelson. “The Department of Labor did a poor job of getting information out about the change,” she says, adding, “The set of regulations regarding this runs over 100 pages and isn’t written with the ordinary business consumer in mind.”

Further, “if employers don’t give notice or even if they misstep — maybe the notice doesn’t show all the required verbiage — they cannot claim the tip credit,” she says.

Why People Don’t Return Your Phone Calls

Mar 29, 2011barry moltz

Here comes that sinking feeling again. The prospect you have been meeting with didn’t return your phone call yesterday. In fact, you have not heard from them all week. You call again and still nothing. The silence baffles you. You worked hard to land this customer. You thought the sale was nearly closed. This one was a sure thing.

Why don’t people return your phone calls?

We are not talking about the cold calls we make. In that case, a returned call is a bonus. We are discussing returned calls from people you have actually talked to many times before. Calls to people you have met with, had lunch with or maybe even done business with.

This pattern of unanswered calls can still amaze many of us. We need to realize that a few weeks of unreturned phone calls means that the answer is “no” to whatever it is you want to talk about or the person no longer values your relationship. In fact, I yearn for them to leave a voice mail in the middle of the night when my cell phone is off and yell: “Barry, you screwed it up. Don’t ever call me again.” That message I understand and respect.

Why don’t people just call or e-mail and be blunt? With all the electronic and increasingly impersonal ways to communicate with each other, why has this task not become easier for people?

The three reasons are:

1.   People are just too busy and overbooked. Their rush to multi-task unfortunately even overruns some basic human courtesies.

2.   Technology has created too many contact points. While our expectations are high with all the possible instant communication methods, it has become increasingly difficult to simultaneously handle all of them. The average business person needs to check messages from multiple phones, e-mail and social media accounts.

3.   People are cowards. It takes courage to face a “confrontation” and say, “no.” Most busy people don’t want to take the time to deal with it. They find it easier to ignore it. 

Here is how to get your phone call returned and what to do if it does not get returned using a “Rapid Release” strategy:

1.   Make the initial call. Leave specific instructions on the desired action you need with a time frame in which you would like to be called back.

2.   If no answer, call back in a week.

3.   If no answer, call back in two weeks.

4.   In no answer, send a note or leave a voice mail with the following message: 

“Dear John,

I have been unsuccessful in my attempts to reach you and provide the information you requested. This typically means:

1. You’ve been busy, but are still very interested talking with me about how I can help. 

2. You are no longer interested.

Being a business person, I know you can appreciate my position. I want to provide you with excellent customer service and all of the information you require to make an educated decision that will benefit your business. What I don’t want to do is bother you with something if you are no longer interested. 

Could you please help us by letting me know which of the two situations we are in?  This will allow me to better allocate my time while still providing you with the amount of attention you desire.” 

If there is still no answer, forget them as a current prospect no matter how much work it took to get to this point. Put them back into the marketing funnel and dial another prospect.

A “no” answer, even though not optimal is as important as a “yes” because it allows you to move on and close the door. With limited time, a “no” lets you focus on the prospects that still can say “yes.”

Why should you return every phone call or e-mail from people with whom you have a relationship? 

It’s just good business. Our careers rise and fall with unpredictable economic times. We meet the same people on the way up as we meet on the way down. In other words, today you need something from me and tomorrow I need something from you. If I never returned your phone call when you needed me, what is the likely outcome when the roles are reversed? Communicating in a respectful way will build the critical relationship capital with other people that you need for your business success. 

Have you returned all your calls today?

10 Tips For Funding Your Startup

Apr 25, 2011barry moltz

Venture capital and angel investing received a lot of attention during the Internet Bubble a decade ago. However, throughout business history, most companies have been built from funds found in many places without using “OPM” (Other People’s Money).

Here are the top 10:

1.  Personal bank account.

Most entrepreneurs find part of their new business funds from their own wallet—it is the most common place to get started. This may come from their own savings, money borrowed from their credit cards, home equity or insurance policies. Many companies, especially service oriented business, can actually be founded on less than $10,000. When the entrepreneur risks a significant amount of their own money, it enables them to respect taking “OPM” at a later stage.

2.  Friends and family.

This is the all-time favorite place for startup funding. The good news is that friends and family will invest because they love and care about the entrepreneur. The bad news is that it’s not a lot of fun to lose their money and may change the long-standing relationship with this person forever.

3.  Find a customer that needs the product.

Traditionally, businesses have started because a person asked someone else to do something and was willing to pay for it. Find that person who will pay to solve their problem and an instant business is born. Profitable customers are the best way to fund any business at any stage.

4.  Take to an accountant or attorney to lunch.

They give excellent referrals since they deal with “money” people all of the time. Additionally, ask those referrals to give three more names and so on to build a large list.

5.  Find a mentor.

Find someone that will help spread the word about the business. They should share the entrepreneur’s passion and be another evangelist to the world.

6.  Always be making connections.

Attend seminars, go to events, join online LinkedIn discussion groups, Facebook pages, and talk to everyone who listens. A strong referral is the best way to get in front of the right people. Also, keep these people up-to-date on the company’s progress even if their help is not needed at that time.

7.  Submit the business plan to competitions.

There are many groups that allow business plan postings on their website. Some will even get it reviewed by potential investors. Don’t worry about them stealing the idea. Remember, business ideas are meaningless. It’s all about execution.

8.  Achieve business milestones.

Nothing gets money like business success. Investors want to put their funds in companies that have achieved their targeted milestones. Stop writing the business plan and start executing by getting paying customers.

9.  Attract an excellent management team.

Investors put their money in people, not a business. The better the team, the more money the entrepreneur will be able to attract. Get people on the team that have industry expertise. Investors want track records not academic resumes.

10.  Contact angel groups and other area resources.

There are several excellent groups that are national and regional in scope. There are an endless number of resources online to help the entrepreneur learn more about attracting capital and funding such theAngel Capital Association and SCORE.

Help Wanted: Tax-Compliance Gurus

By EMILY MALTBY

For the first 15 years that the Cheshire Cat, a gift shop in Grayslake, Ill., was in business, owners Sherri and Scott Comstock managed their own tax paperwork with minimal professional help. Today, they spend $40,000 a year for an in-house bookkeeper and $6,000 annually for an outside accountant.

“There is no way a small-business owner could track [the tax code] and run their business,” says Ms. Comstock. “There are not enough hours in the day.”

As financial-reporting rules fluctuate, small-business owners say they must increasingly invest in professional accounting support. Many are also bracing for the onslaught of 1099 forms they’ll need to file in 2012 if a new tax regulation that was tucked into last year’s health reform isn’t repealed.

Over the past decade, the tax code has ballooned in size, to its current 3.8 million words from just 1.4 million in 2001, according to the Internal Revenue Service’s Office of Advocacy. As the economy has weathered two recessions, lawmakers have shepherded numerous packages of temporary tax relief through Congress – from patches for the fluctuating Alternative Minimum Tax to limited extensions of the Bush tax cuts – averaging about one revision a day to the tax code.

Amongst small businesses, “we are seeing more demand for accounting and bookkeeping professionals,” says Katherine Spencer Lee, a senior district president with Robert Half International Inc., a staffing firm based in Menlo Park, Calif.

Indeed, accountants and auditors are expected to experience faster-than-average employment growth over the next decade, in part because of “changing financial laws and corporate governance regulations,” projects a 2008 Bureau of Labor Statistics report, the most current available.

While it’s difficult for large businesses to keep abreast of changing regulations, small businesses pay a disproportionate amount to adjust to new rules. In general, the cost of tax compliance at smaller firms is $1,518 per employee, compared with big companies, which pay about $517 per employee, according to a 2010 study from the Small Business Administration’s Office of Advocacy.

To be sure, many of the most recent revisions were intended to bring tax relief to small firms, such as hiring and health-care credits and larger expensing limits.

“As I think about the changes that have occurred over the years in the tax code, the [main ones] that come to mind are beneficial to businesses,” says Larry Nannis, a CPA and partner at Levine, Katz, Nannis & Solomon, P.C. in Needham, Mass., who also serves as the National Small Business Association’ s chairman. “But in spite of that, the provisions have created a need to incur additional expertise or to provide additional information.”

And when the tax code lacks permanency, business owners have a hard time planning and must spend even more time and resources to map out the best routes for growth, says Bill Rys, tax counsel for the National Federation of Independent Business, a lobbying group in Washington.

The Comstocks started asking for more tax help about five years ago, after they became spooked when the IRS notified them that they weren’t filing their taxes correctly. They began worrying about penalties or unexpected tax bills – both of which could cause a hit to small company’s cash flow.

Other business owners have tapped professional help more recently.

Tim Mossberg, who owns clothing manufacturer TLM Industries in Fort Walton Beach, Fla., began paying for a second accountant last year, after he launched a new clothing firm, Mojo Sportswear.

Mr. Mossberg’s first accountant in Atlanta now spends more time, at a higher hourly rate, preparing TLM’s tax returns. When seeking a second accountant, he sought the services of a local professional, with whom he could have monthly—rather than quarterly—meetings. “What used to be fairly easy to do….takes double the time,” he says.

Mr. Mossberg, who is using cash reserves to pay $150 an hour for TLM’s accountant and $90 an hour for Mojo’s accountant, says he would prefer directing cash instead into marketing, inventory or technology to streamline operations.

Meanwhile, back at the Cheshire Cat boutique, the Comstocks are hard pressed to name all of the tax forms they have to file. They rely on their bookkeeper and accountant to keep abreast of what tax breaks the business qualifies for and how to file all the necessary paperwork to make sure their tax returns are complete.

“There were days when Scott was on the phone for hours with tax people trying to figure out what he was supposed to do in order to comply,” Ms. Comstock says. “Finally we just decided to hire someone who understood the changes.”

Write to Emily Maltby at emily.maltby@wsj.com

They Can Smell Fear

By Diane Helbig  March 25, 2011

We all know that animals can smell fear and desperation. So can prospects and referral partners. If you want to slam the door on your business, behave with fear or desperation as your primary motivator.

What do I mean by this? Many small business owners and salespeople have their own needs in the forefront of their minds. This focus makes them frame their message from a position of fear. When the owner or salesperson is worried about meeting their financial obligations or is in fear of being fired, they lead with that emotion.

This is really dangerous for a couple of reasons. First of all, it isn’t the client’s problem whether you can meet payroll or pay your mortgage. They aren’t your partner. To share your situation with them will only make them nervous that you won’t be able to perform. You aren’t going to persuade them to do business with you. Quite the opposite; they will run from you. They can’t afford to get into a relationship with a business they fear will vanish soon.

Secondly, prospects buy from people they have confidence in. When you are fearful or desperate, they can smell it – even if you don’t share your problems with them. When they don’t feel confident with what you are telling them, you won’t get the business.

In the same vein, referral partners will not feel comfortable referring you. You will lose your relationships that could be serving your business.  Deb Ng shares a great article on Bizsugar about the impact of desperation on social networks, “6 Ways People Show Desperation on the Social Networks.”

Are you starting to see what happens when you are fearful or desperate? You get the opposite result than the one you need so desperately. You realize what you fear most – failure. No matter where you network, prospect or market, showing fear and desperation is a biz killer.

So, what to do? First of all, move your focus from yourself to your prospect. Concentrate your message on what they need, the value you bring, and how you can help them solve their problem. When we operate from a position of giving, the money comes. You can solve your own problem by helping others solve theirs. When you focus on others you will relax and feel confident. After all, you are confident of the value you bring to your clients, aren’t you? Exactly! And when you act with confidence, others feel it and want to do business with you.

Use your fear to propel you to action–action that is in the best interest of your prospect or client. This action will help you let go of your fear. Remember that when you are fearful you are living in the future. When you take action you are living in the present. The more action you take, the more in the present you are, the more successful you will be.

10 Ways to Avoid a Tax Audit

JANUARY 24, 2011 |  BARBARA WELTMAN

While you can never completely “audit-proof” your business’s income tax return, you can take actions that will greatly reduce your chances of being flagged.

Here are 10 ways to avoid a tax audit:

1. Choose your tax return preparer with care. Today, according to the recent National Taxpayer Advocate report, 60% of individuals and even a greater percentage of businesses use paid preparers to do their income tax returns. Yet, preparers now face more intense IRS review. If the IRS believes a preparer is claiming unwarranted deductions or taking other fraudulent steps on clients’ returns, then the preparer’s clients are at risk for audit.

The IRS has eight tips for choosing a tax preparer. Key among them is to check the preparer’s history to see if there has been any disciplinary action. For example, if you use an enrolled agent, check with the IRS’ office of Professional Responsibility at opr@irs.gov (include the preparer’s name and address).

2. Report all of your income. The IRS uses information returns, such as W-2s and 1099s, to cross-check income reporting. Under its document-matching program, the IRS’ computers compare information on the forms with the income reported by taxpayers on their returns. If the information doesn’t match, this leads to an automatic audit. But don’t panic; it’s merely a correspondence asking about the discrepancy. It can be easily cleared up by submitting an explanation by mail if you think you are correct, or paying the tax owed if the omission was your oversight and the IRS is correct.

Sole proprietors, freelancers and independent contractors who use the cash method of accounting may be vulnerable to year-end payment problems. For instance, a sole proprietor that performed work for a client may have received a payment in early January – but the client might have mailed (and recorded) the payment in December. The client will include the payment on Form 1099-MISC for 2010, but it isn’t taxable until 2011. What to do: Include the payment as it is reported on the 2010 return, but then subtract the payment and attach an explanation with the return. Then include the payment on the 2011 return, even though no 1099 will be issued for this year.

3. Provide complete information. All questions should be answered and all required information should be included on the forms and schedules necessary for your return. That means if you’re a sole proprietor, include your business code number, accounting method, and, where applicable, inventory valuation method on Schedule C. If information is missing, it could trigger a more extensive look at the return.

Also add information where necessary to explain entries or omissions that are not easily understood—such as in the prior example, when income received in January is reported on a prior year 1099.

4. Avoid claiming deductions that are audit red flags. This advice is easy to give, but unfortunately, the IRS does not say which deductions are likely to provoke a closer look. There are no official audit red flags. While many warn that claiming a home office deduction can prompt an audit, there’s no proof of this. If you meet the qualifications for claiming a home-office deduction, there’s no good reason not to take the write-off. Check your eligibility in IRS Publication 587, Business Use of Your Home.

A number of years ago, the Government Accountability Office (formerly the General Accounting Office) compiled statistics on deductions claimed by sole proprietors to show the types of deductions relative to the amount of their revenue. Some tax professionals believe that taking more than the “average” can raise an IRS eyebrow, but again, there is no concrete support for this view. A business that is entitled to deductions, even if they are high relative to the amount of their income, should claim them—but be prepared to prove entitlement if the return is questioned.

5. Don’t file certain forms or schedules. Some optional forms and schedules virtually guarantee an audit. For example, if you turn a hobby into a sideline and show a business loan, the IRS may question whether some of your deductions are legitimate. If that happens, you might file a Form 5213, which keeps the IRS from auditing you for the first five years of the business. If you can show that you’re profitable in at least three of the years, then the business isn’t a hobby and the losses in the other years aren’t questioned. The problem: Filing the form virtually guarantees an examination at the end of five years.

Better way: If you have loss years, be prepared to prove that you are operating the activity with a profit motive.

6. Pay attention to details. Math errors or incorrect entries of Social Security numbers or tax identification numbers can easily trigger an inquiry into your return. Math errors can be greatly reduced by electronic filing rather than filing paper returns. In the past, the IRS had said that errors are less than 1% on returns that are filed electronically, compared with about 20% on returns submitted via paper. If an e-filed return has a math error, it won’t be accepted; instead it is sent back for correction and refiling.

But information on electronically filed returns is only as good as the information you submit. Reporting $2,000 in income when it should have been $20,000 is your mistake and one that likely won’t be noticed as a math error by a computer.

7. Mind your personal entries. If there are entries related to the personal side of your return, this can ultimately lead to scrutiny of your return activities. The IRS selects returns for audit in some cases based on a Discriminant Function System or DIF score, which is based on IRS experience with taxpayers claiming certain deductions or credits within set income levels. For example, if you claim charitable contributions that are higher than the average deductions for your income level, this could lead to a personal audit; the personal audit may be expanded to include your business activities.

8. Change your business status. IRS Statistics show that you are 10 times as likely to be audited as a Schedule C filer than if you incorporate your business and elect S corporation status. While it costs a bit of money to incorporate, the move affords you greater personal liability protection and reduces your chances of being audited. In deciding whether to change your business status, include both tax and non-tax factors.

Note: Forming a limited liability company for one owner will not give you any audit protection, because the owner still files a Schedule C.

9. Watch your state tax return. The IRS has information-sharing agreements with the states. If you are audited at the state level and owe additional taxes because of omitting income or for other reasons, this information is shared with the IRS. The information may then prompt the IRS to contact you asking for additional tax payment or to audit your return in more depth.

10. Plan for an audit, just in case. Because the IRS conducts random audits from time to time (such as a three-year random audit program for S corporations in 2007 and a current three-year random audit program for employment tax returns), any return could be selected for review at any time. Be prepared:

  • Compile good books and records for your business activities.
  • Retain required receipts and other documentation.
  • Use separate bank accounts and credit cards for your business and personal activities.

Retain the records and receipts for your tax return for a minimum of three years (the period in which the IRS usually has to audit a return). However, keep in mind that the period becomes six years if 25% or more of income is omitted from the return, and there is no limit when it comes to fraud.

About the Author

Barbara Weltman is an attorney who has written several books, including “J.K. Lasser’s Small Business Taxes” and “The Complete Idiot’s Guide to Starting a Home-Based Business.” She publishes “Idea of the Day” and monthly e-newsletter “Big Ideas for Small Business” at www.barbaraweltman.com, and hosts the “Build Your Business” radio show.

How to Regroup When Your Small Business Loan is Denied

NFIB

Small business owners often lack the credit, collateral or experience it takes to land a traditional small business loan. “In this climate, it’s much more difficult,” says Denise Beeson, a Santa Rosa, Calif.-based commercial lender specializing in Small Business Administration loans.

While it may take multiple applications—and rejections—until a loan is approved, don’t give up. You can raise your chances of securing funds by knowing your options and finessing your approach.

What are banks looking for?

Before looking to another lender, give your company a good, hard look. Beeson points to three factors banks may consider when making small business loans:

  • Credit score – should be above 700. ?
  • Your ability to repay the interest on a loan, in addition to repaying the loan itself.?
  • Collateral – many banks these days want more than one source.

Alternative lending options

You’ll still need to demonstrate your ability to repay, but alternative lending sources tend to be more flexible than banks. Here are some options:

  • Peer-to-peer lenders. Websites like Prosper.com and Lendingclub.com act as a matchmaker between businesses and people interested in funding them. Prospective borrowers fill out an online application, pay a fee and are rated according to risk. “You don’t normally see million-dollar requests, but for $25,000 or $30,000, it’s a great place to go,” Beeson says.?
  • Niche lenders. Seek out lenders that loan to particular industries, like Kiva.org, an online service that partners with microfinance institutions to lend to nonprofits alleviating global poverty; or Eastern Funding, LLC, which makes loans to small owner-operated businesses in the coin-operated laundry, dry cleaning and grocery sectors.?
  • Local options. Some states fund lending programs that focus on a given community, like The Loan Fund, a small business lender in New Mexico. Whereas banks have set debt-to-income ratios, credit scores and criteria like minimum number of years of profitability, The Loan Fund says it has more flexible underwriting criteria and is more willing to consider extenuating circumstances.

Improve your prospects

No matter the lender, here are five ways to boost your profile:

  1. Obtain your credit report from AnnualCreditReport.com, and follow tips from the Federal Trade Commission’s website to improve your score—like disputing negative information or adding accounts.
  2.  Reengineer your business by getting rid of unprofitable products or services.
  3. Bundle products and services together. For example, Beeson says, a dry cleaner could add value to their customer base by offering an alteration service.
  4. Get free consulting from your local Small Business Development center or SCORE office. ?
  5. Write—or rewrite—a business plan. “It can be just a bulleted list of focus ideas for 2011,” says Beeson, but a plan will keep you focused and make you more attractive to lenders, as well.

 

Related Resources:
Alternative Funding Sources to Start or Grow Your Business
4 Alternative Sources of Financing

6 Common Money Mistakes Small Business Owners Make

Jan 06, 2011 – JoAnne Berg

We’ve all known businesses that appear to be doing well, but end up going out of business because they’ve made major mistakes in pricing, cost control or financial management. Here are some of the areas where these problems arise and some suggestions for how to avoid making the same mistakes.

1. Pricing Strategy Pricing is probably the most important decision you make every day. If your prices are too high, you won’t get enough volume. If you set them too low, you might get a lot of sales, but you will lose money. So how do you find the right price?

If you’re in a business where your prices can be directly compared to your competitors’ (shoes, for example), your flexibility is limited. You can always run specials and have sales, but your competitors may follow. You’re better off trying to create a sense of immediacy so that your customers buy as much as possible at full price. This is where good marketing makes all the difference. Try different approaches, track customer behavior, and make adjustments as you learn what works.

On the other hand, many non-retail businesses and businesses with patented products have more flexibility in their pricing. It’s common here for entrepreneurs to actually under-price their products. Most advisors recommend starting a little high and monitoring the response — it’s easier to lower a price than to increase it.

2. Accounting for Cost of Goods Sold and Tracking Gross Profit Many small businesses do not correctly account for the full cost of their products or services. It’s much more complex than many realize. For example, if you are a clothing retailer, the cost of the freight to your store is part of the cost of the clothes. You also need to track and factor in shrinkage, damages, and unsalable returns — all of those costs that can eat up your profit margin.

If you’re a service provider, the wages that you pay the employees providing the service — including payroll taxes, insurances, and benefits — should be considered “cost of services provided.”

Accurately accounting for cost of goods sold is important so that you can control those costs and also so that you can easily monitor gross profit, which is the difference between sales dollars and the cost of goods or services sold. It’s not enough to just monitor sales volume — what matters is the profitability of those sales.

If your gross profit percentage starts to slip, you need to immediately find out why and fix it. It could be caused by a cost issue, a pricing problem, or both. Don’t wait until the end of the month to look at your gross profit numbers — put a system in place where you can monitor them weekly or even daily.

3. Credit and Collections Many small businesses do a poor job of credit and collections. In many industries, customers expect to buy on credit, and in many service businesses, fees are billed after services are performed. This means that your business is making an investment in your customer or client’s company. Treat this with the seriousness it deserves! Use a solid credit-checking process, set realistic credit limits, be very clear about what your credit terms are, and stick to those terms. You can also ask for a deposit up front, or a retainer if you are providing services. You may lose a sale or two, but it’s better than never getting paid.

4. Budgetary Controls Every business has overhead expenses, which can get out of control. These are things like rent, utilities, administrative employees, insurance, and office supplies. You should prepare an annual budget for these. Have your accountant load it into your accounting software and then run a “budget vs. actual” report each month. This will show you where spending is creeping up.

5. Necessary Business Infrastructure Small businesses often skimp on the personnel, resources, and infrastructure needed to run a business effectively. You need top-notch accounting help to track your day-to-day activity as well as a good CPA. You also need a robust accounting system, a great attorney and insurance broker, good computer systems and a responsive IT firm to keep your systems running, Make sure these are in your budget.

6. Taxes You need to be informed on tax issues in order to make good business decisions. These taxes include income taxes, sales and use taxes, payroll taxes, and business property taxes. Don’t be afraid to ask questions of your tax advisor when you need to. The cost of non-compliance, especially with payroll taxes, can be staggering, and knowing how to manage your business decisions with income taxes in mind can leave more money in your pocket.

Even if you’re already doing a good job in these six areas, you may be able to enhance your profitability by making small improvements to your current procedures. If you’re not doing these things, I encourage you to start implementing them. You’ll be amazed at the results.

JoAnne Berg, CPA is the founder/CEO of Peer Coaching Network, Inc. in Carlsbad, California. She is a trusted business advisor with over 30 years of experience as an entrepreneur, CFO/COO, and CPA/advisor to closely held businesses. Read her blogs at The Art of Small Business. You can follow her on Twitter @JoAnneBerg and on Facebook.

Are Your Messages Being Heard?

January 6, 2011 | MP Mueller

We are at the beginning of another year — that time when we turn a critical eye to what worked and what didn’t last year. So let’s give some attention to the foundation of all good marketing efforts: interpersonal communication. Think of traditional marketing as air cover but personal communications as the sales maker that wins customers and keeps clients happy and loyal.

I recently visited with Kevin Leahy, founder of Knowledge Advocate. He teaches businesses how to break through communication roadblocks and hurdles to get to what he calls, “the good stuff.” His clients include Whole Foods and Goodwill. A conversation with him is like drinking one glass of wine — you find yourself buzzing (with possibilities) and wanting more. Here are some of his suggestions for improving front-line communications and building rapport and trust.

Ask for permission: This is my favorite of his tenets. In any communication — phone, e-mail, in person — ask for permission every two to three minutes. Why? Because every two to three minutes we get to a different place in our talk. Pepper your conversation with little comments like, “May I continue?” or “There is something more I have to say about this, would you like to hear it?” Doing this, Mr. Leahy says, guarantees that the other person is still in the conversation. He led our Door Number 3 team through exercises and for a week afterward we entertained ourselves by asking each other for permission with our hands extended outward. We laughed at each other, but it does make a difference.

Repeat after me: Here’s a big mistake many businesspeople make — assuming their point has been totally understood because it didn’t elicit follow-up questions. Often, what is really happening is that people aren’t fully engaged in what you are saying, which is why they aren’t asking questions — and won’t remember what you said. The solution is repetition. As with advertising, most people need to hear something seven times before they acknowledge you’ve said it. It’s the way we are programmed.

Sell yourself as much as your product: Humans are creatures of the gist not the content. We get a sense about something that fits our world view and adapt the information to fit it (think Fox News). We are pattern-making creatures, and the pattern we are always trying to make is the gist. We are not trying to make patterns out of the details. What this suggests is that many customers want to hear why they should buy you or your company — not how you are going to deliver your products or services or meet their needs.

Master your body language: Trust is essential in almost every transaction. Often, people pay more attention to the nonverbal messages than the verbal. If we are telling a client that we offer the best solution to some problem, but our voice and body language don’t match up, they won’t buy it. If you’re saying yes while scrunching the skin around your eyes, that scrunch tells people you’re not sure. You can correct this by looking your customer dead in the eye, leaning in slightly, and offering firmly, “Yes.” 

Watch what you say by e-mail: Keep those messages short and sweet and constantly ask for clarification. For example, you can write, “I’m ready to provide you with a full report in the body of this e-mail. Is that good for you or would you prefer to review it as a document or on the phone?” One big warning: “Humor comes across poorly in e-mail and we shouldn’t use it,” Mr. Leahy says. “It’s very context-dependent. You know the saying ‘You had to be there’? It’s elevated in e-mail.”

Do not overwhelm: Most people put three or four points in an e-mail, but we typically only respond to one or two. Why? Because we are in a hurry? Actually, it’s more than that. There is evidence that humans can only accept seven bits of information in a moment. If you give us eight, we’ll reject them all (see “The Magical Number Seven, Plus or Minus Two,” a paper published in 1956 by George Miller, a Princeton professor). Three is holy — we can all remember three points.

Try smiling: Call centers know this: if you smile, it’s hard to speak in an unhappy tone. Try it. Pausing is important, too — it lets people process the information that is critical to getting your point across. One of the biggest failures in communication is not allowing people the time to process.

I’ve gone on too long — seven points in a post that probably should have been limited it to three. Which do you think are most important? Do you have anything to add?

MP Mueller is the founder of Door Number 3, a boutique advertising agency in Austin, Tex. Follow Door Number 3 on Facebook.

8 Invitations to an IRS Audit

Dec 27, 2010 – Kate Lister

If you aren’t thinking about a tax audit, you should be. They can be a nightmare even if you’re completely honest.

Thanks to the staggering federal deficit, the IRS is trying to close the $300 billion gap between what Americans pay in taxes and what the government thinks we should have paid. You aren’t paranoid if someone is really out get you, as the saying goes, and the IRS is out to get you.

Consider this recent IRS job posting:

Internal Revenue Agent (Abusive Transactions Group)

Agents of the Abusive Transactions Group will be conducting examinations of individuals, sole proprietorships, small corporations, partnerships and fiduciaries.

This group specifically goes after taxpayers who generally have higher incomes than most taxpayers, need to file more tax forms, and generally need to rely more on paid tax preparers.

But even if you aren’t wealthy, don’t operate a cash business, and you don’t have a CPA filing reams of forms for you, you still can easily become an IRS target.

Twice as many tax returns were audited in 2009 as 2000. Enforcement revenue over the same period was up 50 percent.

It’s important to note that in this land of equality, not all individuals or companies are treated equally when it comes their chances of an audit. About one in a hundred businesses with less than $10 million in assets is audited. That number jumps to 10 in a hundred for those with $10-$50 million in assets, and one in four for businesses with assets greater than $250 million.

Certain industries are scrutinized more heavily too. You can probably guess some of them—cash businesses are always high on the IRS hit list. But would you suspect Dr. Doggie, the vet, is a target too? It turns out the IRS has a special auditor guidebooks for veterinarians, and for ministers, laundromats, car dealers and many others too. Their Retailer Guide offers specific strategies for interrogating e-commerce businesses, gas stations, direct sellers, mobile food vendors, pizza shops and the like.

You can read all about how auditors are instructed to look for tax cheats in these publicly available guides. They’re not easy reading like a John Grisham novel, but they will make the hair on your neck stand on end.

Here are some “red flags” that commonly trigger an audit:

1. Math Errors

While an error in basic math might not instigate a full blown line-item audit, it’s the most common reason Americans receive those heart-attack inducing letters from their friendly local IRS office. Use a calculator and check your numbers twice.

2. Unusually High Itemized Deductions

The IRS uses a very secret formula to calculate what your deductions should be. If computer scan of your returns shows that your deductions for charity, travel and entertainment, and healthcare are out of line with your income, you’ll be on their radar.

3. Self-Employed/Schedule C Filers

Small businesses are suspected of being especially creative with their expenses. Be careful if you take a home office deduction, have lost money for several years in a row, and prepare your returns yourself rather than use an accountant. 

4. Lots of 1099s

In February of 2010, in hopes of adding billions to depleted U.S. Treasury coffers, the IRS began a three-year initiative to crack down on what they believe to be a common practice of misclassifying employees as contractors.

Six thousand businesses have already been targeted for audit, and the government hopes to hire 100 new Department of Labor employees specifically to police these abuses. And yes, the do share their successes with the IRS and State authorities.

5. Unreported Income

Be especially careful to report all your income. If you’ve received a 1099, so has the IRS and their computers will notice if they don’t match up.

The same is true for other sources of income. If your former spouse reports alimony paid and you don’t report receiving it, you’ve just painted a big bull’s-eye on your tax return.

6. Previously Audited

If you’ve been audited in the past don’t think you’re off the hook—especially if you owed taxes or fines. The IRS knows people have the mistaken impression that the auditor won’t come knocking twice. But, of course, just the opposite is true.

7. Shareholder

If you are an investor in a partnership or corporation that came under the gimlet eye of the Feds, you may be next in line.

8. Pissed Someone Off

Disgruntled former employees are a regular source of IRS tips. But payback isn’t the only reason people go the IRS—the agency is authorized by law to pay rewards to informants. In cases that involve huge amounts of money, the informant’s cut can be as high as 30 percent of what they collect.

Make no mistake, your IRS auditor won’t be jolly. 

Over the past thirty years, Kate Lister has owned and operated several successful businesses and arranged financing for hundreds of others. She’s co-authored three business books including Undress For Success—The Naked Truth About Making Money at Home (Wiley, 2009) and Finding Money—The Small Business Guide to Financing (2010). Her blogs include Finding Money Advice and Undress4Success.

Employee Gifts: How to Give Tax-Free

Source: NFIB

As you decide on an appropriate holiday gift for your employees, it’s important to consider not only what they’ll enjoy but also how taxes will come into play. Because a “gift” is often considered by the IRS to be compensation, it’s important to note the rules so that your employees are not responsible for paying taxes on their gifts. “Get creative so the reward isn’t an individual burden to the employee, but a company expense,” says Brent Shelton, spokesperson for FatWallet, Inc., an online shopping resource website based in Rockton, Ill. “That way it stays as a reward.” Here are some options that will ensure your employees won’t face a tax on their holiday gifts.

Give a gift under $25. Gifts under $25 are tax-exempt, explains Howard Rosen, CPA, president and principal of Tax Services for Connor Ash in St. Louis, Mo. If this is the amount you typically spend on each employee, then you have nothing to worry about.

Tie a gift to an employee award.
You don’t have to worry about taxes if the holiday gift is a reward for service (i.e. highest sales) or longevity (i.e. the employee has been with the company for 10 years). Rosen says you can even create more personalized awards, such as “Most Helpful” or “Best Attitude,” as long as the awards have some kind of consistent format and you give them on an annual basis.

Make a charitable donation. If your gift to your employees is a charitable contribution in their name, then you don’t have to worry about taxes, no matter the amount, says Rosen.

Give company products or a job performance aid. If you run the type of business where the employees would enjoy your products (i.e. a clothing store or bakery), then you can give your company products or services as gifts without having to pay taxes on them. And while an employee might not get too excited over office supplies, Shelton says this is a good opportunity to get creative. “Perhaps there could be branded office supplies like an idea journal,” he says.

Give the gift of an outing.
You can take only a group of employees, such as the management team, to an event, and the cost will be tax-free. But, Rosen warns, you cannot take only family members involved with your business and consider it a tax-free company expense.

Facing the Tax

If you opt to go ahead with a gift not listed above that costs more than $25, Rosen recommends “grossing up.” This means you have to be willing to pay the gift amount and also the amount it’s taxed for so that the remaining amount can be given to the employee without he or she worrying about taxes. For example, if you want to give a $100 gift to your employee, you’re likely to end up spending around $135.

Why Cash Is NOT King


By JAY GOLTZ/December 10, 2010

“Cash is king” is a well-worn phrase that has been used quite a bit over the last few years. I hate to burst the bubble, but it is not true. Cash can be king for a day, a month or maybe even a year, but eventually it will be unseated by the real king: profit.

Don’t get me wrong, cash is critical. Without cash, a company can become insolvent, unable to pay its people, its bills, its other obligations. The end result could be bankruptcy. But without profit, cash will eventually be revealed as a fraud. Think Bernie Madoff. He had plenty of cash, it just wasn’t his. There are many ways to have cash without profit. It could be borrowed, or from investors, or from customer deposits, or from inventory that was sold but not replaced, or from the sale of an asset.

Each of these situations will result in cash, but you will not be king — even if you feel like king (for a while). This is how many small companies get in trouble. They think everything is O.K. because they have money in the bank, and they don’t pay attention to the red flags until the money is gone. I have watched some very ugly business failings that resulted from owners mistaking deposits for profits. They thought they were making money but they were actually digging themselves a hole.

It gets down to a common problem with many small-business owners; they really don’t understand the basic principles of accounting, which means they don’t understand how much money their companies are really making. Most business owners are sales-driven or service-driven and have to spend an inordinate amount of time just finding and servicing customers. Accounting is a burden that most do not enjoy.

But as business has become more complex and money even harder to come by, this approach has gotten even more dangerous. Small-business owners need some new slogans to live by. Maybe cash is king should become cash is critical. Not as catchy, perhaps, but more accurate (and it still has a touch of alliteration). But then we also need a slogan for profit (even though a lot of companies have been sold for big money despite not showing a profit). How about “profits before Porsches?” Or “cash pays the bills but profits pay back the investors.” Again, not very catchy or sexy — unless, of course, you are the investor.

If you are starting a business, running a business or even investing in a business, you should learn basic accounting: income statements, balance sheets, depreciation, amortization, retained earnings. Accounting is not just for paying taxes. It is for knowing how your company is doing, for doing price analyses, for budgeting, for projections and for borrowing money.

Perhaps, even more than profit, the real king in business is accounting. Accounting is king? Again, not very catchy. Accounting is awesome? No, I don’t think the accountants could handle that much power. I know some would argue that sales are king, but the salespeople already think they are king and we don’t need to feed those egos any more. Maybe there is no king. It’s accounting, it’s profits, it’s cash, and it’s sales. It’s not catchy, but business isn’t that simple. You need them all. Now that you can take to the bank.

Jay Goltz owns five small businesses in Chicago.

5 Ways to Recession-Proof Your Business

Dec 08, 2010

While many signs suggest economic conditions have stabilized, economic growth continues to be slow – and may remain so for some time. What’s more, the uneven distribution of that growth means many businesses remain in a recession- or near-recession-like state.

As small businesses continue to slog through this slow-growth scenario, there are several steps that nearly any organization can take to help recession-proof their operation, regardless of the industry, says Wharton lecturer and small business expert Robert J. Chalfin.

Chalfin offers five tips for positioning a business to weather these ongoing, rough financial times.

1. ‘Unemployment insurance’ with purchase 

“About a year and a half ago,” says Chalfin, “Hyundai said ‘if you buy a car from us and then lose your job within a year, we will give you (almost) all your money back.’” How many owners will actually send the car back? “Not a whole lot.” Chalfin believes that Hyundai might not have sold a good number of the cars that it did over the last 18 months had they not made this offer. Plus, he says, the strategy gave the company some extra used cars to re-sell. Before trying this promotion, however, talk with a financial expert to ensure its cost effectiveness.

2. Deferred/extended payment plans

Buy now, don’t pay for a year. “Say Home Depot borrows money at 3 percent, or less,” says Chalfin. “Then they give the consumer a year to pay for their purchase, so Home Depot takes a 3 percent hit.” That’s basically the same as allowing customers to purchase with a credit card.

3. Rent vs. Buy 

Allow lease vs. buying. This works with cars and appliances and it might work with your products too.  Lately, more equipment manufacturers are offering a lease option. “Cell phone companies have figured it out too, as have large enterprise software companies,” notes Chalfin.

4. Make it easy to do business with you 

Storage facilities, for example, could consider providing a truck and some people to help haul items to their facilities at no cost. Once your stuff is there, you’re less likely to leave. “People don’t realize how long they will keep their stuff in storage,” says Chalfin. “They keep it longer than they thought they would. So why not help them get it there?” Other companies need to think harder about making things easier for their customers.

5. Offer reduced services

Cable providers and banks make this type of offer all the time. Consumers get a low rate for one year, and then the rates go up. “Take Sirius Radio,” says Chalfin. “If you purchase a new car, frequently you received free satellite radio for a limited period – and then you get used to it. I think what the banks are doing now is brilliant – offering to handle bill payments online without a service charge. People get hooked on that service. Credit card, mortgages or rent, car payments, cable and utility bills come out of your account automatically. It’s easy to enroll, but time-consuming to switch, and so it increases the likelihood you will maintain an account with that institution. Or think about accounting firms: They may have little to do in July. So they could say, ‘let us do your taxes during tax season, and then we’ll give you a free financial planning session in July.’

“In today’s market everyone is looking for bargains and value,” says Chalfin. So look at your pricing structure carefully. Ask yourself where your customers or clients are taking the biggest risks – and, especially in today’s recessionary times, try to meet them halfway.

7 tips for landing an SBA loan

Dec 3, 2010

– Rachel Zippwald is the vice president of California Bank & Trust, a major SBA lender. The views expressed are her own. –

Small businesses seeking financing are in for a bit of good luck these days.

Special Small Business Administration incentives, such as the waiver of certain fees, are still available until the end of the year, so now is the time to apply for financing. There are, however, a few caveats.

While SBA loans are available, it may take a bit more work to obtain one and banks are requiring more information than they have in the past. The following are a few tips to facilitate getting your SBA loan approved.

1. Provide details on exactly how much financing you need and how you will use it. Banks like specifics, so be prepared to provide a precise dollar amount and give details of how you will use the funds. For example, if you’re seeking $125,000 to expand your business, explain to your lender how you will use the funds, such as you need $75,000 for working capital to support three months of expenses, and another $50,000 for seven networked computers and a server. Banks are impressed with research, so provide a written quote for the equipment. If you’re planning to consolidate debts and refinance for a longer term, provide copies of your promissory notes and state how much you think you can save with the refinance. Detailed loan amounts with copies of bids, promissory notes or proposals can help strengthen your loan package because your lender can understand the facts backing up the request.

2. Provide information about company management. When banks lend money, they like to understand who runs the company and to be familiar with their backgrounds. This is a key factor in presenting your loan for approval. Help your lender by providing a resume for each owner or key employee and describe their functions and responsibilities. If certain key positions have not yet been filled, include a thorough job description of the type of person you are seeking. This will confirm for the lender that you have analyzed your needs and have determined the requirements of the position.

3. Be prepared to offer collateral. The SBA requires collateral to fully secure your loan, to the extent that it is available. If you own a home, you will likely be asked to pledge it. The SBA may also request a lien on your business assets and may require life insurance on sole owners of a business. Most loans made by banks are secured loans, and therefore approval may be contingent on a guarantor who is willing to offer collateral.

4. Detail your credit history and credit score. Your credit score is an integral part of the loan process because it illustrates the ways in which you handle your other obligations. Your bank will eventually run its own credit report, but if you can provide information prior to them doing so, you can discuss any issues ahead of time. If you don’t know your credit score, take the time to research it on the Internet, where low-cost reports are available. If you’ve had problems such as identity theft, bankruptcy, or divorce, you’ll want to discuss it with your lender up front and provide proof that issues have been resolved or discharged.

5. Provide complete copies of tax returns, financial statements and bank statements. While it can be time consuming to gather these documents, your bank will want to know everything about you and your business if they are to become, in essence, your financial partner. One way to streamline the process is to scan your financial documents and provide them to your lender in the form of a disk or a flash drive. Your lender may even be willing to accept your documents via email.

6. Explain how you’ll achieve your projections. Now is the time to brag about you and your business and to sell your lender on your vision and forecasted success. If customers have expressed a desire to do business with you, give your lender a copy of their correspondence. Prove to the lender that a market for your product or service exists and demonstrate the validity of your sales and expense figures. If your Cost of Goods Sold (COGS) has historically been 65 percent and you can lower them to 55 percent, provide details of your calculations. If the loan for which you are applying is intended for a new piece of equipment that will allow you to reduce your staff needs, describe how this will occur and show the math.

7. Expect questions and be patient. Your lender needs to connect with your story and business and will appreciate your assistance in doing so. Take the time to thoroughly explain the nature of your business, your vision and your background. Your banker will likely be presenting your loan approval to other parties, so he or she will need your help in making your case. The process may be time consuming, so it helps to be patient. Feel free to request an estimated time frame for approval and respect that the projected date may slip a bit. It’s best not to call or email your lender frequently – remember that in lending, no news is often good news.

Audit Avoidance

Proper preparation and documentation can help you stay below the radar of IRS auditors.

By Rosalind Resnick

Every year, the Internal Revenue Service audits approximately 1 percent of U.S. taxpayers. Though the odds are slim that your return will be singled out, they increase dramatically if you run a cash business like a bar or restaurant, take a home-office deduction, make large charitable contributions or work for yourself. Like to splurge on fancy cars, boats or home improvements? Living large without documenting your income can raise red flags, too.

Deductions and expenses that are disproportionate to the taxpayer’s income catch the IRS’ attention, says Mitchell Eichen, a tax partner at Perelson Weiner, a New York City accounting firm.

No matter what kind of business you run or how many deductions you take, you can lower your chances of being audited by following these steps:

Keep accurate books. The IRS is on the lookout for businesses that deal heavily with cash. No law says your business must accept checks or credit cards, but don’t assume that you can put the money in your pocket and the IRS will never know. The same goes for businesses that do a lot of barter, and for contractors who take side jobs, helping friends and neighbors. The IRS can quickly compare your business income to your living expenses and figure out if you’re living beyond your documented means.

Deduct within reason. Writing off too many business-related expenses can put you in the IRS’ line of fire, especially if the income you report is relatively modest. An IRS computer program compares your deductions to others in the same income bracket (the so-called DIF Score) and selects the returns with the highest probability of generating additional audit revenue. “A decision to forgo a legitimate deduction may be based on the taxpayer’s particular audit tolerance or if there are other areas of the return that the taxpayer does not wish to call attention to,” Eichen says.

Check your math. A couple of mistakes in calculating deductions won’t automatically catapult your return to the top of the IRS pile, but too many mistakes in your favor may trigger an audit. If you receive a 1099 from a company for freelance work that you performed as an independent contractor, be sure to enter the exact amount on your tax return. Because the company that hired you also sends a copy of the 1099 to the IRS, the slightest discrepancy between the two numbers could set off alarm bells.

Back it up. It’s important to keep good records in case the IRS does come knocking. Business owners are required to keep receipts for all expenditures of $75 or more for meals or entertainment, and to keep those receipts for at least three years. Good record-keeping is also important if you’re planning to take large personal deductions. For example, if you’re claiming a large medical or charitable deduction that you think might increase your odds of being audited, make sure to attach copies of your medical bills and charitable receipts to your return.

Get professional help. If you already have an accountant or tax professional who prepares your business return, it’s a good idea to let the same practitioner prepare your personal return as well. Not only will you avoid some of the common tax preparation mistakes, but you’ll also have an advocate to go to bat for you if you do get that dreaded letter from the IRS. If your tax preparer did a competent, professional job of reporting your income and deductions, you should have nothing more to fear than the inconvenience of responding to the letter and possibly meeting with an IRS agent. “Competent, professional tax advisors will warn you when taking a certain position can heighten the possibility of an audit and when a tax return looks fishy,” Eichen says.

Rosalind Resnick is founder and CEO of Axxess Business Consulting, a New York consulting firm that advises startups and small businesses. She can be reached at rosalind@abcbizhelp.com or through her website, abcbizhelp.com

Your 2011 Lead Generation Strategy Outline

Ivana Taylor /Nov 23, 2010

Lead generation is the number one item on every small business marketing plan. What strategies and tactics will you use to attract customers? Many small business owners and CEOs say they can’t get enough good leads. Really, they just aren’t capturing the leads that are all around them. 

 1.  Specify and profile who your ideal lead is. This may seem obvious, but it’s the main reason lead generation strategies often fall flat. Describe your ideal leads in a way that makes them clearly observable. Start with basic demographics such as gender, age, education, occupation, industry, etc. I recommend that you focus on people and not companies.

 2.  What are your lead’s behaviors? Where do they go? What do they do? Where do they spend their time and money? A good way to get this information is by going to the LinkedIn profiles of potential costumers. Ask them these questions and see what you find out. Armed with this information, create a list on Twitter.

 3.  Make your website an oasis of information. Your business is not just looking for leads: these leads are looking for businesses to solve specific problems, too. If your website isn’t speaking to the specific elements that your leads are looking for, then they won’t find you. 

 4.  Give them a taste or sample of your solution. Imagine if your leads were able to sample or observe a demonstrated solution in exchange for their email. How could they resist? You actually have a couple of choices here. You can use an email marketing service such as aWeber or Constant Contact to collect their contact information, and in exchange they’ll receive a demonstration, report or video series on how other people with the same problem have benefited from your product. Another service is vADz, which creates amazing video ads or demonstrations of your product.

5.  Greet and nurture your leads. Would you ever invite anyone to a meeting or dinner party and then ignore them? Today’s email marketing system has made it easy to stay connected with leads and provide them with educational information that helps them choose you.

 6.  Track and Measure. The really terrific thing about today’s technology is the ability to track and measure results. Google Analytics has a feature called “goals” that allows you to tell Google what you expect your website visitors to do and then Google will measure the degree to which they actually do that.

 7.  Test and Change. What looks nice doesn’t always attract the right leads. Test different versions of your website to see which version attracts and converts your audience into a lead. This type of testing is called split testing. Google AdWords does this effortlessly, as do almost all the email marketing programs such as Mail Chimp, aWeber, InfusionSoft, iContact or Constant Contact. Google Web Optimizer is a great tool to use to split test your website.

 Decide who your target leads are; set goals around how many leads you want and what you want them to do when they interact with your website/marketing materials; and most importantly, be clear about what information you can provide leads so that they can choose you over the competition.

 Ivana Taylor is CEO of Third Force, a strategic firm that helps small businesses get and keep their ideal customer. She’s the co-author of the book “Excel for Marketing Managers” and proprietor of DIYMarketers a site for in-house marketers. Her blog is Strategy Stew.

11 Business Lessons from the Heart

Tom Harnish/Nov 23, 2010

Here are some lessons I learned while attending the Business School of Experience.

Keep in mind, “experience” is really just another word for mistakes. Learn from my experience so you don’t have to learn from yours. 

Do Your Homework

Bright ideas are common; people who can turn them into a business are not. Don’t let your enthusiasm keep you from doing your homework. 

When starting a business, ask yourself:

  • Is there a real market? Can I really create this product/service?
  • Can I win? Can my company and product be competitive?
  • Will it be worth it? Will it be profitable? Will it support my philosophy, strategy, goals, and objectives?

Build three different models in your spreadsheet: low, likely, and high, and then do some sensitivity analysis. If start-up or roll-out takes longer and costs more than estimated (it always does), what effect will it have? 

Dig Deeper

If you think what you have is unique, think again. Dig around on Google and find out what else is out there that’s similar to what you’re contemplating. Learn what works (or doesn’t) from others who have tried it. Indirect competitors can be as fierce as direct ones. 

Find an association that covers what you do, then join it and wring out their reports and statistics. Order a franchise package for a company or product similar to what you have in mind. They’re required by law to tell you the downsides and upsides of the business. Ask for advice; you’ll be surprised how willing people are to help. 

Think It Through

It’s very easy to become enamored with an idea and focus on the product, not the market. Spend more time thinking about the market than on developing intricate details for your product/service. Who are you going to sell to? What do they look like? Where are they? How will you reach them? Will they buy? What will they be willing to spend?

Keep in mind that you are a bad market sample; if you like it or your family likes it, it doesn’t matter. Will other people be willing to spend real money to buy it? 

Do the Numbers

Figure out what your budget realistically needs to be. Contrary to your gut instinct, if you don’t have a lot of money, a viable solution is not to spend less on development, production, promotion, or staff. If you don’t spend enough, then quality, market awareness or distribution will suffer.

Ignore what you have in the bank, define an accurate budget, and then compare what you think you need with how much you have to spend.  

Plan your cash flow, not your profits. You can’t spend profit. You can grow so fast, you go broke. If you don’t understand how that can happen, visit FindingMoneyAdvice.com.

Make a List

Create an action plan. List the things that need to get done and then make sublists for all the big things. Put them on a time line.

 This mental process allows you to think through what it would really be like to run the business. Who’s going to answer the phone? What if you need more cash for supplies or raw materials? Who will be the company spokesperson for TV interviews? Involve other people who will be working with you so they can help think it through too. 

Prototype

Test, refine, test some more, and then build. Remember, when you test, a “no” answer is as useful as “yes.” Few ideas are perfect right out of the box and many successes are discovered by accident. If your idea works and the market likes it…go! If people don’t, make some changes, big ones if you need to. If you can’t or won’t…WALK AWAY.

 Entrepreneurs are notorious for not taking no for answer. But two thirds of businesses fail within 10 years.

Promote It

Success isn’t just about products and markets, it’s about making sure people know you have a product that will solve a problem for them, it’s worth the money, and you can be trusted to deliver it. Publicity is cheaper than advertising, so do something (tastefully) outrageous. 

 Be Involved

Share your enthusiasm, dedication, and knowledge with your employees. Then hire people who are smarter than you are.

If you don’t like the people you’re working with, or if you don’t trust them, something’s wrong. Start by taking a careful look at yourself. Are you trustworthy? Are you a hard worker? Are you fun to be around? 

 Measure performance based on results, not attendance. It doesn’t matter where, when, or how people work as long as they get the job done. If you can’t define what acceptable results are, how can your people possibly be successful?

 Look Both Ways

After implementation, look back at where you’ve come from and ask yourself what you might have done differently. Learn from mistakes and successes, and look ahead–the road may have changed while you were busy starting up. Make changes if you need to, be agile, and adjust. 

 Celebrate

You only have one life to live, so enjoy it. When you have a little success, celebrate! Make sure the people who contributed have a chance to enjoy your success too. You couldn’t have done it without them.

 Share It

“All who would win joy, must share it; happiness was born a twin.” — Lord Byron

 “Thousands of candles can be lit from a single candle, and the life of the candle will not be shortened. Happiness never decreases by being shared.” — Siddhartha

 Tom Harnish is a serial entrepreneur. Always on the bleeding edge of technology, he learned what works (and what doesn’t) leading projects, products and companies to success (mostly). He can’t play a lot of musical instruments.

Money is available for small businesses, but it takes work

Q: I hear that there is more money available these days for Small Business Administration loans. Is that true? If it is, how do I apply to the SBA to get one? Thanks in advance. MauriceA: Yes, it is true that there are more SBA loan funds available right now than in years past. This is mainly due to 1) a change in administrations, and 2) the fact that both TARP and the new small business law added funding for SBA lending.

 That said, the first thing to understand about SBA loans is that the SBA does not make loans, it guarantees loans. The SBA is not a direct lender. Instead, what it does is work with various financial institutions (everything from large national banks to small community credit unions) in order to get money in the hands of entrepreneurs via SBA-backed loans.

 The background is this: As we all know too well, getting a small business loan today is difficult. Banks, burned by the mortgage and credit crises, have tightened their underwriting criteria, resulting in fewer loans.

 Enter the SBA.

 By guaranteeing repayment of at least part of the loan (up to 90% per the new law, but usually less), the federal government reduces a bank’s exposure. In turn, this allows the institution to loosen criteria a bit and make more loans to more businesses and entrepreneurs.

 Why does the SBA do this? To spur business development, of course.

 The government knows that the more loans that are made to qualified small businesses, the greater the positive economic rippling effect. Getting money in the hands of qualified small businesses helps business, helps the economy and helps generate more tax revenue.

 You may have noticed that I keep using the phrase “qualified small businesses.” Yes, you still must qualify for an SBA loan, but happily, qualifying for a SBA loan is easier than qualifying for a traditional bank loan. That said, “easier” is not the same as “easy.”

 Here are the essentials of what you need to know when looking to get an SBA loan:

 • First, do not expect to get 100% financing. Not gonna happen. To get an SBA loan, you need to have some of your own money invested in the business. The SBA and its lenders expect that you will participate in the financial risk.

 • Second, expect to share a lot of documentation with the lender. You will need both business and personal records: Tax returns, bank statements, profit and loss statements, leases and contracts, income and expenditures ledgers, and so on.

 • Next, whereas most small business loans are collateralized (usually to the real estate of the principles), the good news is that with some SBA loans you may not need collateral. It depends on the size of the loan for one, but , according to the SBA, loans generally will not be declined “where inadequacy of collateral is the only unfavorable factor.” (Source: SBA.gov.)

 • Also, the well-known 5 C’s of credit matter. When analyzing a loan application, the SBA and its lender will look especially at your character and your capacity. By character, they are referring to whether you are “sufficiently trustworthy to repay the loan.” They will also consider your references and the background and experience of your team. Capacity relates to your ability to service the loan and repay it in full and on time.

 • Finally, in all likelihood, you will need to sign a personal guarantee if you want to secure an SBA loan.

 It is also important to understand that not all SBA lenders are the same. While the SBA gives banks criteria to use when making loan decisions, it is also true that some banks are more lenient than others, others are more aggressive, and still others are more conservative.

 It behooves you to shop around.

 Today’s Tip: Remember, bankers are people and they lend to the people who make up a business. As such, get to know your banker. Put a face to your business. It will help.

 Ask an Expert appears Mondays. You can e-mail Steve Strauss at: sstrauss@mrallbiz.com.And you can click here to see previous columns. Steven D. Strauss is a lawyer, author and speaker who specializes in small business and entrepreneurship. His latest book is The Small Business Bible. You can sign up for his free newsletter, “Small Business Success Secrets!” at his website —www.mrallbiz.com. Follow him on Twitter at http://twitter.com/stevestrauss.

The Psychology Behind Making Sales and Setting Price Points

Nov 16, 2010

 Setting price points and making sales involves a delicate balance between offering value (i.e., what the customer demands) and making profits (i.e., what you need). Here are a few techniques that create value for your customers while keeping your profit margins reasonable. In some cases you can even get your customer to buy considerably more than they planned to—happily.

 Stop “Selling” 

Most consumers are on guard as soon as they hear the word “sales” and cringe at the concept of being “sold” something. Day in and day out, we endure sales pitches of all kinds and in all formats: on television, in newspapers and magazines, on billboards, on public transportation, in stores and online. In fact, I’ll bet that no matter where you are right now, within a few minutes some sort of advertisement will be thrown at you.

 Because of this constant barrage of sales pitches, we’ve become desensitized to them. Rarely do we even see the sales pitches any more, and if we do, we tend to run in the opposite direction as quickly as we can.

 Sales gets a bad rap these days.

 So how do we sell our customers on the awesome value of our product or service without making them feel like we’re “selling” to them?

 Let Them Choose

Scenario One: You walk into a movie theater. There are two sizes of popcorn offered: small for $4 and large for $6.

Which one do you buy?

The large is probably a little over-the-top since you just had dinner, so you choose small and probably order a drink to go along with it (more on this later).

 Scenario Two: You walk into a movie theater. There are three sizes of popcorn offered: small for $4, medium (formerly large in the previous example) for $6, and large for $8.

Now which one do you buy?

Nine times out of ten, you’ll probably choose the medium size. It doesn’t fall to any sort of extreme in terms of size or price. It simply seems the right thing to do.

 Yet, in scenario one, you were loathe to gorge yourself on a “large” popcorn — the very same popcorn which seems to be a nice moderate option in scenario two.

What gives?

People want choice, and they don’t like to make waves. The easiest thing for most people to do when making a quick choice is to go with the middle option, so make sure there’s a middle option available. By offering just two options or sizes, you could be limiting the number — and quality — of sales you make.

 Provide Package Deals

Even easier than choosing the middle option is to choose just one option. Movie theaters are notorious for bundling their popcorn, drinks, and treats into one “special” deal, and once you’re keen to the package-deal concept, you start to see it everywhere: package vacations (insurance and all), bundled internet and television, utilities, etc.

 I was recently on a flight that offered light meals and snacks for a fee. There were a few package deals on the meal card, complimentary items like coffee and a muffin, or chips and soda. I was even tempted by a few of these “deals,” until I did the math and discovered that the “meal deal” was not a penny cheaper than buying each item separately — and I realized that I didn’t even really want what was on offer to begin with.

 Something psychological happens when we see (well-presented) package deals. We see value. Look honey! For just one price, we can have all this. Most people won’t take the time and effort to price out each component of the package, or even to question whether they would buy each component separately.

Fast food restaurants have tuned into this concept brilliantly; some stores don’t even display individually priced items any more; it’s all about the meal deal. There’s a reason it sells: It’s easy to buy.

 Make a Special Offer

Similar to the package deal is the special offer. At a steak house the other night, the server came to the table, introduced himself and rattled off the specials. He piqued everybody’s interest when he mentioned the lobster tail and steak dinner for what seemed like a reasonable price, especially after he detailed every component of the meal beautifully. The whole table said “I’ll have that!”

 Knowing that you can add a lobster tail to your steak dinner any time (and out of morbid curiosity), I calculated the original price of the “special offer” we just ordered. Surprise, surprise: It was the same price as it would be any day of the week.

 What did the server do? He simply made it easy for us to order the lobster. Any one of us at the table might have felt we were going overboard by ordering the lobster tail if we did so directly from the menu, but when it was presented as a special, it sounded delicious and the price seemed reasonable.

 Even after we realized that the steak and lobster wasn’t really “on sale,” none of us felt particularly duped. The server disclosed the price when he mentioned the special, and we agreed to it when we ordered the dinner. He did such a great job of describing the meal that we enjoyed it even more when it arrived than we may otherwise have. He tantalized our taste buds with his special offer sales pitch.

 How can you tantalize your customers’ taste buds? Make a special offer easily available and attractive, and your customers will up-sell themselves.

 Break Your Product Down into Components

Contrary to the package deal, you might be able to make more sales (depending on the product or service you offer) by breaking it down into many different components. Apple employs this concept, as evidenced by all the accessories they make for their products.

 You can’t just buy an iPhone; you also need some sort of case, screen protectors, and any number of other components that both personalize and functionalize your phone. When contemplating a full sales rack of components that make your phone even cooler, most people buy more than they originally intended.

 The customers are happy: They personalized their iPhone with an array of products and accessories. In fact, with this strategy, Apple leaves the door open for more sales, since the customer can later buy more components at their whim.

Despite a difference in approach, these strategies all follow a few common themes: Give your customer choice, and make it easy for them. Customers in a hurry (and let’s face it — who isn’t in a hurry these days?) will enjoy selecting a middle option when given at least three choices, and they will gravitate towards a package deal as long as it remotely resembles what they crave.

 Meanwhile, customers looking for value will enjoy customizing their products or services with a menu of options or components that empower them, often buying more than they originally intended. We all still love a special deal, especially if it’s so well-presented that it can’t be refused.

 Wise Bread is a leading personal finance community dedicated to helping people get the most out of their money. Get daily money tips by following Wise Bread on Facebook or Twitter.

Nine steps toward handling customer complaints

By Rhonda Abrams, USA TODAY

Face it, if you run a small business, sooner or later, you’re going to have an unhappy customer.You’ll ship the wrong product, be late turning in that client report, or the deck you just installed will inexplicably start to warp. Then the angry phone calls or e-mails start.

No one likes having a customer complaint. After all, all of us who run small businesses want to please our customers or clients. We want them happy with our work and products. We want them to keep coming back, buying and sending their friends and family our way, too.

But stuff happens.

Sometimes it’s not your fault — the shipping company delays the rush order. Sometimes it is your fault — you or your staff got overworked or sloppy and made a mistake. Sometimes it’s the customer’s fault — “I know the chairs said for indoor use only, but they shouldn’t have been ruined when I used them outside in the rain.”

Sometimes no one is at fault. Stuff just happens.

No one likes to hear complaints, but it’s far better to have customers actually talk to you than to just leave because they don’t leave quietly.

Dissatisfied customers put their complaints (or rants!) on Yelp or some other rating site. They tweet about it and tell their friends on Facebook.

If that’s not bad enough, reports of a negative experience are twice as likely to affect another person’s buying decision as a good report. An unhappy customer becomes a walking marketing department for your competition. They’re sort of a Typhoid Mary, spreading a virus of negative comments about you.

So it’s important that you handle complaints well. If you do, you can retain both your customer and your reputation.

What are the keys to handling customer complaints?

1. Listen. It’s natural to get defensive when someone criticizes us, so we’re going to want to start talking.

Don’t.

First, honestly listen to your customer’s complaint, no matter how angry they are or stupid they seem. All of us, when we’re angry or disappointed, want a chance to be heard.

2. Return the call or e-mail. Yes, I know you don’t want to talk to an angry customer, but they’ll only get madder if you don’t respond.

3. Treat a complaint as an opportunity, not a confrontation. Only 20% to 50% of all customers with problems will tell you. Those who do are giving you a chance to improve your company and create an even stronger bond with them.

4. Say, “We’re sorry.” Those are magic words that help lessen anger.

Even if it’s the customer’s fault, you really are sorry to have an unhappy customer.

You may have to use this phrase a couple of times — “I’m sorry you’re unhappy” — at the start of the conversation. And a more meaningful — “I’m sorry we made a mistake” — if you find you were at fault.

5. Don’t use the excuse “It’s company policy.” Customers are frustrated when they’re told they won’t be listened to as an individual.

6. Don’t blame the customer. Even if customers are not always right, they always believe they are.

When you blame customers, they see it as a personal attack. Why go back to a company for insults? Instead, discuss the situation in factual terms without ascribing blame.

7. Give front-line sales and service people authority to solve problems. Don’t make customers jump through hoops or have to wait to talk to you personally. Both your employee and your customer will feel better if their problem can be solved quickly.

8. Don’t be cheap. Consider the potential lifetime value of the customer, not just the one-time transaction. Saving a few dollars but losing a customer or ruining your reputation is penny wise and pound foolish.

9. Finally, but most important, admit your errors and solve the problem. Every business makes mistakes. You will, too.

So don’t take complaints as personal attacks. Just be determined to get to the root of the problem and make it better for the customer.

 One of the most important things you can do: If something is wrong, fix it. Give the customer a refund or replacement.

 By handling customer complaints well, you can turn a dissatisfied customer into a customer for life.

 Rhonda Abrams is president of The Planning Shop, publisher of books for entrepreneurs. Her newest book is Hire Your First Employee: the entrepreneur’s guide to finding, choosing, and leading great people. Register for Rhonda’s free business tips at www.PlanningShop.com. For an index of her columns, go to smallbiz.usatoday.com. Twitter: twitter.com/RhondaAbrams. Copyright Rhonda Abrams 2010.

7 Steps to Creating a Sure-Fire Marketing System

Nov 12, 2010

While this may be hard for some business owners to come grips with – leaning instead towards the “marketing is a strange form of creative voodoo thinking” – marketing is not only a system, it may be the most important system in any business.

 To understand how to approach marketing for your business, it may be helpful to understand my definition of marketing: Marketing is getting someone that has a need to know, like and trust you.

 Now you can argue about what like or trust is in your industry, but now more than ever, this definition gets at the heart of the game you’re in.

 Below you will find the seven core steps that make up the simple, effective and affordable approach to systematic marketing that I’ve developed after working with small businesses for over 20 years.

 1. Develop strategy before tactics.

Most business owners take the idea of the week, tactical approach when a good marketing strategy is the most important aspect of any successful marketing implementation.

 Before you decide on direct mail or a Facebook page, you must adopt and commit to a marketing strategy. All tactical decisions should be filtered through your strategy to see if they make sense or support the overall marketing strategy.

 The concept of a marketing strategy may seem foreign or out of reach, but it’s really little more than determining and narrowly defining your ideal client and creating and communication some key point of differentiation.

 The challenge in this comes when business owners realize it means they can’t be all things to all people, and saying they offer good service isn’t a differentiator, it’s an expectation.

 2. Embrace The Marketing HourglassTM.

Maybe you’re familiar with the marketing funnel concept – get as many prospects in the top of the funnel and choke a few through the small end.

 The Marketing Hourglass suggests that there is a logical path that each prospect should be led that starts with the large end of a funnel, but as in an hourglass shape goes to work turning new customers into an expanding base of advocates and referral partners.

This approach starts and ends with a significant focus on the customer experience and requires special attention to the creation of systems and processes that move prospects logically along the path of know, like, trust, try, buy, repeat and refer.

 3. Adopt the publishing model.

Marketers today must commit to producing content much like a publisher might. Prospects expect to search and find large amounts of useful information on any subject or challenge.

 Consistent production of content that builds awareness and trust, such a client success stories, testimonials, and content that educates, such as blog posts, e-books and online seminars is a major component of the new marketing system.

 4. Create a total web presence.

It’s simply not enough to have a website and think you’re really participating online.

 The majority of purchase decisions made today involved some amount of research online. Today’s business must be easily found online, easily engaged online, and easily communicated with online. This requires a major focus on SEO and social media participation.

 Of course, this also means integrating your online presence and activity into every offline business function.

 5. Orchestrate the lead generation trio.

With a fully functioning lead generation system in place, a large portion of your leads can originate as referrals, but by building out your system with the addition of advertising and public relations, you amplify your efforts in each.

 When a prospect comes into contact with your advertising message, reads about your new product in a trade journal, and then gets invited to your educational workshop by their accountant, they’ve practically sold themselves.

 6. Drive a lead conversion system.

Most small businesses view marketing as an exercise in lead generation only when the true measure of success is lead conversion.

 The same systems approach that created a lead must be in place when a prospect wants to learn more. Simply having a well thought out path that every new lead walks, a way to nurture and educate leads, and a proven process for orienting new clients can dramatically and positively influence that bottom line conversion results an organization experiences.

 7. Live by the marketing calendar.

The scarcest resource in any business is time. There is always more to do than possibly can be done. Some people deal with this kind of overwhelm by simply shutting down and doing very little.

 Marketing momentum requires consistent work over the long term and this is best handled by the creation of a marketing calendar. The annual marketing calendar is a great planning device for campaigns and product launches, but it’s also a great tool to schedule out the many projects that you know must be done in time.

 By creating monthly projects and themes, weekly action steps, and daily marketing appointments you keep the focus on marketing heightened and the building of your marketing system in full production.

 So, what would happen if you started to view your marketing as the system described above?

 Image credit: Cleveland’s Westside Marketing stu_spivack

 John Jantsch is a marketing consultant, creator of the Duct Tape Marketing Consultant Network, and author of Duct Tape Marketing and The Referral Engine.

Use Word of Mouth to Build Business By Staffing Your Store to Spread the Word

By Jeanne Bliss/ November 11, 2010

Amy’s Ice Creams in Austin, Texas, is beloved for two things: the ice cream and the floor show. They are the ice cream equivalent of Seattle’s “flying fish.” Ice cream scoops are thrown from one worker to another and caught in cups balanced on their chins . . . while standing on one foot . . . hopping. You’ll see ice cream slingers sliding across the counters on their knees and bellies. It’s a carnival ride in there.

Finding people who are fearless and creative enough to come up with stunts like flinging ice cream balls across a room just can’t happen in the normal interview process. How exactly do you ask, “Are you a little bit nuts?” You can’t. So, at Amy’s, applicants receive a white paper bag. It must be brought back within a week turned into a creation that tells Amy’s about who they are. From this white paper bag, Amy’s finds the personalities to fill their shops.

Without the Right People, This Is Just Great Ice Cream

By using a plain white paper bag as its job application, Amy’s gets to know the creative soul lurking within the teenaged candidate standing before them. This idea began with an applicant who was given the bag instead of the boilerplate job application because Amy’s had run out of the forms. The applicant floated the bag back into the store with helium balloons; inside the bag were items about her life. She got the job. Now for all applicants, this is how Amy’s fills their shops with people who make getting ice cream like going to the circus.

Revel in “Being Real”

The Amy’s Ice Creams Web site says, “Amy’s looks at ‘going out for ice cream’ as a total sensory experience that can revitalize a less-than-stellar day.” Part of the joy of going to their ice cream shops is wondering what kind of floor show you’ll be greeted with. Getting the right people to work at Amy’s has spurred their growth from a single location in 1984 to over 14 stores today. In 1984, Amy’s sold 125,000 servings of ice cream. Now they sell well over 1 million a year, with gross annual sales exceeding $5 million.

Like many beloved companies, Amy’s Ice Creams doesn’t advertise. Word of mouth builds the business, and Amy’s redirects marketing money to community development, which fuels more word of mouth. Amy’s represents the power of the small business owner and how service and exceptional experiences can build a small business. Amy’s Ice Creams prospers because it revels in being real. Its employees revel in being their kooky, nutty selves–and people love it. This translates to Amy’s website, where the home page welcomes you with “Life is uncertain, eat dessert first!” Sound advice.

Go Try This

Get “real” in how you hire and bring people into your company

  • First, define the core values of the people you want to fill your company.
  • Next, determine the personality of your company. Are you serious and deliberate? Are you whimsical?  (Have you thought about it?)

Next, examine your current hiring process:

  • Are you deliberate about selecting people who will deliver your company’s dis­tinct personality to customers?
  • How would your customers say you are doing?
  • Do customers rave about how unique you are?
  • Are you selecting “memory makers” or just filling slots?

Decide to be real:

  • What’s your version of a white paper bag you can use to select people who will become your company to your customers?

Managing Cash Flow: 5 Things You Need to Know

Posted 11/ 11 10 at 7:00 PM
If you ever played Monopoly, you learned that by managing your cash flow wisely, you could buy a bunch of houses and hotels — and win. If you didn’t manage it well, you might wind up in jail or penniless.
 
Small wonder that aside from bankruptcy and audit, the term cash flow is probably the most terrifying in an entrepreneur’s dictionary. According to a survey by Intuit, 22 million of the nation’s smallest business are waiting for approximately $1,500 in overdue payments every month, creating a $33 billion logjam on their cash flow. In the same survey, 42 percent of business owners said they stay up nights worrying about how quickly they will be paid.
Obviously, the money your customers give you is cash flowing “into” your business, and the checks you’re writing to pay salaries, suppliers, utilities and others constitutes the cash flowing “out” of your business. And as entrepreneurs know, a positive cash flow is the holy grail for all business owners.
But when more money flows out than in, you’ve got a problem. Want to better manage cash flow? Here are five things you need to know.

Anticipate everything.

Not that you can anticipate everything, but if you can see trouble ahead, “You can reduce inventory or stretch your payment time to your creditors if you have to,” says Mary Ann Campbell, a spokeswoman for IndexCreditCards.com. “You want to cut your losses and costs quickly.”

Not surprisingly, William A. Andrews, director of the Prince Entrepreneurship Program at Stetson University, says planning ahead can reduce the chances of a cash crisis. “By keeping a cash budget — a careful projection of how much money you anticipate having in the corporate checking account at the beginning of each of the next 12 months — you can estimate with a fair degree of accuracy if and when you will run out of money and how large of a credit line you will need to get you through the months of negative cash flow,” he says. “Equally important, you can identify your need for a credit line months in advance, so when you approach your banker, they will be more inclined to give you a loan than if you show up on Tuesday fretting about not being able to meet payroll on Friday.”

And how, exactly, do you do that? “Despite its usefulness, few small businesses keep a cash budget,” Andrews says. “Most accountants can help you set one up.”

Bill promptly.

Alice Bredin, a small-business adviser to American Express OPEN, suggests having a system in place so you don’t slip up and forget to bill a client and can recognize immediately if a check is late. “The longer you let an invoice go, the less likely you are to get paid,” Bredin says. Don’t hesitate or worry about being too aggressive in trying to get your money. First, it’s money you earned, and second, if an invoice is being held up, “It may have been sent to the wrong person, and you need to figure that out, pronto.”

Pay your own bills on time.

A lot of experts suggest asking clients if you can pay within 45 days of a service, rather than the typical 30. If your cash reserves are weak, it’s better to pay on Day 29 than Day 2. On the other hand, karma is real, especially with business relationships. So if you can pay the people you owe quickly, you should. If you’re paying suppliers as slowly as possible, and they’re the ones calling you to see when the check is going in the mail, don’t expect a lot of favors in return — and you may find that as you pay slowly, you’re no longer considered an important client. That type of reputation change can subtly affect your cash flow and business as a whole.

Hord cash.

Especially if your cash flow is up and down, it’s essential to put something away for those lousy months, according to David Stone, president of Nevada Association Services, a Las Vegas-based collections agency. “If you can build an internal cushion for your company to be able to survive the dry spells and therefore don’t need to put pressure on your clients for payments, when they are able to pay you, you will seem like the hero,” he says.

How much should you put away? Bredin says most accountants suggest having six months’ of expenses tucked away, or at the bare minimum, two or three. But she adds, “I hesitate sometimes to give numbers because they can seem so overwhelming.” Her advice? Save — “as much as possible.”

Market your business.

Market even when you’re busy, and especially when you’re busy. This is a lot easier said than done, but seasoned entrepreneurs will tell you that if you don’t keep looking for ways to keep customers and dollars coming, suddenly you’ll find yourself in a lull. You may enjoy the break, but lulls can easily lead to a lack of cash flow.

Do Employees Still Feel Lucky to Have Jobs?

November 4, 2010, 7:00 am

By JAY GOLTZ

It has now been almost three years since the economy entered the Great Recession and two years since it took the nosedive in the fall of 2008. Though the economists say the recession was over months ago, the small-business owners I talk to have not seen sales rebound to where they were. Some businesses haven’t rebounded at all. I have been in business for more than 30 years, and I have never seen anything like this. It’s like a normal recession but with an extra year or two thrown in. Yes, things have stabilized, and in some cases they have gotten better. On the human side, things are precarious.

Think about this: if your company normally gives out raises in January, as mine does, but you stopped after the economy turned, it may now be almost three years since your employees last got a raise. Ouch. On top of that, they have seen their 401(k) balances drop along with the value of their homes. As if that weren’t enough, credit card limits have been lowered, and getting new credit has become much more difficult. But the recession is over! Many people think that they have paid their dues as loyal employees and have shared the pain long enough. Though inflation has been near 1 percent, they have still lost ground, and it is hard to break the rhythm of getting raises every year as most employees have for most of their careers. Fair enough. But this has nothing to do with fair. Actually, it has more to do with fear.

During that first year or so of recession, the rally cry for many employees was “I’m lucky to have a job!” — and most people agreed. With the unemployment rate near 10 percent and with everyone knowing people who were out of work, most employees were very happy to have a job — even with pay freezes, furloughs, reduced hours, and even pay cuts. Now that those same people hear that the recession is over, and it has been three years since they have had a raise, fear is being replaced by frustration. It is easy to understand why they are anxious, why they’re hoping to get raises. They need the money. They have been working harder than ever. It has been three years! What is not easy is the situation.

Some companies are still treading water. In fact, many are happy to be treading water — as opposed to drowning. In many cases cutting back on wages has enabled them to fight another day or another year. No doubt these companies appreciate their employees and would love to bring their salaries back to previous levels and start giving raises again. But there is one nasty thing that is stopping them: reality. The reality is that if they start increasing payroll expenses without increasing profits, they are going to start losing money again (if they ever stopped).

In my case, our sales remain soft, and I have invested thousands of (borrowed) dollars in a building and equipment to put us in a more competitive position in the long run. I am confident that it will work eventually, but it is going to take some time to get the return on investment. Since we started preparing a budget for next year, I have had several conversations with managers about pay raises. Out of 103 employees, about 10 have asked for one. Are these just the bold ones? I’m sure that is part of it. Are these just the ones who have taken on more responsibility and feel they deserve it? Yes, in some cases, and they are right. Are some of them just in worse financial situations than others? Probably not. I am sure that everyone could use a raise and would love to have one. I don’t believe in negotiating salaries. I believe in paying the market wage and not penalizing or rewarding people based upon their negotiating skills.

Paying a “market wage” means that if employees are unhappy because they are paid less than the market wage, they can and in some cases should go find a job that will pay them more. Needless to say, there are other considerations like stability, work conditions, benefits, opportunity and other intangibles, but it’s ultimately about supply and demand, which is one aspect of economics that still works. It also means that if an employer decides to give out raises and ends up paying everyone more than market wages, the employer will have costs that are above market and that will put the company in peril because its competitors will have a cost advantage.

Still, I think having an across-the-board wage freeze at this point probably is a bad idea. Some employees have taken on new responsibilities, increased their skill levels, or increased their productivity, and they deserve a raise. The job market has gotten somewhat better and they may find better options.

But if employees expect to get a raise just because they haven’t gotten one in a while, that is “old economy” thinking — especially if your company is still hurting. If you ask for a raise, you probably should bring evidence that you are being paid an under-market wage. This is easier said than done. It doesn’t mean going to salary.com and using it as Exhibit A. The job titles leave room for interpretation, and the site includes salaries from large companies that pay on a different scale. More importantly, you have to be able to get that job at the higher rate.

If you don’t have an offer, this might not be the best time to talk salary with your boss, who probably has taken a cut, too, and may even have stopped taking a check. The door swings both ways. Your boss just might suggest that you go find a job at that higher salary, which is not what you want to hear. Keep in mind, with unemployment near 10 percent, your boss may be thinking that your replacement could be hired for 10 or even 20 percent less than you’re making. The message here is that nobody’s happy. Welcome to the club that no one wants to join!

But to the bosses out there, I suggest that you make sure your best people, who have options, are not caught in a salary freeze that leaves them cold — and leaves you out in the cold if they leave. A little fear is not necessarily a bad thing. But 2011 will be better. And 2012 will be better yet. These are trying times. Try to be patient. It’s a virtue. I don’t think I’ve ever said that before. The new economy.

Jay Goltz owns five small businesses in Chicago.

My Corporate Management Style Didn’t Fly at My Small Business

By Kimberly Fowler | November 4, 2010

When you go from being a corporate manager to running your own business, it’s easy to think that you already know what you need to know about managing employees. I know I did.

I opened YAS Fitness Centers after having been the COO of a $200-million company (and a lawyer). I had proven management skills. My nickname at the company was “The General,” which I loved and took as a compliment.

Yet, when I started YAS, I could not keep employees to save my life. The first time I would speak to them in a way that I simply considered direct, they would take offense, thinking I was “snapping at them,” and quit.

I didn’t understand. I’d think, “What’s the problem?” as the problem quickly became my own, and I found myself working the front desk, teaching classes, and basically being the only employee I could count on.

But the real problem was my management skills needed adjusting. When you run a huge company and you say you want something done, it gets done (most of the time). You have a bunch of people under you whose job it is to make sure of it. As a COO, you mostly deal with VPs who deal with managers or directors who deal with workers. Not so with a small business.

There was no one between me, the owner/manager, and entry-level employees. And my COO management style was too direct for many of these employees. I was trying to run a yoga and spinning studio like a big company. It didn’t work.

So I adjusted. I worked on softening my approach with my staff. Here are three key things I did that had the biggest impact:

  1. I learned to listen to my employees. They are, after all, the ones managing the “front lines,” dealing with customers at the desk, and teaching them in classes. When they have great ideas, I encourage my employees to run with them. For example, my assistant manager for YAS East Costa Mesa, is great at marketing. She came up with the idea of doing contests, like the “30-Day Yoga Challenge,” and now we do the challenge at all four locations.
  2. I created a reward system: If someone has been with the company long enough and is excelling, they become a member of our “Green Team” (YAS colors are green and grey, hence the name). This is a prestigious title, in the world of YAS, and it means members also get a raise. I always compare them to the “All Blacks” in rugby. (The best of the best.)
  3. I made my employees brand ambassadors: This is a concept I learned when I was Nike’s Yoga spokesperson. I make my instructors brand ambassadors by outfitting them with YAS Yoga & Sportswear. They get free clothing in exchange for coming to staff meetings or winning marketing contests, like bringing in the highest number of new students in a month. It’s fun for them and it helps me advance the YAS brand.

It was a gradual process. But I now have over 100 employees after starting with ten. I also have a VP and several managers, which is great when I need a buffer between me and my entry-level staff.

YAS has been successful, but with that success, I’ve been confronted with another management challenge that I didn’t experience in my previous jobs: A few employees resent my position or my success. I’ll hear through the grapevine things like, “Why does she have a nice car? I’m the one making her business the money.”

It’s a frustrating situation. My employees did not take the risk in creating the business and do not bear the risk of keeping it afloat. They didn’t come up with the successful concept, and they didn’t make enormous sacrifices to make that concept a reality.

They overlook the sweat and tears it took to build the business and instead see the press that I get as the founder of YAS, which makes it look like starting a business is all very glamorous. (Of course, it’s not.) I work like a dog. Fortunately, the majority of my employees see that.

Have you experienced a similar situation where your employees have founder envy? How do you deal with it?

Kimberly Fowler is founder/CEO of YAS Fitness Centers, a growing chain of yoga and indoor cycling facilities. A motivational/business/fitness expert, Kimberly’s a former pro triathlete and lawyer. Follow her on Twitter @kimberlyYAS

5 Low-Tech, High-Impact Things to Do Right Now

Nov 04, 2010

If you are feeling strangled by your electronic tethers, disconnect and try all or some of these five things to end 2010 on a super positive note.

 1. Review all your customer accounts to zero in on who owes you money—and how much. Your mission is to get some money in the door—or prepare to write it off as a loss. Once you’ve made the list of deadbeats, dust off the company letterhead or make some by cutting and pasting a company logo onto a blank word document. Do not do this task via email. If you want to really get someone’s attention send certified letters that require a signature. Here’s a sample collections letter: 

 “We truly value your business and look forward to serving you next year. However, it has come to our attention that you owe us $_____ for ___________. We are prepared to offer you a __% discount on the balance due if you submit payment via check, cash or credit card within the next 72 hours. If you are unable to settle your account, we may not be able to serve you in the future.” 

 Remember, if the account has been overdue for months, you have nothing to lose. The company will either pay up, send a partial payment (which is better than nothing), or be tossed into your “write it off and move on” pile. Don’t worry about hurting anyone’s feelings. You are in business to make money, not provide charity. If you don’t accept credit cards, set up a merchant account. It will instantly improve your cash flow.

 2.  Ask your employees what kind of equipment, technology or tools they need. Most employees would rather have a new computer or phone than a small cash bonus, according to personnel expert and author Dr. Bob Nelson. Buying stuff has other advantages. In 2010, Uncle Sam (and Congress) permuted business owners to expense up to $500,000 in equipment purchases (that includes vehicles). With tech prices at all time lows (except for Apple products), it’s time to hit the stores before Dec. 31st. (Note: I recommend shopping in a store—not online—so you can play with the all new toys before buying them).

 3.  Plan a holiday open house. I know times have been tough, but it’s time to celebrate the fact you are still in business. Pick up soft drinks, beer and wine. Order simple, tasty party food from a local restaurant. Ask if anyone on your staff would like to bake a batch of their favorite holiday treats. (Offer to pay for the ingredients). Then, use the party as an excuse to clean up the office. Hire a professional crew to do the heavy stuff (like shampooing the rugs and scrubbing the bathrooms). Ask everyone to toss out all the junk they’ve collected and tidy up their work areas. Decorate the office with green plants, evergreens and poinsettias.

 4.  Beat the Christmas, Chanukah and Kwanzaa rush by sending Thanksgiving cards. Paper cards (not e-cards) show appreciation for your customers as the year winds down. After mailing out the cards (check out www.sendoutcards.com), figure out if it’s possible to shut down between Christmas and New Year’ Day. Unless you run a retail store, restaurant, hotel, emergency clinic or bakery, consider giving everyone a few extra days off—with pay.

 5.  Make a list of New Year’s resolutions. Take a long walk and think about what went wrong and how you can make 2011 a better year. Promise me you’ll eliminate toxic employees or customers from your life. My motto is this: never work with anyone who gives you a headache or a stomach ache. Period. Why tolerate lazy or incompetent employees when there are millions of great and talented people looking for work? Be sure to consult an experienced labor lawyer before you fire anyone. If it’s time to let go of a toxic customer, refer them to another company. And, remind yourself there aren’t really bad people—just people who are a bad fit.

 Jane Applegate is the author of 201 Great Ideas for Your Small Business, published by John Wiley & Sons. The fully revised third edition will be out in 2011. Applegate is a speaker for the Bloomberg Financial Forum and an event producer and strategic marketing consultant for big and small companies. Contact: www.theapplegategroup.com.

Use Body Language to Build Rapport

Posted by: Today’s Tip Contributor on November 3, 2010

People don’t buy your products, your services, or your brand. They buy you. Whether you’re negotiating with suppliers, managing staff, or speaking directly with customers, it’s vital that you create congruency between your words, your body language, and your message so that you are sending the signals you intend the listener to receive. If done successfully, you will lay a foundation for honesty, integrity, and fair dealing as a key dynamic in the business relationship. Here are the three most important body language tips to help build rapport:

1. Establish natural eye contact. Refusing to make eye contact communicates discomfort and can even suggest that you can’t be trusted. Natural eye contact demonstrates full engagement and facilitates emotional connection with your listener. If it starts to feel unnatural, glance away for a few seconds and then resume contact to show that you are earnest and actively listening.

2. Open your hand. Hand and arm gestures enable you to emphasize a specific point. Gesturing palm up, with an open hand, communicates acceptance and inclusion and welcomes the listener to a trusting, two-way conversation. This movement works well in one-on-one conversations and is particularly effective if you are speaking to a group from the front of a room.

3. Make distance work for you. Using your personal space is a powerful way to communicate a message. When showing that you care, move closer to your “audience” (whether it consists of one person or 20). If you were originally 10 feet back, take a few steps closer; if you are sitting across the table from someone, lean forward an inch or two. Be aware that shifting away from someone can communicate that you are anxious or lying, although leaning back naturally can display confidence.

The most important thing to remember when using body language is that it should create congruency between what you say and what you do. In other words, it’s not enough just to speak confidently; your body needs to show it, too. While this may come easily to some, it takes practice for most people. Don’t be afraid to try techniques in front of a mirror or to film yourself to make sure your body is delivering the same message your words are communicating.

Keld Jensen
Chairman
Center of Negotiation at Copenhagen Business School
Copenhagen

Did Obama Really Cut Small-Business Taxes 16 Times?

October 30, 2010, 8:00 am

By ROBB MANDELBAUM

On Monday, President Obama visited yet another small business, American Cord & Webbing, which manufactures hardware for outdoor gear in Woonsocket, R.I. He was there to talk about his two principal accomplishments on behalf of small businesses — easier access to loans and tax relief. He told the audience, and the assembled reporters: “We’ve now passed, with the help of these outstanding members of Congress, 16 different tax cuts for America’s small businesses over the last couple years.”

The assertion that the Obama administration has cut taxes for small business 16 times might surprise some entrepreneurs — which of course is why Mr. Obama made the trip in the first place. But the White House backed the claim with a fact sheet. Here, for the record, are the taxes the administration says it has cut, in its words:
• A new small-business health-care tax credit
• A new tax credit for hiring unemployed workers
• Bonus depreciation tax incentives to support new investment
• 75 percent exclusion of small-business capital gains
• Expansion of limits on small-business expensing
• Five-year carryback of net operating losses
• Reduction of the built-in gains holding period for small businesses from 10 to seven years to allow small business greater flexibility in their investments
• Temporary small-business estimated tax payment relief to allow small businesses to keep needed cash on hand

The White House also identifies these provisions in last month’s small-business jobs bill (see this post for a brief description of each):

• Zero capital gains taxes on key investments in small businesses
• The highest small-business expensing limit ever –- up to $500,000
• An extension of 50-percent bonus depreciation
• A new deduction for health care expenses for the self-employed
• Tax relief and simplification for cell-phone deductions
• An increase in the deduction for entrepreneurs’ start-up expenses
• A five-year carryback of general business credits
• Limitations on penalties for errors in tax reporting that disproportionately affect small business

Taking a closer look at this list, The Agenda notices a couple of things. First, some of those provisions are not all that “different.” The list includes three measures in the small-business jobs bill that extend (and in two cases expand) relief in the 2009 stimulus for which Mr. Obama also takes credit. (The Obama administration overlooks another extension and expansion in the recent jobs bill: a further reduction in the built-in gains holding period to five years.)

More substantively, half of these “tax cuts” are actually incentives that reward businesses for taking actions they might not otherwise take — in other words, you have to spend money to get the tax benefit. For example, only businesses that already provide health insurance to their employees now would consider the health-care credit a tax cut. Of course, while firms using the incentive for the first time would see their expenses rise, the credit would offset 35 to 50 percent of the added cost. The main beneficiaries are businesses making big investments (and perhaps those caught surreptitiously investing in tax-shelter scams — the last item on the list, translated into plain English). Encouraging such investments may be a worthwhile public policy goal, but in this economic climate, the number of companies that will participate is likely to be limited.

In other words, those inclined to be suspicious of Mr. Obama probably won’t take much comfort in this enumeration.

Finance Your New Business: Its Not as Complicated as You Think

Tom Harnish/Oct 26, 2010

These are tough economic times, but despite that (in some cases because of it) people are trying to find money to start a new business. If you’re one of those people, and you’ve never done it before, the process can seem impossibly hard — but fundamentally, finding money really isn’t complicated.

There are only three ways to finance your dreams if you don’t have enough money to start it yourself:

  • You can ask someone to write you a check (with the understanding that you’ll have to pay the money back). You also have to accept that you’ll have to give them a bit extra, too. Think of the interest on a loan as rent you pay to use their money. In financial language, that’s called debt financing.
     
  • You can ask someone to write you a check, with the understanding that you’re trading the money for part of your company. You also have to accept that you will have to give them some control because now they’re an owner too. In financial language, that’s called equity financing.
     
  • You can do both.

However, you can’t just march into a bank, ask for money, and walk out with it. You also can’t just stick out your palm and expect someone with a lot of money to peel off hundred-dollar bills. It would be nice if it were that easy, but people who give you money first want to know if you can do what you say you will.

So, what about borrowing from someone who already knows you, likes you, or loves you? Turns out they are the most common source of startup money after the owner’s own.  Borrowing from someone you know can be intimidating, though, because we all know at least one person with a strained relationship because combining family and business didn’t work out. Still, consider this option carefully because it is the way many people finance a new business… just keep in mind it could make Thanksgiving dinner a bit awkward.

Debt Pros and Cons

The good news when it comes to lending institutions (banks, credit bureaus, finance companies) is that you don’t have to marry them. The bank has no say in how you run your company, and when you pay the money back, the relationship is over. You can get short term and long term loans, and you know how much you have to pay each month, allowing you to plan and budget — plus you can deduct the interest you pay from your taxes.

The bad news is you have to pay the money back in a certain length of time, and you can’t miss a payment regardless of how your business is doing. Bad weather, flu epidemic, and “my dog ate my homework” are not acceptable excuses. Plus, if you have too much debt, investors will consider you a risk and that will make it hard to raise equity capital, even if business is good. Yes, you will have to pledge your first-born or at least your house as collateral. If you aren’t willing to stand behind the deal, why should they?

Equity Pros and Cons

Investors are in for the long haul. They won’t expect monthly payments or a financial return in the short run, and you don’t have to pay investors back, even if things go sour. What’s more, investors can add credibility to your business, especially if you manage to find some that bring connections or expertise you don’t have.

The bad news is your dream company isn’t just your dream any more. Your investors have a stake in its success, and they will take steps to protect their investment. We’re not speaking of anything drastic, but we are talking some heavy-duty “discussions” if you and your investors don’t agree on the direction the company is going. In fact, you could actually lose your company if investors don’t like what you’re doing and collaborate to force you out. We said debt financing doesn’t require that you get married. Equity financing does — until death or bankruptcy do you part.

Reality

Let’s get serious. If you’re looking for equity capital from investors, you better have a track record, a dynamite team and a marketing plan that kicks butt… or a rich uncle. Notice we didn’t say anything about a great product. A clear understanding of your market and how to sell in it with a foggy product idea is much more important than an exquisitely defined product without a market.

Professional investors and angels are offered more deals than they can afford. What’s more, only about 15 percent of startup businesses are financed with professional equity capital. Your business has to be very, very special.

If you’re looking for debt capital, you’d better have a great credit record and property you can pledge as collateral. But only about 20 percent of startups are started with bank loans, er… debt financing… and only 20 percent more are started with loans from friends, family or business associates.

So how do you find money to start a business?

Most new businesses start with less than $10,000, and four out of five are self-financed. Sell your toys, get a second mortgage, tap your life insurance, raid your IRA, take a part-time job, rent a room, borrow against your credit cards, sign up for medical tests, sell your blood, and sweet talk your friends and family.

The road to success is to build a nest egg, start small, and stay lean. You don’t need a fancy office, business cards, and letterhead — you need customers. Don’t burden yourself with debt, plan ahead, and focus on cash flow. As your business grows, you’ll have the proof you need for people who don’t know you: You can do what you say you will.

Research shows that people who have to wait in line to see a movie enjoy it more than people who walk right in to the same movie. I’ll wager the same is true for people who pull themselves up by the bootstraps and build a successful company by making it happen on their own.

You can do it.

Tom Harnish is a serial entrepreneur. Always on the bleeding edge of technology, he learned what works (and what doesn’t) when raising money by spending countless (and often fruitless) hours in front of lenders and investors.

You Can’t Always Keep What You Want

The Senate today rejected Republican attempts to repeal a new regulation that would limit employers’ ability to modify their existing health plans and still qualify for exemptions from some of health care reform’s new mandates.

At issue is the “grandfathering” rule issued June 14 by the Department of Health and Human Services. This rule implements a provision in the health care reform law that was supposed to fulfill President Barack Obama’s often-stated promise that if you like the insurance plan you have, you can keep it.

Many small-business groups contend the regulation violates that promise because their plans would lose their grandfathered status if they take steps to curb rising health insurance premiums, such as reducing benefits or raising deductibles beyond a certain amount. Once plans lose their grandfathered status, they will have to meet all of health care reform’s mandates, such as preventive care at no cost to employees. This expanded coverage will, of course, cost more.

HHS itself estimates that 39 percent to 80 percent of small businesses will lose their grandfathered status under its regulation.

So much for keeping your insurance plan if you like it.

“The Obama administration has broken that promise,” said Senator Mike Enzi, Republican of Wyoming, who sponsored a resolution that would repeal the regulation.

“Small business is really upset about this,” he said. “This new rule will significantly tie the hands of employers.”

The Senate, however, rejected the resolution today on a 59-40 party-line vote.

Democrats contended the grandfathering regulation doesn’t violate Obama’s promise. Employers can still make reasonable changes to their health plans, “but they can’t change the fundamental nature of a plan and still call it a grandfathered plan,” said Senator Tom Harkin, Democrat of Iowa.

Plans shouldn’t be able to make significant changes in benefits, deductibles, co-payments, or an employee’s share of premiums and still be grandfathered, he said.

These rules are necessary to protect consumers, he said. Otherwise, they “would be at the whims of the insurance company,” he said.

Most small business groups lobbied for repeal of the regulation.

“Rather than increasing options and lower costs, the interim final rule forces small employers to either pay more to maintain grandfathered coverage, shop for a new (and more expensive) plan, or possibly drop employer-sponsored coverage entirely,” read a letter to Enzi signed by 37 business groups that belong to the Small Business Coalition for Affordable Healthcare.

The Main Street Alliance, however, opposed the resolution repealing the grandfather regulation. The small-business owners who belong to this organization contend the regulation will ensure that small firms can obtain good insurance with strong consumer protections.

“Let’s be clear,” its letter to senators said, “Those who seek to block implementation of the new grandfather regulations are acting in the best interests of the insurance industry, not Main Street small businesses.”

That’s an allegation frequently made against the U.S. Chamber of Commerce, but look at the other 36 members of the Small Business Coalition for Affordable Healthcare. Is the National Federation of Independent Business a shill for the health care industry? For more than a decade, it pushed for legislation to allow national trade associations to sell insurance, a bill that insurers helped kill because they didn’t want the competition.

What about the American Council of Engineering Companies, the Furniture Dealers Association, the National Roofing Contractors Association, and the Service Station Dealers of America. Are they working against Main Street businesses? Of course not.

Democrats, and the organizations that support their legislation, should stop blaming all business opposition to health care reform on insurance companies. Most Americans get their insurance through their employers, and businesses can only provide this benefit if they can afford it. Congress needs to listen to the business community’s concerns on this issue, not dismiss them.
Kent Hoover is the Washington bureau chief for bizjournals.

Personal Note for the Pres:

I lost my “grandfather” status this month because I increased my deductible more than 18% on my personal health policy. All other elements of the policy remainded unchanged.

So why did I change the deductible? I was facing a 25% premium increase. By changeing the deductible I only incurred an increase of 6%.

Thanks for your concern Congressmen!

12 Ways Your Financial Statements Tell Lenders the Wrong Story

Sep 27, 2010 –

Your financial statements may not make the bestseller list, but they do tell an intriguing story—at least to a banker. Unfortunately, the tale they tell may be misleading. Since finance is no place for fiction, you need to make sure your statements tell the truth, the whole truth, and nothing but the truth.

To do that, the first thing you need to know is that lenders read an abridged version of your balance sheet and income statement. Their credit department crunches your numbers to generate key ratios that make it easy to quickly assess your financial health. The more you understand about the ratios they care about and how they’re derived, the better you’ll be at making the story they tell a good one.

You’ve no doubt heard the phrase “garbage in, garbage out.” If the numbers on your year-end balance sheet and income statement aren’t representative of your real financial situation—which can happen for a variety of reasons that follow—the ratios that are based on those numbers will be rubbish and the story they tell will be incorrect.

Here are some of the common business situations that can distort your financial statements and potentially lead your reader astray.

Balance Sheet Lies

Your Balance Sheet offers a snapshot of what you own (assets) and what you owe (liabilities) on a certain date. Just like a photo in a book, it represents an instant in time. How you looked the moment it was taken is immortalized, but what happened before and after is a mystery.

That means that unusual year-end transactions can paint the wrong picture, and because year-to-year trends are almost as important as the numbers themselves, it’s one you’ll be stuck with for a long time. Here are some of the more common problems:

1. Large year-end purchases

While that close-out sale your supplier offered was a good deal financially, it will inflate both your inventory and your accounts payable.

When your lender runs your inventory and payables ratios and compares them to those of prior years and what’s typical in your industry, they’ll look out of whack. Without knowing about the year-end event, they might worry about a business slowdown, poor inventory management, or stale inventory (and, therefore, questionable collateral value).

2. Large year-end sales

If you have an unusually large sale at year-end, that will inflate your Accounts Receivable and suggest poor receivable management, uncollectable accounts, or an industry downturn—all of which might cause a lender to question the collateral value of that asset.

3. Extended payment terms from your supplier

Say your biggest supplier decides to offer extended payment terms for October and November purchases. If you take advantage of the opportunity, that will bloat your year-end Accounts Payable. To a lender, that will raise two red flags.

First, it will suggest a cash flow problem because if current liabilities (accounts payable and short term debt) are greater than current assets (cash, accounts receivable, and inventory), you won’t have enough cash to cover your bills.

Second, it could indicate that you’re not paying your bills on time—something that’s often an indication of bigger problems.

4. Off-balance sheet assets

If you hold business assets in a separate entity (such as a real estate partnership), this will reduce the ratio of what you owe to what you own. Known as the Debt to Worth (or Equity) ratio, lenders get nervous if this ratio gets too large.

5. Friendly debt

Unless loans from owners or others who’d be willing to take a back seat to a bank loan (called a subordination) are noted, they’ll hurt your Debt to Worth ratio.

6. Highly depreciated assets

If your balance sheet contains assets that are fully or highly depreciated—yet still valuable—the Debt to Worth ratio will look worse than it is. Be sure to note the market value of any assets that are worth more than their balance sheet value. By the way, don’t waste money on an actual appraisal. If the bank requires one, they have to order and pay for it themselves.

Income Statement

Your income statement can tell the wrong story too. We won’t even talk about under-reporting income except to say, “don’t.” However, there are legitimate factors that can make you look less profitable or more risky than you really are, such as:

7. A big contract or unusually large sale

You would think that landing a big fat contract would please your lender, but that’s not always the case.

First, unusually large contracts can be risky. There’s the risk that you may not perform. There’s the risk that the expenses you take on to fulfill the contract won’t be easy to shed once it’s completed. There’s a payment risk—a behemoth customer you can’t afford to fight might string you along or default altogether. There’s the risk that you get so overwhelmed with this contract that you neglect your other customers. There’s the pricing risk—eager to beat out the competition, small businesses often under-price their work. There’s the risk of the unknown, especially in fixed price contracts.

Second, absent a similar project next year, your numbers will appear to be on a downward trend. Remember, trends matter almost as much as the numbers themselves and lenders like trends to be stable or improving. This is not to say you should avoid unusually large sales. You just need to be sure your lender understands the resulting decline in revenue that occurs in subsequent years.

8. One-time expenses

One-time expenses (for an office renovation, product development, temporary hire, etc.) will raise concerns about cost containment and sustainability and may cause your profit margins to compare unfavorably with industry peers.

9. A change in accounting methods

A change from the cash to accrual method of accounting will obviously have a big affect in the year the change occurs, but even small changes matter.

Let’s say your administrative assistant moves into a commission-based sales position. His salary becomes a direct expense rather than an indirect one. That will lower your gross profit margin and even though your bottom line hasn’t changed, it will suggest the start of a downward spiral in profitability.

10. Owner perks

Discretionary expenses and owner perks obviously reduce profits. Be sure they’re disclosed in the financial statements. The bank will be happier if they know you could forgo them if times get tough.

11. A change in your sales mix

The addition of products with lower profit margins or a one-time sale at lower margins will cause your lender to suspect that you’re buying market share, unsustainably lowering your prices, or facing heavy competition.

12. A bad year

While a bad year will obviously concern a lender, if you’ve taken steps to fix whatever caused the problem, it’s important that you show them what you’ve done. For example, if you cut back on expenses or started selling higher-margin items at mid-year, you might want to prepare an income statement showing the full year effect of those changes.

What Your Banker Wants To See

So what the heck does your lender want to see in terms of financial ratios? According to Brett Mansfield, Senior Vice President of Business Banking for Union Bank, ratio expectations differ by industry, the size of the business, and other factors, but in general, here are the benchmarks he and other lenders look for:

Current Ratio: 1.5 to 1 or higher
Quick Ratio: 1 to 1 or higher
Debt to Worth: 3 or 4 to 1 or lower
Cash Coverage: 1.5 to 1 or higher
Performance Ratios (Gross Profit Margin, Operating Expense Margin, Net Profit Margin) should be consistent with your history and others in your industry
Accounts/Receivable (A/R) Turnover Ratios should be consistent A/R terms
Inventory Turnover ratios should be consistent with your history and others in your industry
A/P Turnover should be consistent with your payment terms

Mansfield notes too that ratio expectations aren’t hard and fast. “Weakness in one area may be offset by other strengths.”

It’s your job as a business owner to make sure your numbers tell the right story and if they don’t, the solution in most cases is fairly easy. You just need to explain anything unusual in the notes section of your year-end statements to clear up any potential flaws in the plot.

For more information on how to calculate key financial ratios and what they mean, check out this earlier post, Read Your Financial Statements Like a Banker.

Over the past thirty years, Kate Lister has owned and operated several successful businesses and arranged financing for hundreds of others. She’s co-authored three business books including Undress For Success—The Naked Truth About Making Money at Home (Wiley, 2009) and Finding Money—The Small Business Guide to Financing (2010). Her blogs include Finding Money Advice and Undress4Success.

Setting Up a Business Structure

After getting laid off from a senior engineering job last year, Marc Karell launched a consulting business from his home in Mamaroneck, N.Y. But before he landed a single client, the unemployment benefits he had been relying on to make ends meet came to a sudden halt.

The reason: He established his venture, Climate Change & Environmental Services, as a limited liability company, or LLC.

Mr. Karell says that had he known the move would mean an end to his layoff benefits, “I probably would’ve held off on being an LLC for a little while.”

Deciding what kind of legal structure to form for your new business — and when to do it — may require more research and consideration than other tasks. Rules regarding eligibility to collect unemployment benefits vary by state, as do the costs associated with setting up the various types of entities. And each option has distinct tax, liability and administrative implications.

“You have to understand the ramifications of choosing one form or another or none at all,” says Matthew S. Gilman of Boston law firm Pepper Hamilton.

In general, most small businesses are structured into one of five basic forms: a sole proprietorship, partnership, C corporation, S corporation or limited liability company.

You don’t need to file paperwork to establish a sole proprietorship, which is a business that’s owned by one person or a husband-and-wife team. The same goes for partnerships, defined as enterprises with two or more nonmarried owners. For this reason, these options are typically the least expensive — though most states and cities do require entrepreneurs to obtain a license or permit to operate and will charge various fees.

C corporations, S corporations and LLCs, which differ by their tax structure, require filing paperwork. C corporations typically pay taxes twice — first on all income that’s left after business expenses are paid and again on that income when it’s distributed as dividends to shareholders. S corporations allow profits to pass through to the owners’ personal tax returns. For tax purposes, LLCs must elect to file their tax returns as a C corporation, S corporation, partnership or sole proprietorship.

A major downside to sole proprietorships and partnerships is that they lack liability protection. So owners’ personal assets could be at risk should their companies get sued.

AmyLynn Keimach and her business partner, Kenneth Tran, have yet to establish a legal structure that offers liability protection for Border7 Studios, a Web-services firm they launched in 2008. Ms. Keimach says they can’t afford the costs associated with electing to form an S corporation, their desired legal structure, in part because they started the Simi Valley, Calif., company after getting laid off without severance pay.

For now, the two are operating Border7 Studios as a partnership — and hoping they don’t run into any legal problems with their roughly 20 clients. “If they sue our company, they could take everything me and my partner own,” says Ms. Keimach. “It’s scary.”

Jennifer Chu wants to make her one-year-old business, Chu Shu, an S corporation in part because she says the tax structure would be more beneficial to the company. But Ms. Chu says she learned a costly lesson by not electing S-corporation status in time to apply those benefits to her New York business’s 2009 tax returns.

“I didn’t realize there was a deadline,” says Ms. Shu, who was laid off from an investment-bank just prior to launching her firm, a maker of odor-absorbing liners for women’s shoes.

The IRS requires that businesses elect to become an S corporation by March 15 of any given year to gain any tax benefits associated with that status for that year’s tax returns. And to elect S-corporation status, most businesses must first be either a C corporation or an LLC.

Overlooking the March 15 deadline “could cause a small-business owner to miss out on thousands in tax savings,” says Brian Wendroff, managing partner for Wendroff & Associates, an Arlington, Va., accounting firm.

When setting up a business entity, entrepreneurs also face the cost of hiring an accountant or lawyer to handle the paperwork involved. But some business owners may be able to take on the job themselves or use Web services like MyCorporation.com, BizFilings.com and LegalZoom.com.

On such sites, you pick the state where your business is based, the business structure you want and the required forms are provided. And you can fill those out and send them through the site. You also get customer-service support. The services cost an average minimum of about $95.

Rick Dunaj says he initially sought an attorney’s help in establishing his Los Angeles marketing start-up, Dunaj Agency, as an LLC in 2008. But the fee he was quoted — roughly $6,000 — was more than he could afford.

“When you’re starting your own business and need to be very conservative with the capital you’re putting in, that’s a lot of money,” says Mr. Dunaj, who left a firm in the same industry to go out on his own because a layoff was on the horizon. So he turned to MyCorporation.com, where he paid about $200 to get the job done.

While these websites offer guidance in choosing a legal structure, experts suggest consulting with an attorney and tax professional for advice specific to your business.

—For more tips on launching a venture, go to wsj.com/smallbusiness. Email: sarah.needleman@wsj.com

Corrections & Amplifications LLC stands for limited liability company. An earlier version of this article incorrectly referred this business structure as a corporation.

How SMBs Can Start Using Facebook Places Now

Sep 10, 2010 – Jolie O’Dell

If you’re a business owner and you’ve heard the recent news about Facebook’s attention-grabbing new feature for location-sharing and checkins, you’re probably itching to find out what Facebook Places can do for your business and how it can help you reach out to would-be customers and loyal regulars in your community.

While Facebook isn’t ready to announce any special brand-platform relationships or tie-ins just yet, one Facebook ad exec told us that the company does have plans to integrate Places with its larger marketing offerings for SMBs. The best thing a business owner can do to prepare for those offerings is get familiar with the ins and outs of Facebook and location marketing now.

Here are a few pointers for how SMBs can use Facebook Places and other marketing tools starting today.

1. Start a Facebook Page

In our conversation, this executive mentioned that many businesses have left out the most vital part of using Facebook Places or other features as marketing tools: They haven’t yet set up a Facebook Page for their company.

It might seem a bit obvious to a seasoned social media marketing pro, but establishing and maintaining a lively, informative presence on Facebook as a business is an art and a science. The first step is creating a Page. You can follow Facebook’s step-by-step instructions for making your business’s Page. Once you’ve got that ball rolling, be sure to check out these articles on how to make the most of your Page and apps you can use in conjunction with your Page.

2. Connect Your Facebook Page to a Facebook Place

The first step in getting your Places marketing campaign rolling is connecting your business’s Page to a Place. Click here for an example of what a Facebook Place Page looks like. To get started, you’ll first need to locate your desired Place Page on Facebook. 

Unfortunately, there isn’t an easy way to find a Places Page within Facebook’s website. Facebook told us: “We’re currently not surfacing Place Pages within search unless you have checked in there previously or one of your friends has and you click through to the Place Page on the web.” If you haven’t done either, the best place to start is by checking in to your Place.

To check in, use the Places features within the Facebook iPhone app. If you don’t have an iPhone, use the Facebook touch mobile site on a browser that supports both HTML5 and geolocation. Click “Check In” on either platform, and choose your location. If you can’t find your location, click “+” in the mobile app or “Add” via the touch mobile site to enter the name and description of your business. Finally, check in. 

On Facebook.com (not the mobile site or the app), go to your Facebook Wall, where your checkin is logged, and click on the link to the Facebook Place. After locating the Place, click “Is this your business?” at the bottom of the Places page. Lastly, you’ll need to submit copies of paperwork proving that your place of business is legally connected to the physical address of the Facebook Place you want to claim. Or, you might be able to verify your business address over the phone. You may have to wait a short period of time after verifying your location, but eventually, your Page and Place will be linked by Facebook.

Your business’s Place page will show Facebook users a map of where your business is located, a list of any of their friends who are currently checked in at the Place and an activity stream of others who have checked in at your business in the past. Users can “Like” and “Share” Places on their Facebook profiles, as well.

By claiming your Place you can manage your Place’s address, contact information, business hours, profile picture, admins and other settings.

3. Build Your Facebook Community

Once you have a Page and a Place and the two are linked, make sure that your social media marketing efforts are targeted and effective, and be sure to build out your Facebook community. Doing outreach and marketing to this group requires a little research and some attention to detail, but many small business owners have seen huge success on a marketing budget of zero just by promoting events and reaching out to their true fans on Facebook. 

The best social media marketing is cheaper than traditional online advertising, builds relationships with customers and engages your local community. Social media can get your business real results; check out some of these success stories for inspiration, and then get started with your own Facebook strategy

To track and measure your successes, take a look at this beginner’s guide to Facebook Insights, Facebook’s free built-in analytics tool.

4. Get into Facebook Ads 

Because Facebook’s self-service advertising can be hyper-targeted on a number of levels, including psychological, social and geographic factors, many SMBs swear on the ability of this platform to perform. One case study showed incredibly low cost per conversion stats, and other studies show how you can tweak your own Facebook ad campaign for maximum performance. 

Once you get your head around how Facebook Ads work, you can use your Page and Place to start a quasi-Place-based campaign. To advertise your Place, go to Facebook’s ad creation workflow and click “I want to advertise something I have on Facebook.” Then, simply choose your Place from the drop-down menu.

You can’t currently target ads to users who check in at your Place. However, you can target people who “Like” your Place page if you’ve linked your business’s Place and Page. From there, you should be able to use your imagination to create special promotions around checking in and sharing your business’s Page and Place on Facebook.

5. Test the Location Marketing Waters with Another LBS 

If you’re familiar with Facebook’s ad campaigns and have played with Places marketing a bit, you might also want to do a smaller-scale case study using other location-based services (LBS). These campaigns might not have the saturation to show you huge ROI at first, but they’ll definitely help you get your feet wet with location-based marketing and rule out or vote up some of your early ideas without heavy promotion or spending.

We can recommend these five apps, all of which have great partnership, advertising and marketing opportunities for SMBs. Some of them might be more prominent in your local area — as mentioned in item three, learn what social media users are playing with in your community, and use those apps to engage them.

The Small Beer Bill

SEPTEMBER 11, 2010

Editorial Page Editor Paul Gigot, Deputy Editorial Page Editor Daniel Henninger and Senior Economics Writer Steve Moore analyze the President’s press conference.

President Obama continued his Economic Contradiction Tour yesterday at a White House press conference, urging businesses to invest and lend more while attacking them for greed and sending jobs overseas. We’ll see in November if voters buy the cognitive dissonance, not least on his professed concern for small business. 

Mr. Obama hit Republicans hard for not passing his $42 billion Small Business Jobs Act, but Americans should realize that there’s less here than meets the soundbite. The bill contains $12 billion in targeted tax cuts, such as a 100% exclusion of capital gains income for certain small start-ups, expensing for certain capital purchases, and new deductions for start-up expenses.

These sound great, except only a fraction of businesses will be eligible and the write-offs last for only one or two years. One of the larger capital gains tax exclusions, for example, will apply to stock purchased between 2009 and January 1, 2011, which is only months away. In terms of the overall economy, these are very small beer.

The White House is right that a capital gains tax cut will help small businesses raise capital. So why raise that tax rate to 20% from 15% on January 1 for everyone else? This bill isn’t even a net business tax cut, because the temporary small business cuts are offset by permanent corporate tax increases. Mr. Obama is promising $12 billion of tax cuts with his left hand while proposing to collect about $300 billion in tax increases from this bill and others with his right.

More troubling is the bill’s $30 billion Small Business Lending Fund. We’ve called this Son of TARP because it authorizes Treasury to purchase preferred stock in banks with less than $10 billion in assets if they agree to increase their lending to small businesses. This empowers Uncle Sam to take equity stakes in community banks and savings and loans so long as they lend as Congress sees fit.

The bill encourages risky loans by applying a sliding-scale interest rate on Uncle Sam’s preferred stock. Banks that issue fewer new loans will pay as much as 5% interest, while aggressive lenders will pay as little as 1%. This sounds like a recipe for lower credit standards. The Small Business Administration, which receives an increase in its lending limit in this bill, has already had a default rate between 7% and 12% during this recession and recovery.

The lending fund also directs banks to submit a lending “plan to provide linguistically and culturally appropriate outreach” for the loans. Treasury is supposed to give special consideration to banks that are “minority-, veteran-, and women-owned and that also serve low- and moderate-income, minority, and other underserved or rural communities.” In others, Congress wants more politically directed credit of the kind encouraged by the Community Reinvestment Act and Fannie Mae that did so much to create the subprime lending debacle.

Private banks aren’t lending less because they’re stingy, but because they’re finding fewer good credit risks. Wells Fargo CEO John Stumpf recently told Bloomberg that his bank is “sitting here with tons of liquidity,” but that most small businesses don’t need more credit. “They need more equity. They need more profitability.”

Which brings us back to Obama Administration policies. Its new burdens on small business include a looming increase in capital gains and personal income tax rates, roughly half of which will come from noncorporate business profits; a minimum wage increase to $7.25 an hour from $6.55 in July 2009 when the jobless rate was 9%; the oil drilling moratorium, which has hit hundreds of small energy companies; the new health insurance mandate on employers with more than 50 employees; the new ObamaCare 1099 tax filing requirements; an increase in the death tax rate to 55% next year from zero today; a Medicare payroll tax increase to 3.8% from 2.9% starting in 2013; and compulsory unionism for government contractors and federal construction projects (Executive Orders 13496 and 13502.)

The best thing the White House could do now to help small business would be to call for a regulatory, tax and mandate moratorium. As part of his fall campaign strategy, Mr. Obama wants voters to believe that the paltry recovery has nothing to do with his policies. Small business owners know better.

Printed in The Wall Street Journal, page A12

7 Easy, Low Cost Ways to Generate Leads and Keep Customers

Sep 09, 2010

The latest Vistage International Confidence Index results for Q2 2010 were just released on July, 2010.  The good news is that small business CEOs are WAY more confident today than they were at the same time last year.   Realistically, you can say that the 2500 responding CEOs were cautiously optimistic about the future. 

According to the survey, small and medium sized businesses have accepted the new state of the economy and have positioned themselves to do more with less so that they can be profitable throughout the next year.

The survey also showed that CEOs hoped that their profitability would come from getting and keeping customers through innovative products and services. 

Now that you’ve read that, you’re probably thinking that this sounds great, but where should you begin? 

Since small business CEOs are most concerned with innovation,  lead generation, and funding their future with cash instead of loans,  I’ve collected the following easy, low-cost DIY Marketing strategies to help you get and keep profitable customers.


1.
    Use Videos – by 2013 video will be 90 percent of web traffic .  If you want to get found, you’d better have a YouTube channel.  Create videos to educate, inform, demonstrate and promote.   Promote the videos to your existing customers and ask them to leave testimonials and reviews. 

2.    Leverage Targeted Social Networking Channels.  Here is how smart small businesses are getting leverage out of this “free” tool.  Don’t focus on more people, focus on more relevant people and choose social networks where your ideal clients hang out.  For example, if sell to small business owners, become a power LinkedIn user and participate fully in specific industry groups find advisors and BE an advisor.   Participate in business sites with Q and A content such as Bizmore and Sprouter.  Also check out Focus.com for more expert advice and small business content.  

3.    Build Lists – Lead generation isn’t a fishing expedition – it’s a mating expedition.  Much like in the wild, you have to make yourself attractive to your ideal customer.    Be sure to place a form on your web page or blog that gives your visitors an opportunity to leave their name and email in exchange for some valuable educational information about your industry, product or service.  Harness some of your expertise and write a report or create a series of tips that will make your visitors more successful. 

4.    Ask for reviews and referrals – A recent study by Ivy Worldwide showed that reviews and referrals were very influential in which provider CEOs chose when purchasing technology. Be sure to collect testimonials and reviews from satisfied customers (and don’t forget those customers for whom you recently SOLVED a problem).  Put these on your web site AND ask customers to leave product and service reviews on your LOCAL LISTING in Google.

5.    Follow-Up –  About 80 percent of all prospects won’t even pay attention to you until after the 5th follow-up.  As you’d imagine, over 80 percent of all sales and marketing communications STOPS after the third try.  Invest in a sales and marketing follow-up system.  There are options at every level.  Constant Contact and iContact are great basic level choices.  aWeber is a terrific intermediate source and InfusionSoft is the power marketing follow-up system.

6.    Turn customers into members – Back in the day we called that a multi-year contract.  But that just sounds like your customer is being kept prisoner.  Think of your customers as members and create an engaging offer that will keep them on a regular budget plan and loyal to you for years to come.  When neither of you are thinking about contracts nor pricing, both you and your customers will be freed up to create new ways of working together.

7.    Sell more stuff to existing customers – Use the Amazon model  — “If you liked this book, then you’ll also like…”.  Dig deep inside how your customers currently use your product or service and look for ways to sell them additional add-ons that will both save them time, money AND make them more vested customers.  Use your email marketing system to educate and inform your customers about other complementary product lines.

Generating leads and maintaining loyal customers don’t have to cost a lot of money – or even take a lot of time.  The key is to sit down and plot out the creative ways that you can use the low-cost technologies available to you to make yourself a more permanent part of your customers’ world.

* * * * *

Ivana Taylor is CEO of Third Force, a strategic firm that helps small businesses get and keep their ideal customer.  She’s the co-author of the book “Excel for Marketing Managers” and proprietor of DIYMarketers a site for in-house marketers.  Her blog is Strategy Stew.

Fire the Co-Founder Who’s Holding You Back

By Tina Cannon | September 7, 2010

You probably already know that sometimes you have to fire your customers. It turns out, when you’re starting a business, sometimes you have to fire your co-founder, too.

Of course, in a perfect world you’d have the perfect team from the start, but — and I speak from experience here — that rarely happens. Sometimes working relationships are not meant to be but you don’t know it until you’re in the thick of it. When that happens, your only option is to “fire fast.”

Here are the three lessons I’ve learned that can make these conversations less painful.

Lesson 1: It’s Not Personal

Four years ago, I was in the fourth month of a restaurant partnership and tension was thick. For starters, we were five women — that in itself should speak volumes on our ability, or lack there of, to come to a consensus on many issues. With literally too many cooks in the kitchen, we found that our venture was moving in a variety of different directions, which confused staff, and worse, customers.

Three of the partners approached me about our fifth partner, let’s call her Sally. She was a good soul, both hard working and dedicated. The problem was, she just was not on the same page as the rest of us businesswise. The rest of us were heavy into profit margins, cost of goods, growth, etc., while she seemed to enjoy the day to day. That’s not a bad way to be, but we could hire an employee to do that and not give them 20 percent of the business.

For me business is always business, it’s never personal. If you cannot be frank and honest with your partners, then you shouldn’t be partners in the first place. This is where so many owners fail because they go into business with friends or family and find it difficult to have the hard conversations.

Here are a few ways to make things less personal right from the get-go:

  • Clearly establish roles and responsibilities. Had we done a better job of clearly identifying our roles and goals of the endeavor, perhaps we never would have had five founders in the first place.
  • If you don’t have a lawyer, get one. Enough said.
  • Get a signed Operating Agreement in place — even if you don’t think you need one. This is especially important if you are going into business with friends or family. In our case, having an agreement in place made the details of our split much easier.

Lesson 2: Don’t Put Off the Decision

The faster you fire, the better. If you don’t believe me, just ask Rosilyn Parahis, CEO and founder of the online cosmetics sampling company Smackages. She fired her co-founder after the third week. Rosilyn quickly noticed that the co-founder did not have the same start-up drive and 24-hour schedule needed for most new companies.

“You don’t have the luxury of time,” she says. “The longer you wait to do what you know needs to be done, the worse it will become.”

Just because someone can perform the duties of the job doesn’t mean she’s a good fit. Startups are exciting but they have unique challenges that well-established companies don’t. And not everyone can handle the intense and uncertain environment.

Lesson 3: Be Frank

I called Sally and delivered the bad news. I explained that we loved having her around but her goals and the rest of the LLC just did not match up. Her presence was causing strife but ultimately it was hurting the business. We discussed that profit margins on her days were much lower than other days and her lack of overall knowledge forced other owners to work harder to pick up the slack. To my surprise, she took it much better than I had expected and agreed that she was in over her head. We are still friends today and better for it.

If your business is like mine, you can’t afford to waste time — or money. Remember, this isn’t about making friends, it’s about running a business. So buck up and fire the founder who’s holding you back.

For small businesses, every day should be labor ‘appreciation’ day

By Rhonda Abrams

For the smartest small business owners, every day is Labor Day. No, every day is not a day off with last-of-summer barbecues and beach trips.
But small businesses — far more than huge corporations — recognize that our employees shape our success. Day after day, they’re the ones who serve our customers, make our products, send out our invoices. When we honor our labor, we help grow our businesses.

Large corporations may talk about their employees being their “team.” In small businesses, they’re our family. Just as the surest way to make a family successful is to respect every member, the best way to make a business successful is to respect everyone, especially employees.

I’m always surprised when I encounter a small business owner who views having employees as a necessary evil to be endured rather than a resource to be developed. If you waste the intelligence, energy, or skills of employees, it’s just like throwing money out the window.

Your attitude towards the people you hire goes a long way in determining their attitude about the job and your business. If you want them to be dedicated to their work, willing to go the extra mile, you have to be committed to them as well.

How can you get the most from your labor?

•Hire Well: You need the most qualified person you can for every position. If an employee is smart and capable, even for a job in the mailroom, they’ll help your business grow. Hire for attitude and adaptability, rather than merely for specific skills. Look for the ability to learn quickly, common sense, good work habits, a willingness to take on any job.

•Train: It’s hard to take time away from your own work to train someone else, but you’ll save far more time in the long run. If necessary, train after regular work hours, when you can give the new employee your undivided attention. In a small business, employees should be able to pitch in on just about any job, so don’t just train for specific tasks, instead teach them about the whole business and emphasize problem solving.

•Communicate: Perhaps the biggest mistake companies make is the failure to share information. Have short, frequent meetings, maybe only ten minutes at the beginning of the day and share both bad and good news. Employees feel included and empowered when they know what’s going on.

•Motivate: Three men are working in a rock quarry. A passerby asks each of them what they’re doing. The first one stops and grunts: “Digging up stones.” The second one stops and says, “Feeding my family.” The third one continues working and replies, “Building a cathedral.” People who share a common vision work harder. Share your vision and enthusiasm.

•Empower: Give your employees the ability to make certain decisions. Nothing is worse for morale, or for the bottom line, than an employee who is only allowed to follow narrow rules. Most employees will learn how to do their job better than you can teach them. Let them use their brains, not just their backs.

•Evaluate: You can’t expect employees to improve if you don’t give them constructive, regular feedback. Employees are better able to meet your needs if you let them know when they do well and how they could have done better. Give specific suggestions, don’t just complain.

•Acknowledge: The least productive sentence an employer can use is “I don’t need to thank employees; they get paid.” We all need to be thanked and recognized. Find opportunities to get the staff together to acknowledge jobs well done. Give small acknowledgments: plaques, certificates, T-shirts to recognize even small achievements.

•Reward: Pay people decently, reward them when you’re successful, and give them as much sense of security as you can. Employees don’t work well when they’re worried about how they’ll pay the rent or whether they’ll have a job next month. Job security, good pay, and decent benefits help make a much more productive staff.

In a small company, every day is Labor Day. It’s important to make every employee feel valued, included, and respected. If you help your employees grow, they’ll help your business grow.

Rhonda Abrams is president of The Planning Shop, publisher of books for entrepreneurs. Her newest book is Hire Your First Employee: the entrepreneur’s guide to finding, choosing, and leading great people. Register for Rhonda’s free business tips at www.PlanningShop.com. For an index of her columns, click here. Twitter: twitter.com/RhondaAbrams. Copyright Rhonda Abrams 2010.

Three Best Ways to Convert Online Prospects Into Clients

By GRACE L. WILLIAMS

You’ve got a killer website that potential clients are visiting. But how do you turn those visitors into paying customers?

Whether you offer a product or service, online customers can be fickle. According to Forrester Research of Cambridge, Mass., 88% of online shoppers that begin a transaction don’t complete it, a term known as “shopping cart abandonment.”

And consider this: Researchers say consumers searching for goods or services online will visit an average of four websites within a 30-minute period. This means that if visitors to your site request more information, you’ve got to follow up fast to beat your competition to the punch.

Here are three best ways to convert an online prospect into a client:

1. Reach out within seconds. Once prospects’ information is in your hands—whether they’ve submitted a form or sent an email asking for more information—the clock is ticking. These days, customers anticipate a rapid response, and the longer you wait, the more likely you are to lose their interest, says Glenn Houck, co-founder of LeadQual LLC, a Stratford, Conn., firm that helps businesses turn leads into sales. He recommends following up within seconds, not just minutes. If a business doesn’t have internal staff to monitor emails or response forms, it can hire providers of so-called “lead-management” services. For instance, for a fee of about $5 per lead, LeadQual will call prospects back within 50 seconds, as well as to follow up multiple times. Once prospects express more interest, they are put directly in touch with the business. While rapid response might not be the only factor that gets you the deal, the immediate attention can make a positive impression.

2. Follow up, again and again. There’s no need to hang up your hat just because the prospect hasn’t returned your call on the first try. Recent data released by Leads360, a provider of lead-management software in Los Angeles, indicates that repeated follow-up can lead to success. Leads360 found that making a second phone call increased the chance of making a sale by 87%. Further, the magical number of calls it took to change as many prospects as possible into clients was six. Jeff Solomon, founder and Senior Vice President of Leads360, says the six-call follow-up should take place within the first month of initially hearing from the prospect. If you want to do something other than phone calls, Mr. Solomon suggests reaching out with what he calls a “nurture email” that contains additional information, such as guides, online calculators and other tools that can help prospects better understand your interest in landing their business.

3. Get to know your prospects. Ever wonder who is coming to your site, what they are clicking on, and how they utilize it? If visitors don’t fill out a form or suggestion card, it’s possible to use analytics to determine a variety of useful information, including how the prospect found your site. Programs that track Web traffic range from Google Inc.’s free Google Analytics to ones that charge fees such as Adobe Systems Inc.’s Omniture. “Knowing how a customer acts within the site is vital,” says Shmuli Goldberg, director of marketing and communications for online-analytics provider ClickTale. For instance, you can use analytics to find out where users click most on your site, or what grabs their attention and holds it. Another key bit of info you can glean is how prospects react to your online forms, down to what they won’t fill out (incidentally, it’s often their phone number). Once you know where you are losing visitors, you can make changes to your site that eliminate superfluous information and allow for a more user-friendly browsing experience.

Write to Grace L. Williams at grace.williams@wsj.com

31 Small Business Tax Deductions

Aug 31, 2010Greg Go

Since deducting expenses from your top-line revenues reduces your tax burden, it’s easy to be too aggressive in claiming them. However, not deducting all that you are allowed leaves money on table. Use the following checklist of rules to reduce your taxable income as much as legally possible. 

(Note: Due to the complexity of tax laws, a great accountant will save your company lots of money.) 

Checklist of Tax Deductions for Small Business 

1. Employees’ Pay. You can deduct the pay you give your employees as long as the pay is in cash, property or services. 

2. Inventory (Cost of Goods Sold). Businesses that manufacture products or purchase them for resale can deduct the cost of goods sold.

3. Employee Benefits. Benefits like health plans, adoption assistance, educational assistance, and life insurance for your employees are generally tax deductible. 

4. Profit-Sharing or Pension Plans. You can deduct contributions you make to your employees’ SEP, SIMPLE, and other qualified plans. 

5. Home Office. To calculate how much of the home-related expenses are tax deductible, measure your work area and divide by the square footage of your home. The resulting percentage is the fraction of rent, mortgage, insurance, electricity, housekeeping, etc. that you can claim. Make sure your home office is dedicated to your business work. Claiming your entire living room because that’s where your laptop is will get you in trouble if the auditor comes knocking.

6. Auto Maintenance and Mileage. There are two ways to calculate vehicle deductions: standard mileage rate or actual expenses (such as gas and maintenance). Use the method that results in a larger deduction. 

7. Utilities. The water, power, trash, and telephone bills at your office are all 100 percent deductible as regular business expenses. If you have a phone line that has a mix of business and personal calls, highlight the business calls and deduct only the business related portion of the bill. 

8. Advertising and Marketing. As long as they are directly related to your business, you can deduct the cost of ordinary advertising (business card purchases, yellow page ads, and so on), as well as promotion costs for good publicity (such as sponsoring a local sports team). 

9. Depreciation. If you buy property to use in your business, you generally can’t deduct the entire cost in the year of purchase — but you can spread the cost over more than one tax year and deduct part of it each year. 

10. Office Supplies. Pens, paper, staples, thumb tacks… keep those receipts!

11. Bad Debts. Your bad debt is deductible only if the amount owed to you was previously included in gross income. 

12. Education. This includes seminars and trade shows, but don’t forget any magazines, books, CDs and DVDs that are related to your business or industry. They are all 100 percent tax deductible. 

13. Professional Fees. Accountants, lawyers and other professional consulting fees are fully deductible. 

14. Travel Expenses. Nearly all business travel expenses are 100 percent deductible. These include airfare, hotels, and other on-the-road expenses (like dry cleaning, Wi-Fi or cab fares). Eating out on the road is also deductible, but only up to 50 percent.

15. Entertaining. Eating out with colleagues on a day-to-day basis is not deductible, but if you bring along a client or prospective client, that meal is 50 percent deductible. Taking a current or prospective client out for drinks or a show is also 50 percent deductible, but it has to be within a business setting or take place before or after a business meeting. 

16. Furniture. You can either deduct the entire cost in the year of the purchase or depreciate it over several years.

17. Office Equipment. That new fax machine, copier, or computer is also 100 percent deductible. You can take it all in one year or depreciate it.

18. Insurance Premiums. You can deduct premiums that you pay for credit, liability, malpractice, and workers’ compensation insurance, among others. 

19. Employee or Client Gifts. A gift to a client or employee is 100 percent deductible, up to $25 per year per person. 

20. Startup Expenses (Capital Expenses). You can choose to deduct up to $5,000 of startup costs, which include any research costs incurred for creating your business. 

21. Interest. Mortgage interest, finance charges (like credit cards), interest on payment plans, and interest paid on other loans are all 100 percent deductible. 

22. Software. Boxed or downloaded software are included. With more software being made available as a service, software subscriptions are also tax deductible. 

23. Charitable Contributions. If you contribute $250 or more, and claim the deduction, you need to have a letter from the organization which verifies your donation. To figure out how much you can deduct with non-monetary donations, see IRS Publication 561, Determining the Value of Donated Property.

24. Theft and Loss. A general rule of thumb: If the theft or loss wasn’t avoidable, you can deduct it. However, accidents and normal wear don’t count.

25. Petty Cash and Tips. Just because you didn’t get a receipt doesn’t mean you can’t deduct the cost, but you should have some documentation. It’s as much for you as for a potential audit. Small cash expenses here and there can add up to a significant amount by the end of the year! 

26. Service Fees. Those fees for processing credit cards? One hundred percent deductible. 

27. Taxes. As strange as it sounds, taxes incurred in running your business are deductible. 

28. Rent. You can deduct rent as an expense if the rent is for property that you use for your business. However, you can’t deduct the rent if you have even partial equity (or will receive equity) in the property. 

29. Freelancers. If you hire an independent contractor, you can deduct their pay as a business expense.

30. Repairs and Maintenance. The cost of repairs to keep your business property and equipment in operating condition is deductible.

31. Licenses. License fees, as well as regulatory fees, are deductible. 

For more information on small business tax deductibles, see the following IRS Publications:

Greg Go is the cofounder and CTO of Wise Bread, a top personal finance community that offers daily tips on how to live large on a small budget. You can follow his tweets from @GregoryGo and @WiseBread.

Business Planning That Makes Sense For You

Posted by Marla Tabaka at 10:04 AM

Solopreneurs often feel that they don’t need a business plan, especially if they’re not looking for financing.  Is this true? When do you need a plan? How complex does it have to be?

To help unravel the solo business plan mystery and the “how to” of it all, I turned to small business consultant, Doug Dolan. Here’s what Doug has to say:

One of the top five questions I get from solopreneurs is, “Do I need a business plan?” My answer is always, yes. However, this doesn’t mean you need a formal plan. The detail, complexity and length of your plan will vary depending on these key factors:

1. The complexity of your business
2. The amount and source of your funding
3. The severity of the damages you will incur if your business fails

Business plans run the spectrum from a one-page outline or mini-plan to a 30-page formal business plan.

For example, if you wish to start an internet-based business using a meager portion of your savings to bring in some secondary, passive income through affiliate sales while working your day job, you can get started right away with a basic outline or mini-plan.

However, if you are passionate about designing a patentable, reverse osmosis water filtration system requiring a $500,000 investment (a combination of mortgaging your house, cashing out the kids’ college funds, and outside investment), a formal plan is necessary.

What is a mini-plan?
A mini-plan will range in size from one to 10 pages (whereas a formal plan may often span from 18 – 30 pages). So what’s in a mini-plan? At minimum, you need to have the following:

• Your UVP
• A definition of your prime prospect
• A list of your prime competitors
• The products / services you will offer
• Finances needed to reach profitability
• How you will utilize those funds
• Legal structure and other necessary licenses, permits and certifications
• A marketing plan (from ads, to social media, joint venture partners, etc….)
• Goals

What is a formal business plan?
If you do a search online for a “business plan template”, you will find a few different versions. So which do you use? Here are the sections an investor will want to see:

• Executive Summary
• Company Analysis
• Industry Analysis
• Customer Analysis
• Competitive Analysis
• Marketing Plan
• Operations Plan
• Management Bio(s)
• Financial Plans
• Appendix

What if you find yourself stuck (or simply fed-up with the process), where can you get help? You have a couple of options:

1. Do a search online for “free business plan templates”.
2. Buy a software package and fill out a template.
3. Seek out a SCORE or SBDC counselor to give you some free advice.
4. Hire a consultant (like me) to help you develop your plan and / or review and edit a final draft.
5. Hire a consultant or company to draft your plan from scratch.

Here are pluses and minuses with each of these scenarios.

Templates and software packages are simply tools. They don’t fill it out for you. Moreover, most of these options focus solely on the formal plan structure.

Seeking out a SCORE or SBDC counselor offers you a no-cost alternative, however, they will typically only help with reviewing a final plan … and often only a formal plan.

Hiring a consultant for a coaching or a review will cost you some of your start-up funds, however, you will receive more active, personal attention.

As for hiring a consultant to create a business plan for you, typically, this will cost you the most. While this will free up your time for other start-up activities, you will miss an excellent opportunity to get to know your business and your market. It is through market research and developing your plan where you gain the most insight. If you need to pitch investors, you had better know your plan forwards and backwards.

When creating a plan, let me stress a couple of key points.

1. Create a plan.
Don’t get started without a plan. It is your roadmap taking you from an idea to success. How long do you want that road to be? If you set up shop and start without a plan, chances are high, you will have to pull over along the way and ask for directions. Getting lost and asking for directions after the fact will cost you time and money.

2. If it doesn’t add up, take two steps back.
While doing additional research to complete your plan, you may find data that suggests your idea won’t make money. Don’t dismiss the negative information and only look for data that supports your idea. It is better at this point to go back to review and alter your idea and target market choice. Don’t try to sell yourself on a bad idea.

3. Have a pro review it.
If this is your first time creating a plan or if you are creating a plan for a business in an industry other than that of your previous work experience, let a successful entrepreneur review it. If you are creating a mini-plan, you may be able to start without having someone else reviewing it (although it wouldn’t hurt to let one successful entrepreneur take a quick look).

If you are creating a formal plan, you may want to consider passing it out to three pros. At least one of the three should be a successful professional with experience within your target industry while at least one should be an outsider.

Why?

First, with three pros, if there is a trend in their responses, you are less likely to dismiss what they have to say. Additionally, you will typically find that they each may give advice not provided by the other two.

Second, an industry insider will help you with the areas of your business you don’t know you don’t know while an outsider can tell you whether your plan is in plain enough English. Not everyone that you pitch your plan to will be from your target industry. You don’t want to miss out on securing money because your language confuses them.

If you have questions or find you are struggling with areas of your plan, leave a comment below or write me at doug@smallbizbreak.com.

Doug Dolan is a partner at Small Biz Break. Small Biz Break helps entrepreneurs expedite their new small business ideas to market and activates a buzz for their brand with multimedia services. Go to Small Biz Break to access their free business templates, forms and ebooks and to get more information about their small business startup and multimedia services.

20 Ways Your Employees Make More Than They Think They Do

Aug 30, 2010

Ken Kaufman

You spend a lot of money to compensate your employees, but I bet you don’t get credit for a lot of what you spend. According to the Bureau of Labor Statistics Report “Employer Costs for Employee Compensation for the Regions, March 2010,” almost 30 percent of the total employee costs of average private employers are for the extra things that most employees don’t think about.

In order to make sure employees understand the complete value they receive from their employers, employers should consider showing employees their entire compensation package. Here is a list of the top 20 ways employers compensate their employees in addition to their regular salaries, wages and bonuses.

1. Social Security. Sure, there is a lot of doubt about the longevity of this program, but it is still a benefit for your employees and it costs you 6.2 percent of the first $106,800 of each employee’s earnings, or a maximum of $6,621 per employee per year.

2. Medicare. Health care coverage is getting more expensive, so this benefit is very valuable for retirees. Employers pay 1.45 percent of each employee’s earnings with no cap.

3. State unemployment insurance. Somebody has to pay for the right for your employees to make an employment claim. It costs you anywhere from $500 to well over $1,000 per year for each employee depending on your state and your company’s unemployment claim experience.

4. Federal unemployment insurance. Employers pay 0.8 percent of the first $7,000 of wages, or $56 per employee per year.

5. State disability insurance and other state and local mandatory benefits. Depending on the state(s) where your employees live and work, you may have to pay into state disability funds or pay other taxes based on the number of employees you have or the amount you pay them.

6. Workers compensation. This is a statutory requirement that provides a benefit to employees who are injured on the job. Depending on the type of work your employees perform and your company’s experience with claims, your premium could be as little as 0.25 percent or more than 10 percent of your employees’ wages, and some states have no maximums.

7. Health insurance. Most companies who offer health coverage pay for some, if not all, of the employees’ premium, which can often be more than $200/month. Some employers also help pay the premium for dependents of the employees, which can sometimes cost more than $1,000 per employee per month.

8. Dental insurance. Some employers pay at least some of the premium, which usually helps to keep participation up and rates reasonable.

9. Vision insurance. Premiums are usually lower than dental insurance, so is often included in health packages.

10. Disability insurance. Group plans, especially those with some level of contribution from the employer, have much better rates than voluntary plans.

11. Life insurance. The cost of the first $50,000 of coverage is usually tax deductible, so many companies pay for at least that.

12. Supplemental insurance. There are many other payroll-deducted insurance and benefit programs that employers pay to administer, and they often contribute to the programs as well.

13. Retirement plan. Although there are many different kinds and types of employer-sponsored retirement programs, some companies contribute 3 percent or even more of the employees’ wages into these plans.

14. Paid time off. Also known as PTO, getting paid even while you’re on vacation is often forgotten by employees as a valuable benefit.

15. Paid holidays. Many companies offer between six and eight days each year for which employees receive their normal pay but do not require their employees to come to work.

16. Bereavement and extra paid time. In addition to the formal paid time off, many companies also regularly give employees additional paid time off when emergencies or bereavement needs arise, not to mention comp time to make up for extra time worked during prior weeks and/or months.

17. Education reimbursement. Some employers reimburse employees for at least some of the costs associated with furthering their education, especially if the education is work-related.

18. Mileage, cell phone and other reimbursements. Owning a vehicle, cell phone and other items can become less burdensome for employees when their employers reimburse them for the portion that is used for company purposes.

19. Wellness programs. Many companies invest into programs and rewards/incentives to help employees get and stay healthy.

20. Training. In the information age, investing in the skills and knowledge of their employees is becoming a priority for employers. Some companies spend thousands of dollars per year per employee.

In some instances it is beneficial to disclose to your employees’ their total cost to you, their employer. To help you figure out how much each employee costs, we have a free spreadsheet available. Visit Compensation Calculator for the no-cost download and complete all of the shaded boxes with your company and each employee’s information.

Ken Kaufman, Founder & CEO of CFOwise®, serves as the Chief Financial Officer for a dozen start-up, emerging, and medium-sized businesses. With almost two decades of experience and as an adjunct professor and published author, Ken focuses his professional efforts on helping entrepreneurs maximize cash flow, improve profits, and obtain clarity.

Expensive “Hard Money” Lures Small Businesses in Hard Times

By: Carol Tice | August 30, 2010 8:00 AM

Where can you go when you need a loan and banks aren’t lending? One answer is to private lenders who make you pay through the nose.

New reports are that so-called “hard money” lending is on the rise — and small businesses’ use of hard money threatens many of these business’s very survival.Long a frequent lending source for real-estate speculators, hard money has been inching into more mainstream small-business life. In this arena, it’s sometimes known as “merchant cash advances.” 

In essence, a hard-money lender is just a person or finance organization that still has money to lend. And they make you pay through the nose for it — 36 percent interest and more is not uncommon. Unlike consumer lending, business lending isn’t subject to the same interest-rate caps and consumer-protection laws that keep lending rates from soaring to the sky for shoppers. The world of hard money is relatively unregulated, and scams abound.

A recent investigation by the Washington Business Journal of what happened to small-business borrowers who all used the same hard-money lender, RapidAdvance, was not encouraging. Many of the businesses had gone bust trying to pay the steep interest rates. Surviving businesses were often sued by RapidAdvance when their payments slowed. The lender charged that many were trying to cheat them. 

RapidAdvance got repaid by merchants in part through taking a percentage of credit-card charges customers made to the companies. If payments declined due to the downturn, RapidAdvance sued, accusing the businesses of secretly using an alternative credit-card terminal to get paid while circumventing RapidAdvance’s automatic-deduction system for collecting its payments.

Ultimately, hard money works a lot like payday lenders do for consumers. Rates are high, and the basic idea is you will quickly repay the loan. If anything goes wrong, you end up paying so much in interest it’s hard to ever get your head above water again. 

Most real-estate deals fueled by hard money work on the same theory — a quick sale will generate cash and pay off the loan before interest piles up too high. If the property doesn’t sell, or a small business’s sales drop off, the business owner is in deep yogurt on a hard-money loan. The additional interest costs can eat up all profits and put the business six feet under.

In an iffy economy such as the one we’re in now, hard money is a big-time gamble. It’s too hard to predict whether you can pay off the loan.

For most small businesses, there should be better ways of accessing capital. You can sell your receivables — also known as factoring. These days, you can even get a purchase-order loan, which pays off as soon as goods are delivered and your customers pays the bill.

If you think banks won’t lend to you, you might want to give them another try. 

Just remember, hard money is a lending area that’s like the Wild West. Be sure to carefully check out any company you’re considering getting a hard-money loan from and talk to customers — and your local Better Business Bureau — before you sign anything. This month, the Federal Reserve reported banks have finally started relaxing their loan standards for small businesses, for the first time since late 2006.

Why small businesses fail

By Ian Armitage | Wed Aug 25, 2010|

In life, the last thing you want to focus on is failure. And the same is true of business. The last thing you want to do as a business owner is to look at the negatives. However, if you address the common reasons for failure up front, you’ll be much less likely to fall victim to them yourself. Here are the top reasons why businesses fail.

Poor Management
Poor management has to be the number one reason for failure. New business owners – specifically those that do fail – often lack relevant business and management expertise in key areas like finance, purchasing, selling, production, and hiring and managing employees. Unless they recognize what they don’t do well, seek help, and relinquish some control, business owners face disaster.

Creating the right environment
Leaders make the future and a successful small business always has a good, strong leader who creates a work climate that encourages good performance. He or she has a skill at hiring competent people, training them and is able to delegate. A good leader is able to make a vision a reality.

Insufficient Capital
You wouldn’t go into a shop to buy something without money, so why start a business without sufficient funds? This is a big mistake many failed businesses make. You need capital. Business owners often underestimate how much money is needed. They must also have a realistic expectation of incoming revenues from sales. It is imperative to ascertain how much money your business will require. AND BE REALISTIC.

Lack of Planning
These all seem rather obvious, but it is the obvious things people take for granted. Common sense, it seems, isn’t so common any more. A business plan is one of those common sense things. Everybody knows it is absolutely essential to have a business plan. But so many small businesses fail because of fundamental shortcomings in their planning. The old saying is “fail to prepare, prepare to fail”.

Lack of a niche target market
One of the most common problems with small business owners is that they sell to anyone. If you take time to develop a well-defined niche for your business, you will ultimately make more money in the long run.

Failure to create a Unique Selling Proposition (USP)
This one is simple. Why should your customers buy from you and not your competition? What do you have to offer them? It is your USP that will attract business.

Overexpansion
Overexpansion can also lead to business failure. But it is important too not to restrict the growth of your business. You need balance. The problem is that business owners confuse “success” with how fast they can expand their business. It often ends in disaster.

No market
Marketing will make or break your business. You have to continually promote your business to let people know you exist. You can’t expect customers to find you by chance.

You started your business for the wrong reasons
Finally, if the sole reason for starting your business was to make lots of money, then you probably started off on the wrong foot. Yes, we all want to make money, but that can’t be the sole motivation for starting up in business.

Edited by Ellie Duncan