When President Obama won office in 2008, he ran on a platform of bringing change to Washington. Whether you believe his changes are for the better or for the worse, you have to admit that he has certainly made some changes during his first year in office.
You can count on there being changes to our tax laws as well. What can we expect to see happen to our tax system in 2010? Here are a few things to look for:
Deductions that will expire on 12/31/2009:
· Sales tax deduction for individuals that live in states without a state income tax
· Sales tax deduction for the purchase of a new motor vehicle
· Out of pocket expenses for educators
These changes affect people in states like Texas the most since there is no state income tax to deduct instead of the sales tax. Each of these deductions were originally set to expire in past years, but were extended. Look for potential last-minute extensions of these deductions as Congress gets set to leave for the holiday recess.
Other law changes for 2010:
· The income limit for people who want to convert traditional IRA accounts to Roth IRA accounts will be removed.
· AMT exemptions are dropping to $33,750 (single filers) and $45,000 (joint filers)
· The mileage rate for business miles will decrease to 50 cents per mile.
· Itemized deductions and personal exemptions are no longer subject to phase out for higher-income taxpayers.
· There will be a $2,400 exemption from taxable income for anyone who received unemployment benefits.
· Charitable donations paid directly from an IRA will no longer be excludable from income.
· The 2009 version of the first time homebuyer credit expires on May 1, 2010.
· Also, anyone who took the first time homebuyer credit in 2008 will be required to begin repaying it in 2010.
· For 2010, the estate tax will not exist.
Though each of these items could be neatly summarized in a bullet point, some of them could have huge implications.
· The AMT law is flawed and if it isn’t fixed soon, many middle-class families will find themselves on the receiving end of an AMT tax bill in 2010.
· Removal of the phase outs could mean dramatically lower tax bills for higher-earning families.
· The first-time homebuyer credit has been a big part of the partial rebound of our housing market. People will want to be sure to time any purchases before the deadline to take advantage of the deal before it expires.
· The removal of the estate tax could be the most important item on the list, though. Currently, the top estate tax bracket is almost 50%. That means when someone dies and they have assets in excess of $3 million, the government could end up receiving a large percentage of their net worth instead of their heirs. The one-year repeal of this tax is all the more significant when you consider that in 2011, the tax comes back with even higher rates and lower exemptions than before. Because of this, many tax advisors are (jokingly, I’m sure) advising their wealthy clients to plan to die in 2010 and save a ton of tax. Here, I would not be surprised to see the government pull a ‘bait and switch’ and repeal the repeal.
In addition to the tax law changes listed above – all of which are already on the books – I am sure that there will be other changes to come. Government spending has reached record highs already and if the health care reform package passes, our government will need a significant boost in its revenues to keep up. Since government revenues are generated by tax dollars, it’s a safe bet to say that taxes will be going up in the near future.
The government has also increased compliance requirements for paid tax preparers, including more strenuous oversight and the requirement to electronically file returns. So not only will taxes be going up, but taxpayers should expect to see fees for tax preparation increase as well.
There is no easy way to predict what the government will do with our taxes from year to year. However, knowing what we know will still allow us to plan with our clients to minimize their burden – whatever the government throws at us.
--Dan Musick is the Tax Services Partner at Cook & Associates, a public accounting firm serving clients from offices in San Marcos and San Antonio, TX
Monday, December 28, 2009
Monday, December 21, 2009
End of Year Tax Tips
Although there are only ten days left in the year, there are still some things you can do to save big on your 2009 taxes:
Compare Standard vs. Itemized Deductions – Put the amount of your standard deduction next to your itemized deduction. If your itemized deductions are slightly lower than your standard deduction and you won’t be able to itemize next year, try shifting some of next year’s payments to this year. For example, pay your 2010 real estate taxes in 2009. If you can’t itemize in 2009 but may be able to in 2010, postpone expenses. Pay your 2009 property taxes and make your charitable donations in January rather than at the end of the year...then you can "double up" next year.
Medical Deductions – These expenses are deductible if they exceed 7.5% of your adjusted gross income. If you think you may be close to this threshold, consider getting any necessary procedures done before the end of the year. You can save losing expenses to the 7.5% floor twice and make more of them deductible.
Retirement Contributions – You can lower taxable income by contributing to a retirement plan. You can make contributions to 401(k) and 403(b) plans up to December 31, 2009. Contributions to IRAs can be made as late as April 15, 2010.
Charitable Donations – If you plan on itemizing this year, donating to charities is a good way to increase your deduction. Donations can include cash, clothes, household items, toys, and even contributions made by credit card. Remember, if the value of the donations is over $500, you must have an itemized list.
Miscellaneous Itemized Deductions – Employee business expenses, investment expenses, and tax preparation fees are miscellaneous deductions subject to a floor of 2% of your adjusted gross income. If the sum of these is close to or more than 2% of your AGI, consider whether there are other items in this category that you could purchase before year end. If they’re not close, postpone the purchase until 2010.
Cash Gifts – Up to $13,000 per person can be given away without having to file a gift tax return. If you’re married, you and your spouse can give $26,000 tax-free to an individual. The number of individuals you can give this to is unlimited. Keep in mind, however, that the individual needs to cash or deposit the amount prior to year-end. These types of gifts can reduce a taxable estate and potential estate tax upon the death of the giver.
Self-employment Tips – If you use the cash method of accounting, you can decrease your 2009 taxable income by postponing your December billings or collection efforts until January. You can also purchase supplies and equipment at year-end to accelerate your deductions.
Happy Holidays and Happy Tax Planning!
--LeAnn Carlson is the Audit Manager for Cook & Associates, a full-service public accounting firm with offices in San Marcos and San Antonio, TX
Compare Standard vs. Itemized Deductions – Put the amount of your standard deduction next to your itemized deduction. If your itemized deductions are slightly lower than your standard deduction and you won’t be able to itemize next year, try shifting some of next year’s payments to this year. For example, pay your 2010 real estate taxes in 2009. If you can’t itemize in 2009 but may be able to in 2010, postpone expenses. Pay your 2009 property taxes and make your charitable donations in January rather than at the end of the year...then you can "double up" next year.
Medical Deductions – These expenses are deductible if they exceed 7.5% of your adjusted gross income. If you think you may be close to this threshold, consider getting any necessary procedures done before the end of the year. You can save losing expenses to the 7.5% floor twice and make more of them deductible.
Retirement Contributions – You can lower taxable income by contributing to a retirement plan. You can make contributions to 401(k) and 403(b) plans up to December 31, 2009. Contributions to IRAs can be made as late as April 15, 2010.
Charitable Donations – If you plan on itemizing this year, donating to charities is a good way to increase your deduction. Donations can include cash, clothes, household items, toys, and even contributions made by credit card. Remember, if the value of the donations is over $500, you must have an itemized list.
Miscellaneous Itemized Deductions – Employee business expenses, investment expenses, and tax preparation fees are miscellaneous deductions subject to a floor of 2% of your adjusted gross income. If the sum of these is close to or more than 2% of your AGI, consider whether there are other items in this category that you could purchase before year end. If they’re not close, postpone the purchase until 2010.
Cash Gifts – Up to $13,000 per person can be given away without having to file a gift tax return. If you’re married, you and your spouse can give $26,000 tax-free to an individual. The number of individuals you can give this to is unlimited. Keep in mind, however, that the individual needs to cash or deposit the amount prior to year-end. These types of gifts can reduce a taxable estate and potential estate tax upon the death of the giver.
Self-employment Tips – If you use the cash method of accounting, you can decrease your 2009 taxable income by postponing your December billings or collection efforts until January. You can also purchase supplies and equipment at year-end to accelerate your deductions.
Happy Holidays and Happy Tax Planning!
--LeAnn Carlson is the Audit Manager for Cook & Associates, a full-service public accounting firm with offices in San Marcos and San Antonio, TX
Thursday, December 17, 2009
The Party Season Primer
For some, December means the end of football season and/or the beginning of basketball season. For everyone, however, it is the party season! If you are like me, then you have already attended a few holiday events. To use a sports metaphor, the real season begins this weekend and runs through January 3, 2010.
So for those of you that are “party hard” types, I have done some research and identified some items to help guide you through this short, yet intense season.
Pre-Game:
Filter that alcohol to eliminate as many toxins as possible. This helps your liver-the body’s filter. Finally there is a practical use for that Brita filter setting in the cabinet. Just run your vodka, gin, etc. through the filter a few times and you can reduce the amount of toxins entering your body.
Like all good athletes, you want to hydrate properly. Alcohol dehydrates the body. It also depletes trace elements. So start getting in game condition by grabbing that gallon of Gatorade and chugging.
No athlete performs their best when they are tired. Get a good nights rest before the event. A quick nap may also come in handy if the event is a marathon.
And of course, let’s not forget the pregame meal. All athletes have their favorite pregame meal. Marathoners are famous for “carbing up” before the race. Football players prefer something more long term. Personally, I have found a burger provides a good foundation in my tummy for the night.
Post-Game:
A post game drink (next morning), may not be the answer. Of course, it will deaden the pain so this is possible option.
Firing up the coffee pot and drowning yourself in coffee also may not be the best path. Coffee is simply going to wake you up so you can feel that head pounding. Actually, coffee is a diuretic. Diuretics are used in weight loss programs. They flush your system, dehydrating the body. In effect, they do the same thing that alcohol does. More coffee may not be the answer.
My research indicates that the big, greasy jalapeño cheeseburger and fries isn’t a good choice. This one really bums me out because I have used this method on a number of occasions. Sadly, I can’t remember if it worked. At any rate, researchers say that fatty, hard to digest foods take the body away from its main job which is ridding the body of alcohol toxins.
Instead, this year I am going to try eggs, bananas, water (lots), and orange juice. Apparently these foods are rich in the nutrients and trace elements that alcohol destroys. I am not sure how all of this will taste together, but I can do a breakfast taco with no meat and wash it down with OJ.
Once you stabilize your tummy, a regimen of vitamins is always good for the long haul. This is important because, like any highly trained professional, you need to get ready for the next game.
Conclusion:
Have a wonderful holiday season. Put Yellow Cab on your speed dial. Focus on what you have. It really is a wonderful life....especially when you have family and friends to celebrate with.
Steve Cook, CPA, is the managing shareholder of Cook and Associates, PLLC- certified public accountants. The firm has offices in San Antonio and San Marcos, Texas.
So for those of you that are “party hard” types, I have done some research and identified some items to help guide you through this short, yet intense season.
Pre-Game:
Filter that alcohol to eliminate as many toxins as possible. This helps your liver-the body’s filter. Finally there is a practical use for that Brita filter setting in the cabinet. Just run your vodka, gin, etc. through the filter a few times and you can reduce the amount of toxins entering your body.
Like all good athletes, you want to hydrate properly. Alcohol dehydrates the body. It also depletes trace elements. So start getting in game condition by grabbing that gallon of Gatorade and chugging.
No athlete performs their best when they are tired. Get a good nights rest before the event. A quick nap may also come in handy if the event is a marathon.
And of course, let’s not forget the pregame meal. All athletes have their favorite pregame meal. Marathoners are famous for “carbing up” before the race. Football players prefer something more long term. Personally, I have found a burger provides a good foundation in my tummy for the night.
Post-Game:
A post game drink (next morning), may not be the answer. Of course, it will deaden the pain so this is possible option.
Firing up the coffee pot and drowning yourself in coffee also may not be the best path. Coffee is simply going to wake you up so you can feel that head pounding. Actually, coffee is a diuretic. Diuretics are used in weight loss programs. They flush your system, dehydrating the body. In effect, they do the same thing that alcohol does. More coffee may not be the answer.
My research indicates that the big, greasy jalapeño cheeseburger and fries isn’t a good choice. This one really bums me out because I have used this method on a number of occasions. Sadly, I can’t remember if it worked. At any rate, researchers say that fatty, hard to digest foods take the body away from its main job which is ridding the body of alcohol toxins.
Instead, this year I am going to try eggs, bananas, water (lots), and orange juice. Apparently these foods are rich in the nutrients and trace elements that alcohol destroys. I am not sure how all of this will taste together, but I can do a breakfast taco with no meat and wash it down with OJ.
Once you stabilize your tummy, a regimen of vitamins is always good for the long haul. This is important because, like any highly trained professional, you need to get ready for the next game.
Conclusion:
Have a wonderful holiday season. Put Yellow Cab on your speed dial. Focus on what you have. It really is a wonderful life....especially when you have family and friends to celebrate with.
Steve Cook, CPA, is the managing shareholder of Cook and Associates, PLLC- certified public accountants. The firm has offices in San Antonio and San Marcos, Texas.
Thursday, December 10, 2009
Checklist To Help Businesses Bounce Back
I like the quote "Success always comes when preparation meets opportunity". The key to this quote is that the preparation must come before the opportunity. In the wake of the recession, many businesses are not considering preparing for future opportunities. Instead, they are struggling to stay afloat, concentrating on the here and now. Treading water gets you nowhere.
Now is the time to analyze your business. Now is the time to plan and prepare for economic recovery. Robert Half, an accounting and finance staffing company, has some good tips on how to prepare:
1. Keep reassessing budgets. It's important to continually modify budgets to reflect progress or setbacks. Those companies that fully leverage the expertise of financial, budget, treasury or cost analysts will be better positioned to capitalize on improving conditions.
2. Evaluate your bench strength. Have you cut a significant amount of staff? Is it time to do some re-hiring? This can be an ideal time for a "talent upgrade" as many highly skilled financial professionals are in the job market. If you're reluctant to add employees, you can still prepare for the future by engaging temporary professionals to fill potential skills gaps.
3. Revisit compliance requirements. Companies should be prepared to evaluate financial reporting competencies, information technology controls, risk assessment procedures and documentation.
4. Anticipate next-generation financial reporting. The U.S. Securities and Exchange Commission has mandated that public companies report their financials using Extensible Business Reporting Language, or XBRL, an interactive data format, by 2011. In addition, while the timetable for convergence between International Financial Reporting Standards and U.S. GAAP is uncertain, proactive firms are already offering education and training to help staff better understand these initiatives and plan for eventual implementation.
5. Invest in your people. It may be time to consider reinstituting training and development programs. Firms that invest in staff training better prepare their teams for new business opportunities. Professional development also boosts employee job satisfaction.
6. Upgrade IT systems. Outdated financial systems can impair a business's ability to compete, but conversions take time and resources. Companies that are planning systems upgrades should ensure they have the budget and staffing resources to manage the implementation.
7. Prepare for new products and services. For companies that are considering new product or service launches, this is the time to ensure that the new offering can be introduced quickly when the economy rebounds.
8. 'Re-recruit' your best people. Just as your firm may be considering additional hiring, so are other firms. Don't be surprised if top performers are approached with other offers once the economy turns around. A best defense is a good offense: Managers should meet with their best people now to discuss their careers and remind them how much their contributions are valued.
Stop treading water. Now is the time to get prepared so you'll be ready when opportunity strikes.
LeAnn Carlson is the Audit Manager with Cook & Associates, a public accounting firm offering tax, advisory, and audit services to clients from its offices in San Marcos and San Antonio, TX
Now is the time to analyze your business. Now is the time to plan and prepare for economic recovery. Robert Half, an accounting and finance staffing company, has some good tips on how to prepare:
1. Keep reassessing budgets. It's important to continually modify budgets to reflect progress or setbacks. Those companies that fully leverage the expertise of financial, budget, treasury or cost analysts will be better positioned to capitalize on improving conditions.
2. Evaluate your bench strength. Have you cut a significant amount of staff? Is it time to do some re-hiring? This can be an ideal time for a "talent upgrade" as many highly skilled financial professionals are in the job market. If you're reluctant to add employees, you can still prepare for the future by engaging temporary professionals to fill potential skills gaps.
3. Revisit compliance requirements. Companies should be prepared to evaluate financial reporting competencies, information technology controls, risk assessment procedures and documentation.
4. Anticipate next-generation financial reporting. The U.S. Securities and Exchange Commission has mandated that public companies report their financials using Extensible Business Reporting Language, or XBRL, an interactive data format, by 2011. In addition, while the timetable for convergence between International Financial Reporting Standards and U.S. GAAP is uncertain, proactive firms are already offering education and training to help staff better understand these initiatives and plan for eventual implementation.
5. Invest in your people. It may be time to consider reinstituting training and development programs. Firms that invest in staff training better prepare their teams for new business opportunities. Professional development also boosts employee job satisfaction.
6. Upgrade IT systems. Outdated financial systems can impair a business's ability to compete, but conversions take time and resources. Companies that are planning systems upgrades should ensure they have the budget and staffing resources to manage the implementation.
7. Prepare for new products and services. For companies that are considering new product or service launches, this is the time to ensure that the new offering can be introduced quickly when the economy rebounds.
8. 'Re-recruit' your best people. Just as your firm may be considering additional hiring, so are other firms. Don't be surprised if top performers are approached with other offers once the economy turns around. A best defense is a good offense: Managers should meet with their best people now to discuss their careers and remind them how much their contributions are valued.
Stop treading water. Now is the time to get prepared so you'll be ready when opportunity strikes.
LeAnn Carlson is the Audit Manager with Cook & Associates, a public accounting firm offering tax, advisory, and audit services to clients from its offices in San Marcos and San Antonio, TX
Thursday, December 3, 2009
MANAGING YOUR BUSINESS USING ONLINE TOOLS
On Tuesday, December 8, I will be presenting a webinar for the San Marcos Chamber of Commerce entitled, “How To Effectively Manage Your Business using Online Accounting Tools”.
The seminar will be no more than one hour long and begin at noon. The program is a great opportunity for non-profits, healthcare, professional and small business to learn what tools are currently available and how they benefit you.
For information regarding the presentation at the following link:
www.ez.com/SanMarcoschamber
For reservations for the presentation, use the following link:
www.ez.com/SanMarcoschamber1
We look forward to seeing everyone for lunch next Tuesday.
The seminar will be no more than one hour long and begin at noon. The program is a great opportunity for non-profits, healthcare, professional and small business to learn what tools are currently available and how they benefit you.
For information regarding the presentation at the following link:
www.ez.com/SanMarcoschamber
For reservations for the presentation, use the following link:
www.ez.com/SanMarcoschamber1
We look forward to seeing everyone for lunch next Tuesday.
Tuesday, December 1, 2009
TIME FOR SOME TRANSPARENCY, UNCLE SAM
The U.S. government is currently operating with a great deal of debt. This is common knowledge. Not so common knowledge is the exact dollar amount of this debt. This is about to change, though.
Under a new standard issued by the Federal Accounting Standards Advisory Board (FASAB), the federal government will soon be required to issue annual reports on its fiscal sustainability.
Representative James Cooper, a member of the FASAB task force that researched the standard, speaks on the implications of this requirement. “Including a statement of fiscal sustainability into the financial report is a step in the right direction. I'm proud of the members of FASAB for coming to consensus on this. If we're ever going to get a handle on our $56 trillion fiscal gap, we need to be more honest about how we account for it. I hope they can take the next step and begin treating our social insurance promises to Social Security and Medicare as liabilities in our national balance sheet - our accrued debt."
According to the Institute for Truth in Accounting, the federal government is currently under-reporting the national debt by as much as $60 trillion. No business would be allowed to misrepresent its liabilities this badly – why should our government? The newly required report should provide a reconciliation of the two figures. The report will also present required supplementary information that will detail income and expenses, deficits or surpluses, and Treasury debt held by the public as a share of gross domestic product (GDP).
While the report will be somewhat technical, it should still provide information that is understandable and meaningful to the general public. More transparency in government will promote accountability and provide valuable information to citizens about how and where their money is being spent. Hopefully, the end result will be a more fiscally responsible government.
--LeAnn Carlson is the Audit Manager for Cook & Associates, a full service public accounting firm operating from offices in San Marcos and San Antonio, TX.
Under a new standard issued by the Federal Accounting Standards Advisory Board (FASAB), the federal government will soon be required to issue annual reports on its fiscal sustainability.
Representative James Cooper, a member of the FASAB task force that researched the standard, speaks on the implications of this requirement. “Including a statement of fiscal sustainability into the financial report is a step in the right direction. I'm proud of the members of FASAB for coming to consensus on this. If we're ever going to get a handle on our $56 trillion fiscal gap, we need to be more honest about how we account for it. I hope they can take the next step and begin treating our social insurance promises to Social Security and Medicare as liabilities in our national balance sheet - our accrued debt."
According to the Institute for Truth in Accounting, the federal government is currently under-reporting the national debt by as much as $60 trillion. No business would be allowed to misrepresent its liabilities this badly – why should our government? The newly required report should provide a reconciliation of the two figures. The report will also present required supplementary information that will detail income and expenses, deficits or surpluses, and Treasury debt held by the public as a share of gross domestic product (GDP).
While the report will be somewhat technical, it should still provide information that is understandable and meaningful to the general public. More transparency in government will promote accountability and provide valuable information to citizens about how and where their money is being spent. Hopefully, the end result will be a more fiscally responsible government.
--LeAnn Carlson is the Audit Manager for Cook & Associates, a full service public accounting firm operating from offices in San Marcos and San Antonio, TX.
Monday, November 23, 2009
“NO HAGGLE” CAR DEAL MEANS “NO RECOURSE”... take care of what ya got
Our mission for this blog is to provide information on taxation and other business related topics. Yes, we have strayed a time or two and railed about the dangers of the pending socialist medical program. There is only one way to pay for social program and that is by increased taxes. But I digress.
Today’s blog is on business development. I recently purchased a new car from one of the local “no-haggle” dealers. I thought I had made a good purchase. I later learned otherwise. The vehicle that I traded in was leased. For those that don’t know, the price of a leased vehicle is based, in part, on mileage. This is known as the contract mileage. If you go over the contract mileage amount, then you must pay a surcharge for any miles over and above the stated amount. For example, if your surcharge is $ .15 per mile and you go over the contract amount by 10,000 miles, then you owe $1,500 at trade in.
When I made my deal, I was to make the remaining unpaid lease payments on the old car and the dealer was to pay the mileage overage. Well, that didn’t happen. A month after signing the deal, I received a bill from the finance company saying that I owed for the mileage overage. Needless to say, I was surprised. I called the dealer to make sure that they paid the overage amount.
Guess what? I learned that “no haggle” also means “no recourse”. They said that the deal that I thought I made was too good to be true and I should have known better! In order to maintain my credit rating, I now have to pay the outstanding overage fees. Ouch!
As a result, I will never darken the door of that dealership or any of their other dealerships. They will not get $1 in service revenues from me. They will never sell me another vehicle at this dealership or any of their other dealerships. Further, any time someone wants to buy the same brand of auto, I will refer them to the Austin dealership where I did the exact same deal three years earlier without incident.
I understand their business development model, but I don’t agree with it. The experts tell us that business development takes two forms. First, there is new business. This is where you go out and get a customer that has no prior history with your company. Second, there is maintaining your current business.
In every business development seminar that I have attended, the experts consider maintaining your current business as the business number one development priority. These are the customers that come back time and again. They provide referrals. They are the base of your business. It is said that one unsatisfied customer can harm your business more than ten new customers would benefit it. I believe this statement to be true.
Car dealers and other high volume businesses believe that there are an unlimited number of customers. In a capitalist society this simply isn’t true. Consumers have a choice. They vote with their check book. If you don’t believe, ask Sears, Woolworths, General Motors, Chrysler Motors, and so on. There is a reason that HEB has run every grocery chain on the planet out of town…..and it isn’t just pricing.
When you put your annual business development plan together, don’t forget about your current client base. Don’t be like the “no haggle” guys. Be an HEB.
Today’s blog is on business development. I recently purchased a new car from one of the local “no-haggle” dealers. I thought I had made a good purchase. I later learned otherwise. The vehicle that I traded in was leased. For those that don’t know, the price of a leased vehicle is based, in part, on mileage. This is known as the contract mileage. If you go over the contract mileage amount, then you must pay a surcharge for any miles over and above the stated amount. For example, if your surcharge is $ .15 per mile and you go over the contract amount by 10,000 miles, then you owe $1,500 at trade in.
When I made my deal, I was to make the remaining unpaid lease payments on the old car and the dealer was to pay the mileage overage. Well, that didn’t happen. A month after signing the deal, I received a bill from the finance company saying that I owed for the mileage overage. Needless to say, I was surprised. I called the dealer to make sure that they paid the overage amount.
Guess what? I learned that “no haggle” also means “no recourse”. They said that the deal that I thought I made was too good to be true and I should have known better! In order to maintain my credit rating, I now have to pay the outstanding overage fees. Ouch!
As a result, I will never darken the door of that dealership or any of their other dealerships. They will not get $1 in service revenues from me. They will never sell me another vehicle at this dealership or any of their other dealerships. Further, any time someone wants to buy the same brand of auto, I will refer them to the Austin dealership where I did the exact same deal three years earlier without incident.
I understand their business development model, but I don’t agree with it. The experts tell us that business development takes two forms. First, there is new business. This is where you go out and get a customer that has no prior history with your company. Second, there is maintaining your current business.
In every business development seminar that I have attended, the experts consider maintaining your current business as the business number one development priority. These are the customers that come back time and again. They provide referrals. They are the base of your business. It is said that one unsatisfied customer can harm your business more than ten new customers would benefit it. I believe this statement to be true.
Car dealers and other high volume businesses believe that there are an unlimited number of customers. In a capitalist society this simply isn’t true. Consumers have a choice. They vote with their check book. If you don’t believe, ask Sears, Woolworths, General Motors, Chrysler Motors, and so on. There is a reason that HEB has run every grocery chain on the planet out of town…..and it isn’t just pricing.
When you put your annual business development plan together, don’t forget about your current client base. Don’t be like the “no haggle” guys. Be an HEB.
Friday, November 20, 2009
CPAs and TAX PLANNING - A PROACTIVE APPROACH
As a CPA in public practice, part of my job is to help clients with their taxes. While bookkeeping services and tax preparation services also offer this service, what sets the CPA apart is the ability to do tax planning with clients. What is 'tax planning'?
There are two goals in tax planning. The first goal is to minimize our client's annual tax liability. The second goal is to make sure that the client has paid in just enough tax to cover that liability.
The first goal is probably the more important - and complex - of the two. In order to help a client minimize their tax liability, we must have an accurate accounting of their income and expenses. Then we have to be able to project that over a full year and estimate their total income. Then the real work begins. The key to minimizing tax liability is in finding out what the client needs and deciding how to meet those needs in the most tax-friendly manner possible. There are several common ways I am able to help clients with their tax liability, including salary management, retirement planning, asset acquisitions, or debt structuring.
The second part of tax planning involves making sure clients have the right amount of taxes paid in. This is easy for employees, because they can manipulate their withholding simply by turning in a new W-4 to the payroll department at their job. However, for self employed individuals and people with large amounts of investment income it's a much more complicated process.
We often ask our clients "what is the perfect tax return?" Most people would say that it's the one that gives them the most money back. In my opinion, though, the perfect tax return is one where there is a small refund generated. Consider this logic: refunds are generated by overpaying taxes during the course of the year. If a return shows a large refund, it means the taxpayer essentially gave the government an interest-free loan for the course of the year. Wouldn't that money be better off staying in their pocket in the first place? We think so.
The common thread is that all of this planning has to be done proactively, not reactively. In other words, April 14, 2010 is too late to do tax planning for 2009. In fact, January 1, 2010 is too late to plan for 2009. Now is a perfect time to be doing tax planning for 2009. Enough of the year has passed that people have a good idea of where they stand, and there is still enough time left in the year to carry out any plans that are developed. Don't put it off!
For more information on options for tax planning for yourself or your business, contact our offices.
--Dan Musick is the Tax Services Partner with Cook & Associates, a full service accounting firm with offices in San Marcos and San Antonio, TX
There are two goals in tax planning. The first goal is to minimize our client's annual tax liability. The second goal is to make sure that the client has paid in just enough tax to cover that liability.
The first goal is probably the more important - and complex - of the two. In order to help a client minimize their tax liability, we must have an accurate accounting of their income and expenses. Then we have to be able to project that over a full year and estimate their total income. Then the real work begins. The key to minimizing tax liability is in finding out what the client needs and deciding how to meet those needs in the most tax-friendly manner possible. There are several common ways I am able to help clients with their tax liability, including salary management, retirement planning, asset acquisitions, or debt structuring.
The second part of tax planning involves making sure clients have the right amount of taxes paid in. This is easy for employees, because they can manipulate their withholding simply by turning in a new W-4 to the payroll department at their job. However, for self employed individuals and people with large amounts of investment income it's a much more complicated process.
We often ask our clients "what is the perfect tax return?" Most people would say that it's the one that gives them the most money back. In my opinion, though, the perfect tax return is one where there is a small refund generated. Consider this logic: refunds are generated by overpaying taxes during the course of the year. If a return shows a large refund, it means the taxpayer essentially gave the government an interest-free loan for the course of the year. Wouldn't that money be better off staying in their pocket in the first place? We think so.
The common thread is that all of this planning has to be done proactively, not reactively. In other words, April 14, 2010 is too late to do tax planning for 2009. In fact, January 1, 2010 is too late to plan for 2009. Now is a perfect time to be doing tax planning for 2009. Enough of the year has passed that people have a good idea of where they stand, and there is still enough time left in the year to carry out any plans that are developed. Don't put it off!
For more information on options for tax planning for yourself or your business, contact our offices.
--Dan Musick is the Tax Services Partner with Cook & Associates, a full service accounting firm with offices in San Marcos and San Antonio, TX
Wednesday, November 18, 2009
HOW TO BECOME A LEADER
I recently started reading a book called “The 21 Irrefutable Laws of Leadership” by John Maxwell. What a great book to pass on to your co-workers and employees! While not all of us are born leaders, Maxwell explains how each of us can become leaders, thereby increasing our effectiveness.
Leadership is important to the success of a business enterprise. It’s vital, in fact. Without leadership, organizations can make no progress. They are stuck at a complete standstill. Leaders are necessary to provide the vision, the influence, and the follow-through that is necessary to put a plan in motion.
Can you tell a good leader just by their appearance? Not likely. Many people have misconceptions about what makes a leader. Maxwell lists five, in particular:
Management Myth - People tend to think leading and managing are the same thing. Not so. Leadership is about influencing people while management is most often about maintaining systems and processes.
Entrepreneur Myth – Don’t assume that all entrepreneurs are leaders. Entrepreneurs are often good at seeing opportunities and going after them, but are not always good with people.
Knowledge Myth – High IQ and a good education do not always lead to good leadership. Consider a brilliant scientist who can come up with fascinating ideas but has no concept of leadership.
Pioneer Myth – Being the first to do something does not make you a leader. You need people intentionally following you and acting on your vision.
Position Myth – This is the most common myth. It’s not the position that makes the leader; it’s the leader that makes the position.
So how do we become a leader if it’s not innate? It’s simple. We become a student of leadership. There are several areas where we can improve ourselves, thus improving our leadership.
Character – Do you have depth of character?
Relationships – Who do you know and what kind of relationship have you established with them?
Knowledge – Have you done your homework? Do you have a grasp on the facts and a vision for the future?
Intuition – Can you make a decision based on what you feel?
Experience – Where have you been and what has it taught you?
Past Success – What have you done in the past that has had a positive impact?
Ability – What are you capable of? Can you lead a team/group/organization to victory?
Every organization needs leaders. To hone these skills and improve the overall function of your organization, become a student of leadership. It’s never too late to learn.
--LeAnn Carlson is the Audit Manager for Cook & Associates, CPAs, a full-service public accounting firm serving clients from offices in San Marcos and San Antonio, TX
Leadership is important to the success of a business enterprise. It’s vital, in fact. Without leadership, organizations can make no progress. They are stuck at a complete standstill. Leaders are necessary to provide the vision, the influence, and the follow-through that is necessary to put a plan in motion.
Can you tell a good leader just by their appearance? Not likely. Many people have misconceptions about what makes a leader. Maxwell lists five, in particular:
Management Myth - People tend to think leading and managing are the same thing. Not so. Leadership is about influencing people while management is most often about maintaining systems and processes.
Entrepreneur Myth – Don’t assume that all entrepreneurs are leaders. Entrepreneurs are often good at seeing opportunities and going after them, but are not always good with people.
Knowledge Myth – High IQ and a good education do not always lead to good leadership. Consider a brilliant scientist who can come up with fascinating ideas but has no concept of leadership.
Pioneer Myth – Being the first to do something does not make you a leader. You need people intentionally following you and acting on your vision.
Position Myth – This is the most common myth. It’s not the position that makes the leader; it’s the leader that makes the position.
So how do we become a leader if it’s not innate? It’s simple. We become a student of leadership. There are several areas where we can improve ourselves, thus improving our leadership.
Character – Do you have depth of character?
Relationships – Who do you know and what kind of relationship have you established with them?
Knowledge – Have you done your homework? Do you have a grasp on the facts and a vision for the future?
Intuition – Can you make a decision based on what you feel?
Experience – Where have you been and what has it taught you?
Past Success – What have you done in the past that has had a positive impact?
Ability – What are you capable of? Can you lead a team/group/organization to victory?
Every organization needs leaders. To hone these skills and improve the overall function of your organization, become a student of leadership. It’s never too late to learn.
--LeAnn Carlson is the Audit Manager for Cook & Associates, CPAs, a full-service public accounting firm serving clients from offices in San Marcos and San Antonio, TX
Monday, November 9, 2009
"Big Brother" Passes Health Care Bill
Fans of small government, I hope you're sitting down. Our House of Representatives passed a bill this weekend that would give our government a huge measure of control over our health care system. By taking the reins on health care, our government is proposing to take over an industry that currently makes up 1/6 of our Nation's total economy!!!
In the past year, we have seen our federal government expand its power exponentially. The government is now involved in our financial markets, our mortgage industry, the automobile industry, and now they're also planning on going in to the health care business. At this rate, it might not be long until the government runs everything for us.....all we will have to do is sit back and pay our 90% tax rates and they'll take care of the rest!
Yes, that's probably an exaggeration. But consider that the health care package has a projected price tag of $1.2 trillion, and the stimulus package passed earlier this year cost an estimated $3.27 trillion. That means that, should the health care bill get past the Senate, our esteemed lawmakers have spent an extra $4.5 trillion of our money in this year alone....and this is in addition to the already bloated federal budget.
Since we primarily deal with the aspects of these bills that relate to income taxes, here are some of the tax-related provisions of the bill passed by the House on Saturday night:
--This bill imposes taxes on individuals who do not obtain "acceptable" health insurance coverage, as well as increased employment taxes on employers who do not provide acceptable coverage, in addition to excise taxes on failures to meet certain health coverage requirements.
--The bill would impose a surcharge on taxpayers with adjusted gross income in excess of $1 million for a married couple filing a joint return and $500,000 for a single individual at a rate of 5.4 percent.
--The legislation eliminates nontaxable reimbursements of over-the-counter medications from health savings accounts, health reimbursement arrangements, and health flexible spending accounts, and limits contributions to health FSAs to $2,500. The bill also increases the penalty for non-health-related distributions from HSAs from 10 percent to 20 percent.
--The bill imposes an excise tax of 2.5 percent on medical devices used in the United States.
--Small business tax credits are available for businesses with 10 or fewer employees and $20,000 or less in average wages. The credits phase out if the employer has 25 or more employees, or if average wages are $40,000 or more. The credits are available on rolling basis for the first two years that an employer offers qualified coverage.
--Individuals are required to obtain health insurance coverage or pay a fee equal to the lower of 2.5 percent of their adjusted income above the filing threshold or the average premium on the health insurance exchange.
How else did you think the government was going to pay for this program, other than to tax its citizenry? In typical Washington fashion, their concept for improving our health care system wasn't to fix the problems with out of control provider costs and the need for tort reform. Nooooo....their solution was to require everyone to buy into the broken system - incredible!
Ladies and gentlemen.....our government at work!
--Dan Musick is the tax services partner for Cook & Associates, a full service public accounting firm with offices in San Marcos and San Antonio, TX
In the past year, we have seen our federal government expand its power exponentially. The government is now involved in our financial markets, our mortgage industry, the automobile industry, and now they're also planning on going in to the health care business. At this rate, it might not be long until the government runs everything for us.....all we will have to do is sit back and pay our 90% tax rates and they'll take care of the rest!
Yes, that's probably an exaggeration. But consider that the health care package has a projected price tag of $1.2 trillion, and the stimulus package passed earlier this year cost an estimated $3.27 trillion. That means that, should the health care bill get past the Senate, our esteemed lawmakers have spent an extra $4.5 trillion of our money in this year alone....and this is in addition to the already bloated federal budget.
Since we primarily deal with the aspects of these bills that relate to income taxes, here are some of the tax-related provisions of the bill passed by the House on Saturday night:
--This bill imposes taxes on individuals who do not obtain "acceptable" health insurance coverage, as well as increased employment taxes on employers who do not provide acceptable coverage, in addition to excise taxes on failures to meet certain health coverage requirements.
--The bill would impose a surcharge on taxpayers with adjusted gross income in excess of $1 million for a married couple filing a joint return and $500,000 for a single individual at a rate of 5.4 percent.
--The legislation eliminates nontaxable reimbursements of over-the-counter medications from health savings accounts, health reimbursement arrangements, and health flexible spending accounts, and limits contributions to health FSAs to $2,500. The bill also increases the penalty for non-health-related distributions from HSAs from 10 percent to 20 percent.
--The bill imposes an excise tax of 2.5 percent on medical devices used in the United States.
--Small business tax credits are available for businesses with 10 or fewer employees and $20,000 or less in average wages. The credits phase out if the employer has 25 or more employees, or if average wages are $40,000 or more. The credits are available on rolling basis for the first two years that an employer offers qualified coverage.
--Individuals are required to obtain health insurance coverage or pay a fee equal to the lower of 2.5 percent of their adjusted income above the filing threshold or the average premium on the health insurance exchange.
How else did you think the government was going to pay for this program, other than to tax its citizenry? In typical Washington fashion, their concept for improving our health care system wasn't to fix the problems with out of control provider costs and the need for tort reform. Nooooo....their solution was to require everyone to buy into the broken system - incredible!
Ladies and gentlemen.....our government at work!
--Dan Musick is the tax services partner for Cook & Associates, a full service public accounting firm with offices in San Marcos and San Antonio, TX
Friday, November 6, 2009
Homebuyer Credit Extended
Thinking of buying a new home? It’s still a good time. The Senate voted to extend the First-Time Homebuyer Tax Credit AND expand the credit to some existing homeowners.
The financial stimulus package passed in February provided for a credit for first time homebuyers that was set to expire December 1, 2009. New legislation has extended the existing $8,000 tax credit and expanded it to allow up to $6,500 in tax credits for existing homeowners who plan to purchase a new home. Both credits do not have to be repaid, and they are refundable - which means that a buyer would get the full amount even if the credit exceeds the amount they paid in.
Stipulations do exist, however. Existing homeowners must have lived in their current home for five consecutive years within the last eight years. Additionally, the credit is limited to the purchase of principal homes (no second homes or vacation homes) costing $800,000 or less. Finally, the credit is reduced for individuals with annual incomes over $125,000 and for joint filers with incomes above $225,000.
Purchase agreements must be signed by April 30, 2010 and closing must be completed by June 30, 2010 to qualify. The deadline is extended another year for members of the military who have served outside the U.S. for at least 90 days between January 1, 2009 and May 1, 2010.
For further questions on eligibility and how to claim the credit, contact our office.
--LeAnn Carlson is the Audit Manager for Cook & Associates, a firm offering a full range of accounting, tax, and auditing services from offices in San Marcos and San Antonio, TX
The financial stimulus package passed in February provided for a credit for first time homebuyers that was set to expire December 1, 2009. New legislation has extended the existing $8,000 tax credit and expanded it to allow up to $6,500 in tax credits for existing homeowners who plan to purchase a new home. Both credits do not have to be repaid, and they are refundable - which means that a buyer would get the full amount even if the credit exceeds the amount they paid in.
Stipulations do exist, however. Existing homeowners must have lived in their current home for five consecutive years within the last eight years. Additionally, the credit is limited to the purchase of principal homes (no second homes or vacation homes) costing $800,000 or less. Finally, the credit is reduced for individuals with annual incomes over $125,000 and for joint filers with incomes above $225,000.
Purchase agreements must be signed by April 30, 2010 and closing must be completed by June 30, 2010 to qualify. The deadline is extended another year for members of the military who have served outside the U.S. for at least 90 days between January 1, 2009 and May 1, 2010.
For further questions on eligibility and how to claim the credit, contact our office.
--LeAnn Carlson is the Audit Manager for Cook & Associates, a firm offering a full range of accounting, tax, and auditing services from offices in San Marcos and San Antonio, TX
Tuesday, November 3, 2009
What your business can learn from the Spurs
Last Wednesday night I had the good fortune to be invited to opening night by Stephen Geri of Diversified Employee Benefit Services. Generally, I am more of a football guy, but the opportunity to attend opening night was very enticing. The opportunity to sit on row 8 on opening night made it a no brainer.
I’ve been to Spurs games in the past, but have always sat far above the bat’s flight zone. The first thing you notice when you sit at floor level is the sheer size of the players. Those are some big guys. I’m glad I don’t have to feed them. The second thing you notice is the dance team. Gracious! Those are some ultra-attractive young ladies. Viva SA!
Once you waded through these obvious points, the thing that really caught my attention was the teamwork displayed by the home team.
I am constantly reminding and reinforcing the concept of teamwork with our staff. Today’s young professionals tend to be more about “me” than “us”. Whenever possible, I try to hire staff that participated in team athletics in high school. They understand “team”. Unfortunately, you can’t always find individuals with such a background. So, you have to teach them the concept of teamwork and the benefits thereof.
To this end, I have lectured. I have cajoled. I have instituted role playing. In short, I have tried everything within my power to emphasize the importance of “team”. Getting individuals that have never experienced the high of being on a team just don’t understand the incredible high that comes from team success and team recognition.
Businesses, no matter what their product line, have higher success rates when everyone is pulling in the same direction. Petty office politics and self promotion seldom lead to anything good. The more success that the organization enjoys, the more rewards there are for all the participants.
This brings me back to the Spurs. Wednesday night there was a complete singleness in purpose for the players. On the court, there were no raised voices. They played with a quiet determined presence of mind. The goal was to defeat the Hornets - which they accomplished. Good play was saluted and reinforced while bad play was ignored. Laziness was not tolerated. The goal was team success.
Maybe the solution to my problem is to simply push the pulpit aside and just take the staff to row 8 of a Spurs game. After all, seeing is believing.
--Steve Cook is the Managing Principal for Cook & Associates, a full-service accounting firm with offices in San Antonio and San Marcos, TX.
I’ve been to Spurs games in the past, but have always sat far above the bat’s flight zone. The first thing you notice when you sit at floor level is the sheer size of the players. Those are some big guys. I’m glad I don’t have to feed them. The second thing you notice is the dance team. Gracious! Those are some ultra-attractive young ladies. Viva SA!
Once you waded through these obvious points, the thing that really caught my attention was the teamwork displayed by the home team.
I am constantly reminding and reinforcing the concept of teamwork with our staff. Today’s young professionals tend to be more about “me” than “us”. Whenever possible, I try to hire staff that participated in team athletics in high school. They understand “team”. Unfortunately, you can’t always find individuals with such a background. So, you have to teach them the concept of teamwork and the benefits thereof.
To this end, I have lectured. I have cajoled. I have instituted role playing. In short, I have tried everything within my power to emphasize the importance of “team”. Getting individuals that have never experienced the high of being on a team just don’t understand the incredible high that comes from team success and team recognition.
Businesses, no matter what their product line, have higher success rates when everyone is pulling in the same direction. Petty office politics and self promotion seldom lead to anything good. The more success that the organization enjoys, the more rewards there are for all the participants.
This brings me back to the Spurs. Wednesday night there was a complete singleness in purpose for the players. On the court, there were no raised voices. They played with a quiet determined presence of mind. The goal was to defeat the Hornets - which they accomplished. Good play was saluted and reinforced while bad play was ignored. Laziness was not tolerated. The goal was team success.
Maybe the solution to my problem is to simply push the pulpit aside and just take the staff to row 8 of a Spurs game. After all, seeing is believing.
--Steve Cook is the Managing Principal for Cook & Associates, a full-service accounting firm with offices in San Antonio and San Marcos, TX.
Friday, October 30, 2009
Business or Hobby? Why Does it Matter?
Among the many challenges that sole proprietors must face is dealing with the IRS. Of course, most profitable small businesses find that their primary IRS concern is dealing with the tax burden. However, there is a chance that IRS can seek to prove that an unprofitable enterprise doesn't even qualify as a business. This is especially true when the business in question contains a significant element of personal enjoyment, as in the case of artists, race car drivers, or animal breeders.
If a business venture does not show a profit in three out of five years, the IRS could take the position that the activity is not being conducted on a “for-profit” basis. Why would they do this? Because while losses incurred by businesses are deductible, losses incurred in the pursuit of a hobby are not.
If a business' records show that it has incurred losses for several consecutive years, it could potentially be at risk of the IRS challenging its profit motive so they can disallow these losses. If the IRS reclassifies a business as a hobby, any losses will be limited to the gross income for that activity for each year. Any excess expenses will be treated as personal items and disallowed, leaving the owner owing taxes plus interest and penalties on any amounts disallowed.
Obviously, an owner would want their business to be able to deduct all of its expenses each year. However, if that business is not profitable for three of five years and the IRS challenges its losses as hobby losses, the taxpayer would have to prove under the “facts and circumstances” test that they are at least attempting to build a profitable business. The facts and circumstances test looks at several factors. Some of these are:
--the manner in which the activity is conducted
--the expertise of taxpayer in the area
--the amount of time and effort spent carrying out the activity
--expectation of future growth
--the success of the taxpayer in other activities
--historical profits or losses of the activity
--the overall financial status of the taxpayer (does he depend on this income?)
--any elements of personal pleasure derived from the activity
The IRS makes its decision on a case-by-case basis, and there are no set rules for determining whether an activity is carried on for-profit or is a hobby. Some things an owner can do to support their position of carrying on a “for-profit” business are:
--keep thorough, business-like books and records
--use a separate checking account and credit cards for the business
--keep a log of personal use of business assets
--carry applicable professional insurance for your business
--advertise the business in trade journals or local sources
If a business venture does not show a profit in three out of five years, the IRS could take the position that the activity is not being conducted on a “for-profit” basis. Why would they do this? Because while losses incurred by businesses are deductible, losses incurred in the pursuit of a hobby are not.
If a business' records show that it has incurred losses for several consecutive years, it could potentially be at risk of the IRS challenging its profit motive so they can disallow these losses. If the IRS reclassifies a business as a hobby, any losses will be limited to the gross income for that activity for each year. Any excess expenses will be treated as personal items and disallowed, leaving the owner owing taxes plus interest and penalties on any amounts disallowed.
Obviously, an owner would want their business to be able to deduct all of its expenses each year. However, if that business is not profitable for three of five years and the IRS challenges its losses as hobby losses, the taxpayer would have to prove under the “facts and circumstances” test that they are at least attempting to build a profitable business. The facts and circumstances test looks at several factors. Some of these are:
--the manner in which the activity is conducted
--the expertise of taxpayer in the area
--the amount of time and effort spent carrying out the activity
--expectation of future growth
--the success of the taxpayer in other activities
--historical profits or losses of the activity
--the overall financial status of the taxpayer (does he depend on this income?)
--any elements of personal pleasure derived from the activity
The IRS makes its decision on a case-by-case basis, and there are no set rules for determining whether an activity is carried on for-profit or is a hobby. Some things an owner can do to support their position of carrying on a “for-profit” business are:
--keep thorough, business-like books and records
--use a separate checking account and credit cards for the business
--keep a log of personal use of business assets
--carry applicable professional insurance for your business
--advertise the business in trade journals or local sources
Hopefully, all of your ventures are profitable. In the event that they are not, following these guidelines will ensure that you are able to properly deduct all of your business losses.
--Dan Musick is the Tax Services partner for Cook & Associates, a full-service public accounting firm with offices in San Marcos and San Antonio, TX
Monday, October 26, 2009
VACATIONS – LIKE MILK, THEY DO A BODY GOOD
Shortest vacations in the industrial world? Check. Regularly work over 40 hours per week? Check. High blood pressure? Check. Think there might be a correlation here?
U.S. employees work more hours and get fewer vacations than many other countries. Such strenuous work activity has led to an increase in stress and a decline in health in the general U.S. population.
According to Expedia, U.S. employees get an average of 14 vacation days per year. This is less than half of most European employees, where employees get anywhere between 26 and 37 days per year. Yes, the U.S. is the leader in productivity. However, France maintains a hold on 2nd while only working 35 hour work weeks and getting 37 vacation days per year! Maybe we should re-think the way we do business.
Need 5 good reasons to take a vacation this year? I’ll give you 10.
1. They help you recharge, rejuvenate and avoid burnout.
2. Vacations can inspire you and provide new ideas for the workplace.
3. You are generally more organized and focused in the weeks leading up to a vacation. Prioritizing is a key aspect of this time period.
4. Vacations can reduce stress, which can reduce many health problems such as high blood pressure.
5. Vacations = more sleep = improved clarity and performance.
6. They promote bonding time with family and friends.
7. You can step back and think about the big picture. This can help re-focus the work lens.
8. Changing the pace and place is good for the brain.
9. Seeing the world can expand your horizons and allow you to consider different approaches.
10. Errors, omissions, and even fraud can be detected when an employee takes time off. This is good for internal control purposes and can improve the health of the business.
And one more for the road: When you’re lying on your death bed, you’re not going to say “Man, I wish I had spent more time at the office”.
--LeAnn Carlson is the Audit Manager for Cook & Associates, a full service public accounting firm offering services from offices in San Marcos and San Antonio, TX.
U.S. employees work more hours and get fewer vacations than many other countries. Such strenuous work activity has led to an increase in stress and a decline in health in the general U.S. population.
According to Expedia, U.S. employees get an average of 14 vacation days per year. This is less than half of most European employees, where employees get anywhere between 26 and 37 days per year. Yes, the U.S. is the leader in productivity. However, France maintains a hold on 2nd while only working 35 hour work weeks and getting 37 vacation days per year! Maybe we should re-think the way we do business.
Need 5 good reasons to take a vacation this year? I’ll give you 10.
1. They help you recharge, rejuvenate and avoid burnout.
2. Vacations can inspire you and provide new ideas for the workplace.
3. You are generally more organized and focused in the weeks leading up to a vacation. Prioritizing is a key aspect of this time period.
4. Vacations can reduce stress, which can reduce many health problems such as high blood pressure.
5. Vacations = more sleep = improved clarity and performance.
6. They promote bonding time with family and friends.
7. You can step back and think about the big picture. This can help re-focus the work lens.
8. Changing the pace and place is good for the brain.
9. Seeing the world can expand your horizons and allow you to consider different approaches.
10. Errors, omissions, and even fraud can be detected when an employee takes time off. This is good for internal control purposes and can improve the health of the business.
And one more for the road: When you’re lying on your death bed, you’re not going to say “Man, I wish I had spent more time at the office”.
--LeAnn Carlson is the Audit Manager for Cook & Associates, a full service public accounting firm offering services from offices in San Marcos and San Antonio, TX.
Thursday, October 22, 2009
WHERE ARE THE WOMEN LEADERS?
I sat down with my first cup of coffee of the day with the idea of catching up on the last few days reading. It seems like the longer that I am in public accounting the more it changes. The more it changes, the greater the reading requirement becomes.
In the November 1 edition of Accounting Today, the major headline was “Where are the women leaders (in public accounting firms)?” As I read the article written by Liz Gold, I found myself nodding with approval of the article’s comments. I also found myself nodding with disapproval.
If you read the Wall Street Journal, you will note that there are a number of Fortune 500 companies with women as their CEOs. Many nations now have women as their heads of state. So why are women scaling those very high walls on a more frequent basis, while their counter parts in public accounting can’t seem to get over the backyard fence?
The AT article reports that 55 percent of new hires in CPA firms are female, but the number of women partners in CPA firms hovers around 25 percent.
The article offered some insights which you may or may not agree with.
One point offered by Gale Crosley, the co-coordinator of the Forum for Women in Accounting, was: “Women are taught to be responders, not initiators…business protocol require that if you are going to rise to the top of the accounting profession, you’ve got to be an initiator. Being an initiator, having self-confidence and being fearless around self promotion are all traits necessary to succeed in the profession.”
A second point was offered by Rita Keller: “I don’t think women want partner bad enough.” She stated (and I paraphrase) that women make good money at the manager level, with prestigious titles, and found that CPA firms are willing to work around their family schedules. She states that life has been good to women in public accounting and is puzzled at why women would complain.
A final point was offered by L. Nakarmura, a former KPMG partner, now the managing partner of a large local firm in California: “They (women) knew that to be the parent they wanted to be, they couldn’t be the employee they expected of themselves. So they chose to leave the profession because they couldn’t find a way to balance home success and work success.”
My money is on the last of the three points. Public accounting is extremely demanding. The general public thinks that we work hard from January through April 15 and then play the rest of year. In fact, tax filings occur throughout the year. Accounting services, audit services, financial consulting and software implementation are year-round concerns. Every month of the year has both State and Federal deadlines. A standard work week for most public accountants is between 50 and 60 hours. Burn out and alcoholism are major issues in the profession.
I have been in this business for about 26 years. I have found women to be bright and most capable. I have found them to be motivated and initiators of the first level. I have found their management skills to be equal of men’s although their style is different (women want to talk things to death before making a decision).
I also have observed that the family is a higher priority than the job for female accountants. Frankly, I consider that a good thing. So, if you are a potential employer, know that there are some incredible female talents out there. But also recognize that their kids will always come first and you must be flexible on this issue. It seems like a small price to pay for top quality talent.
--Steve Cook is the managing shareholder of Cook and Associates, PLLC, a certified public accounting firm with offices in San Antonio and San Marcos, Texas.
In the November 1 edition of Accounting Today, the major headline was “Where are the women leaders (in public accounting firms)?” As I read the article written by Liz Gold, I found myself nodding with approval of the article’s comments. I also found myself nodding with disapproval.
If you read the Wall Street Journal, you will note that there are a number of Fortune 500 companies with women as their CEOs. Many nations now have women as their heads of state. So why are women scaling those very high walls on a more frequent basis, while their counter parts in public accounting can’t seem to get over the backyard fence?
The AT article reports that 55 percent of new hires in CPA firms are female, but the number of women partners in CPA firms hovers around 25 percent.
The article offered some insights which you may or may not agree with.
One point offered by Gale Crosley, the co-coordinator of the Forum for Women in Accounting, was: “Women are taught to be responders, not initiators…business protocol require that if you are going to rise to the top of the accounting profession, you’ve got to be an initiator. Being an initiator, having self-confidence and being fearless around self promotion are all traits necessary to succeed in the profession.”
A second point was offered by Rita Keller: “I don’t think women want partner bad enough.” She stated (and I paraphrase) that women make good money at the manager level, with prestigious titles, and found that CPA firms are willing to work around their family schedules. She states that life has been good to women in public accounting and is puzzled at why women would complain.
A final point was offered by L. Nakarmura, a former KPMG partner, now the managing partner of a large local firm in California: “They (women) knew that to be the parent they wanted to be, they couldn’t be the employee they expected of themselves. So they chose to leave the profession because they couldn’t find a way to balance home success and work success.”
My money is on the last of the three points. Public accounting is extremely demanding. The general public thinks that we work hard from January through April 15 and then play the rest of year. In fact, tax filings occur throughout the year. Accounting services, audit services, financial consulting and software implementation are year-round concerns. Every month of the year has both State and Federal deadlines. A standard work week for most public accountants is between 50 and 60 hours. Burn out and alcoholism are major issues in the profession.
I have been in this business for about 26 years. I have found women to be bright and most capable. I have found them to be motivated and initiators of the first level. I have found their management skills to be equal of men’s although their style is different (women want to talk things to death before making a decision).
I also have observed that the family is a higher priority than the job for female accountants. Frankly, I consider that a good thing. So, if you are a potential employer, know that there are some incredible female talents out there. But also recognize that their kids will always come first and you must be flexible on this issue. It seems like a small price to pay for top quality talent.
--Steve Cook is the managing shareholder of Cook and Associates, PLLC, a certified public accounting firm with offices in San Antonio and San Marcos, Texas.
Monday, October 19, 2009
Deadlines, deadlines......
In the CPA world, there's nothing like a tax deadline. Many grey hairs, ulcers, and headaches have been born of the rush leading up to April 15 or October 15 (and in the old days, August 15). Clients who wait until the last minute to deliver their information, other preparers who wait until the last minute to prepare forms that you need for one of your clients, and other non-tax work that just can't wait all contribute to the hectic nature of the filing deadline. Overall, a non-scientific review of our case load reveals that almost 1/2 of the returns that we prepare in a given year are filed within 10 days of a deadline.
April 15 is the most well-known deadline, but for CPAs it's not actually the most stressful. That "honor" is reserved for October 15. Why? Because if the work isn't done by April 15, you can always file an extension. However, no extensions are available for October 15....it's truly a "drop dead" due date. We may go for several months during the summer and only be able to complete a couple dozen extended returns, only to have thirty to forty returns come in after October 1. Clients know that if they don't file by October 15, penalties and interest are sure to follow.
As a professional service provider, you never want to tell a paying client that you can't meet a deadline for them - especially in this economy where each client is vital. So while the lay person might say "just tell them you can't do it" or my wife's frequent response, "Did you laugh at them", the CPA's response is to roll up their sleeves, put on another pot of coffee, and prepare for a long evening at the office. That guy who brings you four filing boxes full of loose receipts on October 14 at closing time can make you want to rethink your approach sometimes, though.
At the end of the day, everyone gets taken care of, and we've survived another tough filing deadline. It's time now to spend the rest of the year dealing with "troubleshooting", doing tax estimates for the current year, and catching up on continuing education. Once January 1 hits, it's back to tax season and the countdown officially begins toward yet another deadline.
--Dan Musick is the Tax Services Partner for Cook & Associates, a full-service public accounting firm offering tax, auditing, accounting, and payroll services from offices in San Marcos and San Antonio, TX.
April 15 is the most well-known deadline, but for CPAs it's not actually the most stressful. That "honor" is reserved for October 15. Why? Because if the work isn't done by April 15, you can always file an extension. However, no extensions are available for October 15....it's truly a "drop dead" due date. We may go for several months during the summer and only be able to complete a couple dozen extended returns, only to have thirty to forty returns come in after October 1. Clients know that if they don't file by October 15, penalties and interest are sure to follow.
As a professional service provider, you never want to tell a paying client that you can't meet a deadline for them - especially in this economy where each client is vital. So while the lay person might say "just tell them you can't do it" or my wife's frequent response, "Did you laugh at them", the CPA's response is to roll up their sleeves, put on another pot of coffee, and prepare for a long evening at the office. That guy who brings you four filing boxes full of loose receipts on October 14 at closing time can make you want to rethink your approach sometimes, though.
At the end of the day, everyone gets taken care of, and we've survived another tough filing deadline. It's time now to spend the rest of the year dealing with "troubleshooting", doing tax estimates for the current year, and catching up on continuing education. Once January 1 hits, it's back to tax season and the countdown officially begins toward yet another deadline.
--Dan Musick is the Tax Services Partner for Cook & Associates, a full-service public accounting firm offering tax, auditing, accounting, and payroll services from offices in San Marcos and San Antonio, TX.
Monday, October 12, 2009
YES DOROTHY – THERE ARE STILL GOOD SAMARITAINS
A couple of weeks ago, I was in the process of losing my mind. It had been an absolutely horrible week. If it could go wrong, it did go wrong. The apex of the week occurred at my favorite Valero station.
With the red gas light screaming at me, I pulled in for gas. My head was pounding from the weeks activities. I pulled my credit card out, swiped it, and filled up my tank. When the pump “bonged”, I put the gas cap on and drove off. Guess what? My wallet and all its contents were still on the trunk of my car!
The next day, I was driving to Austin for a meeting. I was in dire need of coffee. I pulled into Starbucks, reached for my wallet and found nothing but air. I had absolutely no idea where my wallet was. I racked my ibuprofen- and caffeine-stimulated brain, but to no avail.
I had just sat down at the meeting when the office texted me that someone had found my wallet! In what has to qualify as a miracle these days, he had found it and called to return it – intact!
Yes Dorothy, there are still good Samaritans out there. Thanks again, Mr. Ray Soto!
--Steve Cook is managing shareholder at Cook and Associates, PLLC; a CPA firm with offices located in San Antonio and San Marcos.
With the red gas light screaming at me, I pulled in for gas. My head was pounding from the weeks activities. I pulled my credit card out, swiped it, and filled up my tank. When the pump “bonged”, I put the gas cap on and drove off. Guess what? My wallet and all its contents were still on the trunk of my car!
The next day, I was driving to Austin for a meeting. I was in dire need of coffee. I pulled into Starbucks, reached for my wallet and found nothing but air. I had absolutely no idea where my wallet was. I racked my ibuprofen- and caffeine-stimulated brain, but to no avail.
I had just sat down at the meeting when the office texted me that someone had found my wallet! In what has to qualify as a miracle these days, he had found it and called to return it – intact!
Yes Dorothy, there are still good Samaritans out there. Thanks again, Mr. Ray Soto!
--Steve Cook is managing shareholder at Cook and Associates, PLLC; a CPA firm with offices located in San Antonio and San Marcos.
Friday, October 9, 2009
FDIC INSURANCE – ARE YOU AS PROTECTED AS YOU THINK?
I recently attended a continuing education seminar discussing FDIC. Boring, you say? Not quite. It piqued my interest just enough to have me returning to the office and (you guessed it) “googling” FDIC.
The first site to pop up on my search was http://www.myfdicinsurance.gov/. The site prominently displays the following picture:
The first site to pop up on my search was http://www.myfdicinsurance.gov/. The site prominently displays the following picture:
What exactly does FDIC insurance entail? If you’re like many Americans, you may have been under some common misconceptions. Here’s what you need to know:
FDIC stands for Federal Deposit Insurance Corporation. It is an independent agency of the federal government that was created in 1933 to insure deposits in banks and thrift institutions. Interestingly enough, no depositor has lost a single penny of insured funds since the program was created.
Misconception #1: The FDIC insurance limit is $100,000.
Good news. The limit was upped to $250,000. This means that for each “ownership category” (single, joint, revocable trust, retirement account, etc.), you are insured up to the basic limit of $250,000. So, if you have deposits in three of the categories, you qualify for up to $750,000 in coverage.
Misconception #2: Having multiple bank accounts increases your coverage.
Dividing money into multiple bank accounts does NOT increase your coverage. For example, let’s say that Sue has a checking account and a savings account at the same bank. Both accounts are in her name only. She has $150,000 in checking and $200,000 in savings. Even though she has $350,000 in the bank, she is only insured up to $250,000. Keep in mind, if Sue instead had a single account with $150,000 and a joint account with $500,000 (shared with husband Joe), Sue would be insured for $400,000 ($150,000 + ½ joint account up to $250,000). Sue could also increase her coverage by having accounts at different banks, even if they are in the same account class.
Misconception #3: The FDIC does not pay out the insurance in a timely manner.
Federal law requires the FDIC to pay deposit insurance as soon as possible. Often, this means making the funds available on the first business day after the bank is closed. In addition, depositors may also be able to recover some or all of the uninsured portion of deposits, depending on how much the FDIC recoups from selling the bank’s assets. Unlike insured recovery, uninsured recovery can take up to two years.
As the picture says, “Don’t bank on your mattress”. Structure your accounts properly and get a good night’s rest knowing your money is federally insured.
Wednesday, October 7, 2009
GDP: The Nation's Report Card
Why do I care about the GDP?
As my blog readers have noticed, from time to time I have railed about the dangers of runaway government spending. I am not an isolationist. I am a moderate. I believe that debt - in moderation where there is the ability to repay - is a sound business strategy. This strategy works in government as well as business.
The problem arises when the strategy is abused. There are some telling signs that our friends in Washington are heading past moderation. Economists consider the Gross Domestic Product (GDP) and its relationship to other countries’ GDPs to be our “economic report card”. In its simplest terms, the GDP measures the output of a country’s goods and services. In the past, the United States raced ahead of the world in GDP. Relative to the rest of the world, we enjoyed lower interest rates, greater purchasing power, and lower costs of goods and services.
Recent report cards haven’t been so good. The U.S. has fallen behind both Japan and Germany in GDP. What is most interesting is that both Japan and Germany have experienced deeper drops in GDP than the U.S. So what does this really mean?
First, it is a not so subtle reminder that we live and operate in a global market place. This global market affects the costs of many the products that we use in our daily lives. The computer that this blog is written on is “Made in USA”. Well, sort of. The chips are engineered and created in the U.S. but are manufactured overseas. The boards and drives are created in the U.S. but are manufactured overseas. It is “Made in USA” only because HP is located in the U.S. Most of the products that we use in our daily lives follow similar paths. The strength of the dollar is tied directly to the GDP. This affects our purchasing power and ultimately the end cost (consumer cost) to us.
Second, the GDP affects our cost of money. The U.S. is currently the recipient of billions of dollars in overseas investment capital. These overseas countries and investors buy the bonds and money instruments that the US Government issues to run the day to day operations of our government. As the strength of the GDP declines versus the rest of the industrial world, the value of the dollar decreases. As the value of the dollar declines, the desirability of U.S. money funds decreases. When U.S. money funds become less desirable, the government is forced to pay higher interest rates to attract investors.
Why is this so important to your small business? Even the smallest “mom and pop” businesses are connected somewhere to companies that are caught in the global marketplace. Let’s say for example that you run a corner Taco Stand. Your suppliers are Sysco Foods, H.E.B., Wal-Mart, etc. All of these giants purchase their products in a global market. No matter how small you may think you are, you are never outside of the “global market place”. The GDP report card affects you.
Now let me apply this thought process to the US government. The government has a relatively fixed amount of revenues annually. If expenses exceed revenues (called deficit spending), the government goes to the market and borrows money. When the dollar is weak, the U.S. government must pay a higher interest rate. Since revenues are fixed, the increased cost of debt service (interest) leaves less money to fund other programs. If you can’t cut costs, what do you have to do? Raise revenue – and to a government, that means increasing taxes on its citizenry.
Think about this. In 2000, the amount of our GDP needed to pay the interest on the nation’s debt was 2%. In 2010 it is expected to be a similar amount. Under current revenue and expenditure rates, the 2020 rate is projected to increase to 3%. By 2050, the rate is expected to be 5%. These are huge increases when you consider that we are talking about interest on trillions of dollars in debt.
In the long run, we have to manage our debt – both in our personal lives and in our government.
--Steve Cook is managing shareholder for cook and Associates, PLLC a CPA firm with offices located in San Antonio and San Marcos, Texas.
As my blog readers have noticed, from time to time I have railed about the dangers of runaway government spending. I am not an isolationist. I am a moderate. I believe that debt - in moderation where there is the ability to repay - is a sound business strategy. This strategy works in government as well as business.
The problem arises when the strategy is abused. There are some telling signs that our friends in Washington are heading past moderation. Economists consider the Gross Domestic Product (GDP) and its relationship to other countries’ GDPs to be our “economic report card”. In its simplest terms, the GDP measures the output of a country’s goods and services. In the past, the United States raced ahead of the world in GDP. Relative to the rest of the world, we enjoyed lower interest rates, greater purchasing power, and lower costs of goods and services.
Recent report cards haven’t been so good. The U.S. has fallen behind both Japan and Germany in GDP. What is most interesting is that both Japan and Germany have experienced deeper drops in GDP than the U.S. So what does this really mean?
First, it is a not so subtle reminder that we live and operate in a global market place. This global market affects the costs of many the products that we use in our daily lives. The computer that this blog is written on is “Made in USA”. Well, sort of. The chips are engineered and created in the U.S. but are manufactured overseas. The boards and drives are created in the U.S. but are manufactured overseas. It is “Made in USA” only because HP is located in the U.S. Most of the products that we use in our daily lives follow similar paths. The strength of the dollar is tied directly to the GDP. This affects our purchasing power and ultimately the end cost (consumer cost) to us.
Second, the GDP affects our cost of money. The U.S. is currently the recipient of billions of dollars in overseas investment capital. These overseas countries and investors buy the bonds and money instruments that the US Government issues to run the day to day operations of our government. As the strength of the GDP declines versus the rest of the industrial world, the value of the dollar decreases. As the value of the dollar declines, the desirability of U.S. money funds decreases. When U.S. money funds become less desirable, the government is forced to pay higher interest rates to attract investors.
Why is this so important to your small business? Even the smallest “mom and pop” businesses are connected somewhere to companies that are caught in the global marketplace. Let’s say for example that you run a corner Taco Stand. Your suppliers are Sysco Foods, H.E.B., Wal-Mart, etc. All of these giants purchase their products in a global market. No matter how small you may think you are, you are never outside of the “global market place”. The GDP report card affects you.
Now let me apply this thought process to the US government. The government has a relatively fixed amount of revenues annually. If expenses exceed revenues (called deficit spending), the government goes to the market and borrows money. When the dollar is weak, the U.S. government must pay a higher interest rate. Since revenues are fixed, the increased cost of debt service (interest) leaves less money to fund other programs. If you can’t cut costs, what do you have to do? Raise revenue – and to a government, that means increasing taxes on its citizenry.
Think about this. In 2000, the amount of our GDP needed to pay the interest on the nation’s debt was 2%. In 2010 it is expected to be a similar amount. Under current revenue and expenditure rates, the 2020 rate is projected to increase to 3%. By 2050, the rate is expected to be 5%. These are huge increases when you consider that we are talking about interest on trillions of dollars in debt.
In the long run, we have to manage our debt – both in our personal lives and in our government.
--Steve Cook is managing shareholder for cook and Associates, PLLC a CPA firm with offices located in San Antonio and San Marcos, Texas.
Monday, October 5, 2009
Facts about our tax system
If you think our tax code is overly complicated, you're not alone. And you're probably right. Consider the following not-so-random facts:
--Dan Musick is the Tax Services partner with Cook & Associates, a full-service public accounting firm with offices in San Marcos and San Antonio, TX
--Our original tax code, published in 1913, contained 11,400 words. Today the tax code contains over 7 million words. By comparison, the Bible only contains 773,000 words.
--When the Sixteenth Amendment created the income tax, the lowest tax bracket was 1% and the top tax bracket was 7%. Today, our lowest bracket is 10% and the highest is 35%.
--There are about 490 different tax forms in the IRS' library.
--Our "easiest" tax form, the 1040EZ, comes with an instruction booklet that is 33 pages long.
--The IRS sends out 8 billion pages of forms and instructions each year. If laid end to end, they would stretch 28 times around the earth.
--The Cato Institue estimates that taxpayers spend 6.4 billion hours each year working on their tax returns. That's the equivalent of a company having 3 million full-time employees.
--General Electric Co. electronically filed a tax return containing 24,000 pages. If this return had been printed, it would be over eight feet tall!
--The IRS has 114,000 employees - five times as many as the FBI and an operating budget just for payroll of approximately $10 billion.
--It costs the IRS $2.45 to collect $100 in taxes.
--The government spends an estimated $2 billion per year on federal tax compliance. This is more than it costs to produce every vehicle made in the United States in a year.
I am not necessarily an advocate for a flat tax, but given these facts, it's clear that something needs to change. Besides the fact that there is too much pork in Washington, our current tax system costs our government - and by extension, our citizens) too much to administer.--Dan Musick is the Tax Services partner with Cook & Associates, a full-service public accounting firm with offices in San Marcos and San Antonio, TX
Tuesday, September 29, 2009
Lessons From the Gridiron
By now, regular readers of our blog have noticed a trend toward sports-themed blogs. It could be because we are all big sports fans. It could be because we are in the early-season head rush that comes with September and football season. But I think it’s primarily because the world of sports is, in many ways, a perfect analogy for the business world. Today, in honor of football season getting into full swing, I wanted to present four financial lessons that people can learn from the world of football:
1. There is no “I” in team. Football is considered by many pundits to be the ultimate team game. Eleven people on the field, each responsible for a task on each and every play. If one fails, the whole play is in jeopardy. Is it really any different in the business world? Can the shipping department deliver the product on time if the sales department doesn’t turn in the order? One of the single most important principles that a business owner needs to instill in his staff – top to bottom – is that the entire organization needs to be working together for a common goal. Employees will certainly have personal agendas, but those agendas cannot conflict with the goals of the organization. It sounds hackneyed, but teamwork is essential to your success.
2. The final score matters. A team can trail at the half and make the big comeback in the second half to win the game. How do they do it? Halftime adjustments. The coach sees a problem and corrects it. The coach who makes the best adjustments often wins the game. Not every business plan is successful. Not every personal financial plan gets off the ground correctly. The lesson here is that you can always make those “halftime” adjustments to your plan and right the ship. I have personally worked with people in their fifties who had absolutely no retirement savings. At the end of our “halftime” we found a plan that would provide full retirement benefits – including medical – and would be fully funded in five years. Having a good plan is important. Knowing when to make adjustments to that plan is critical.
3. Listen to the coach. In the world of football, the head coach is the final authority on the team’s game plan, personnel, and strategy. He decides what plays to run (though sometimes they delegate this responsibility), who gets in the game, and ultimately the coach is the hero when they win and the goat when they lose. In the business world, CPAs are able to function as the coach for business owners and individuals seeking financial advice. However, if you have a football coach whose players don’t buy into his game plan, the team is doomed. It works exactly the same way when you deal with a financial professional. CPAs are experts in matters involving business planning, financial planning, and taxation. So why on earth would someone take their fishing buddy’s advice over the CPA’s? I don’t know but it happens – too often.
4. The game plan changes based on the opponent. Each week, football teams plan intensely for that weekend’s opponent, and the planning is specific to what the opponent’s strengths and weaknesses are. The University of Texas Longhorns will not plan for the Oklahoma game in the same manner as they did for the UTEP game. Why would they? In the financial world, then, why would you plan for your retirement or the success of your business based on a plan that was drawn up for someone else? You need a plan that was designed for your needs. This is why we are no big fans of Dave Ramsey or Suze Ormon. They are certainly capable advisors, but the concepts that they discuss are not designed especially for you. They are designed to be as generic as possible to provide mass appeal. While that’s great for their pocketbooks, it probably won’t be as good for yours. You need to work with a financial team that is willing to design a plan around your needs. You need a plan that will meet your goals. You can’t get that from watching a television show.
Sure, maybe I have football on the brain. But I believe that there are fundamental principles that can be learned from the game that can be applied to your financial success. If you would like to know more about planning for your retirement or for the success of your business, contact our office.
--Dan Musick is the Tax Services partner for Cook & Associates, a full-service CPA firm providing a wide range of tax, accounting, consulting, and auditing services from its offices in San Marcos and San Antonio, TX
1. There is no “I” in team. Football is considered by many pundits to be the ultimate team game. Eleven people on the field, each responsible for a task on each and every play. If one fails, the whole play is in jeopardy. Is it really any different in the business world? Can the shipping department deliver the product on time if the sales department doesn’t turn in the order? One of the single most important principles that a business owner needs to instill in his staff – top to bottom – is that the entire organization needs to be working together for a common goal. Employees will certainly have personal agendas, but those agendas cannot conflict with the goals of the organization. It sounds hackneyed, but teamwork is essential to your success.
2. The final score matters. A team can trail at the half and make the big comeback in the second half to win the game. How do they do it? Halftime adjustments. The coach sees a problem and corrects it. The coach who makes the best adjustments often wins the game. Not every business plan is successful. Not every personal financial plan gets off the ground correctly. The lesson here is that you can always make those “halftime” adjustments to your plan and right the ship. I have personally worked with people in their fifties who had absolutely no retirement savings. At the end of our “halftime” we found a plan that would provide full retirement benefits – including medical – and would be fully funded in five years. Having a good plan is important. Knowing when to make adjustments to that plan is critical.
3. Listen to the coach. In the world of football, the head coach is the final authority on the team’s game plan, personnel, and strategy. He decides what plays to run (though sometimes they delegate this responsibility), who gets in the game, and ultimately the coach is the hero when they win and the goat when they lose. In the business world, CPAs are able to function as the coach for business owners and individuals seeking financial advice. However, if you have a football coach whose players don’t buy into his game plan, the team is doomed. It works exactly the same way when you deal with a financial professional. CPAs are experts in matters involving business planning, financial planning, and taxation. So why on earth would someone take their fishing buddy’s advice over the CPA’s? I don’t know but it happens – too often.
4. The game plan changes based on the opponent. Each week, football teams plan intensely for that weekend’s opponent, and the planning is specific to what the opponent’s strengths and weaknesses are. The University of Texas Longhorns will not plan for the Oklahoma game in the same manner as they did for the UTEP game. Why would they? In the financial world, then, why would you plan for your retirement or the success of your business based on a plan that was drawn up for someone else? You need a plan that was designed for your needs. This is why we are no big fans of Dave Ramsey or Suze Ormon. They are certainly capable advisors, but the concepts that they discuss are not designed especially for you. They are designed to be as generic as possible to provide mass appeal. While that’s great for their pocketbooks, it probably won’t be as good for yours. You need to work with a financial team that is willing to design a plan around your needs. You need a plan that will meet your goals. You can’t get that from watching a television show.
Sure, maybe I have football on the brain. But I believe that there are fundamental principles that can be learned from the game that can be applied to your financial success. If you would like to know more about planning for your retirement or for the success of your business, contact our office.
--Dan Musick is the Tax Services partner for Cook & Associates, a full-service CPA firm providing a wide range of tax, accounting, consulting, and auditing services from its offices in San Marcos and San Antonio, TX
Friday, September 25, 2009
Keep Customers Coming Back
It’s no surprise – we all have our favorite customers. These are the ones who pay on time, are patient and respectful, value our advice, and keep coming back. So if we already have good customers, why are we spending so many resources on gaining new clients? Sadly, this is a fact of business: most companies spend more on attracting new customers than they do on keeping their existing clientele happy. This can cause our “favorites” to walk right out the door. AT&T, for example, gives new customers better deals on new cell phones than they do existing customers looking to renew their agreements. How does that existing customer feel?
Losing good customers can mean fewer referrals, less repeat business, and a lower bottom line. To avoid this situation and keep customers coming back, keep these tips in mind:
1. Give Customers Incentive
Whether it’s a discount, small gift, or chance to win a mystery gift, customers come back for incentives. Kwik Kar gives the tenth oil change free and Subway often gives promotional codes for a chance to win free gifts. Small incentives = big payback.
2. Reward Your Customers
This may sound like the same thing as incentive, but it’s slightly different. Rewards should be unexpected – a nice surprise for the recipient. Tickets to a game, dinner invitations, or a round of golf are all good ways to show loyal clients your appreciation. We give gift cards as a “thank-you” to clients who refer new business to us, and it’s amazing how much goodwill that simple act generates with our clientele.
3. Respond Immediately to Problems
The faster you deal with the issue at hand, the sooner you can move on to another task. Letting a problem fester will only serve to annoy the client and prolong the inevitable. Find a solution - ASAP.
4. Stay in Touch
We’ve all heard that handwritten notes make great impressions. They can also serve as a way to keep customers thinking about your business. The more contact you have with clients, the more likely it is they’ll remember you when shopping for goods or services. If writing notes just isn’t feasible, stay in touch through e-mail, phone, or fax.
5. Give First Class Service and Convenience
In an age of drive-thrus, delivery service, and TiVo, convenience is key to the consumer. Make the purchasing process as easy as possible. Service businesses should have systems in place that make their staff and procedures user-friendly. Above all else, make sure you are treating the client with respect and a smile. This demonstrates efficiency and shows the client you value their time as well as their business.
--LeAnn Carlson is the audit manager for Cook & Associates, a public accounting firm offering a full range of accounting, auditing, consulting, and tax services from offices in San Marcos and San Antonio, TX
Losing good customers can mean fewer referrals, less repeat business, and a lower bottom line. To avoid this situation and keep customers coming back, keep these tips in mind:
1. Give Customers Incentive
Whether it’s a discount, small gift, or chance to win a mystery gift, customers come back for incentives. Kwik Kar gives the tenth oil change free and Subway often gives promotional codes for a chance to win free gifts. Small incentives = big payback.
2. Reward Your Customers
This may sound like the same thing as incentive, but it’s slightly different. Rewards should be unexpected – a nice surprise for the recipient. Tickets to a game, dinner invitations, or a round of golf are all good ways to show loyal clients your appreciation. We give gift cards as a “thank-you” to clients who refer new business to us, and it’s amazing how much goodwill that simple act generates with our clientele.
3. Respond Immediately to Problems
The faster you deal with the issue at hand, the sooner you can move on to another task. Letting a problem fester will only serve to annoy the client and prolong the inevitable. Find a solution - ASAP.
4. Stay in Touch
We’ve all heard that handwritten notes make great impressions. They can also serve as a way to keep customers thinking about your business. The more contact you have with clients, the more likely it is they’ll remember you when shopping for goods or services. If writing notes just isn’t feasible, stay in touch through e-mail, phone, or fax.
5. Give First Class Service and Convenience
In an age of drive-thrus, delivery service, and TiVo, convenience is key to the consumer. Make the purchasing process as easy as possible. Service businesses should have systems in place that make their staff and procedures user-friendly. Above all else, make sure you are treating the client with respect and a smile. This demonstrates efficiency and shows the client you value their time as well as their business.
--LeAnn Carlson is the audit manager for Cook & Associates, a public accounting firm offering a full range of accounting, auditing, consulting, and tax services from offices in San Marcos and San Antonio, TX
Wednesday, September 23, 2009
The New Health Care Tax
“If it looks like a tax and is enforced like a tax, it’s a tax,” Orrin Hatch
As a CPA, my eye is always in ‘search mode’ for the word TAX. I know that any changes in tax legislation will affect me personally as well as our business. The universal health care proposal falls in this category.
Among the provisions of several of the proposed health care bills is essentially to charge a fee (Tax) to anyone that does not carry health insurance. The fee (Tax) will be reported and paid on the taxpayer’s annual tax return. The latest legislative update indicates that taxpayers will be charged $3,800 per family should they choose not to carry insurance.
As I just mentioned, this fee will be reported on the offenders’ annual tax return. Under the proposed new system, paid tax preparers would become the insurance police. When you go to have your return prepared, you will have to provide proof of health insurance....just like you do for your automobile. If you don’t have it, we will add $3,800 to your tax liability. I assume that this will be a new line item on the Form 1040.
I can hear it now: “I never have to pay additional taxes.” “I always get a refund!” I imagine that there will be other unflattering words before I can explain what actually occurred.
My suggestion to all of our clients that do not carry health insurance will be to increase their withholding amount by about $300 per month. This will mean less money going in the bank to pay bills, but at least they will not come up short at the end of the year. Oh yes, also remember that if your taxes are underpaid, there is a penalty. Penalties on top of fees – you have to love our tax system!
As a single male, sixty years old, I pay a little over $500 per month for a modest health insurance policy. So, if hard times set in and I drop my insurance, I will save $6,000 per year. My taxes, however, will increase $3,800 and have to be paid on my Form 1040. Quite a fee for someone who has chosen to accept the responsibility that comes with being uninsured.
If you are under the federal poverty level (yet to be determined), you will have to complete a separate form and submit the form to some as-yet unknown federal agency. They will determine if you are qualified for the federal insurance subsidy. The federal subsidy will be paid directly to an insurance company on your behalf. For most people, the subsidy will not cover the entire premium. The individual will be required to fund the difference. If the individual does not fund their part, then you will have a partially funded but inactive insurance policy with your name on it.
The good news for CPAs is that income verification is normally provided by tax returns and W-2s. The basic tax returns, however, will be more complicated. Listening to the moaning and groaning will take time and patience. There will also be another federal agency to deal with. At least all of this is billable time!
--Steve Cook is the managing partner for Cook & Associates, an accounting firm offering a full range of accounting, tax, auditing, and consulting services to clients from offices in San Antonio and San Marcos, TX
As a CPA, my eye is always in ‘search mode’ for the word TAX. I know that any changes in tax legislation will affect me personally as well as our business. The universal health care proposal falls in this category.
Among the provisions of several of the proposed health care bills is essentially to charge a fee (Tax) to anyone that does not carry health insurance. The fee (Tax) will be reported and paid on the taxpayer’s annual tax return. The latest legislative update indicates that taxpayers will be charged $3,800 per family should they choose not to carry insurance.
As I just mentioned, this fee will be reported on the offenders’ annual tax return. Under the proposed new system, paid tax preparers would become the insurance police. When you go to have your return prepared, you will have to provide proof of health insurance....just like you do for your automobile. If you don’t have it, we will add $3,800 to your tax liability. I assume that this will be a new line item on the Form 1040.
I can hear it now: “I never have to pay additional taxes.” “I always get a refund!” I imagine that there will be other unflattering words before I can explain what actually occurred.
My suggestion to all of our clients that do not carry health insurance will be to increase their withholding amount by about $300 per month. This will mean less money going in the bank to pay bills, but at least they will not come up short at the end of the year. Oh yes, also remember that if your taxes are underpaid, there is a penalty. Penalties on top of fees – you have to love our tax system!
As a single male, sixty years old, I pay a little over $500 per month for a modest health insurance policy. So, if hard times set in and I drop my insurance, I will save $6,000 per year. My taxes, however, will increase $3,800 and have to be paid on my Form 1040. Quite a fee for someone who has chosen to accept the responsibility that comes with being uninsured.
If you are under the federal poverty level (yet to be determined), you will have to complete a separate form and submit the form to some as-yet unknown federal agency. They will determine if you are qualified for the federal insurance subsidy. The federal subsidy will be paid directly to an insurance company on your behalf. For most people, the subsidy will not cover the entire premium. The individual will be required to fund the difference. If the individual does not fund their part, then you will have a partially funded but inactive insurance policy with your name on it.
The good news for CPAs is that income verification is normally provided by tax returns and W-2s. The basic tax returns, however, will be more complicated. Listening to the moaning and groaning will take time and patience. There will also be another federal agency to deal with. At least all of this is billable time!
--Steve Cook is the managing partner for Cook & Associates, an accounting firm offering a full range of accounting, tax, auditing, and consulting services to clients from offices in San Antonio and San Marcos, TX
Tuesday, September 22, 2009
Identity Theft: What can you do?
As a CPA, I am often perceived as having all of the answers for whatever financial question a client may pose – and many times, I do have the answer. It may not always be what my client wants to hear, and it may not always be the only answer, but my work experience makes me uniquely qualified to render an opinion on almost any financial issue. There is one topic, however, that can leave me unable to offer anything but condolences. That topic is identity theft.
My family went on vacation this past weekend for the first time since our son was born. We took a long weekend and went to the beach. Of course, Murphy’s Law prevailed and I lost my wallet somewhere on the beach. I guess wrangling a toddler and keeping up with your personal items was just too much for me to handle – especially since my swimsuit had no pockets! As you might guess, the possibility for identity theft is a real concern for me right now.
The sad fact is that an identity thief doesn’t have to get your wallet to steal your identity. In fact, a determined thief can be nearly impossible to deter. There are, however, several things that you can do to at least make it difficult for someone to steal your personal data:
1. Don’t carry your social security card in your wallet or purse. This is the single most important piece of data that identity thieves want to get access to. With your Social Security Number, they can take out loans, apply for credit cards, and even enter into legal contracts in your name....and you won’t even know until they skip that first payment and the bill collector comes calling. Are there cases when you need to know your Social? Certainly – so memorize it and leave the actual card at home. The times that you actually have to show the card are very few and far between.
2. Don’t use your birthday as your Personal Identification Number. It seems like a basic concept, but so many people still do it. One of the easiest pieces of information for someone to steal is your date of birth, and if that’s the key to all of your bank account, credit card, and other financial information, then you’re in deep trouble. Sure, it’s easy to remember, but pick something else and save yourself the potential trouble.
3. Don’t share everything on Facebook. I know social networking sites are all the rage right now. I have more online profiles that I can keep up with. However, in this age of information and quick connections, it’s more possible to ever to share too much. Do all the Mafia Wars and Farmville that you like, but avoid putting your phone number, address, or date of birth on your profiles. This just makes them 'easy pickings' for identity thieves.
4. Don’t reply to suspicious e-mails. “Phishing” is the practice of using fake e-mails to acquire personal information about victims. Often, phishing e-mails will appear to come from your bank, Paypal, or even the IRS. These messages always take a variation on the same theme – they warn you that you are at some sort of risk and ask you to click a link and verify your personal data. The link takes you to a site that looks a lot like your bank’s website, but it’s really there just to steal your personal information. If you ever think a message may be legitimate, close the e-mail and go to the website using an address that you know is safe.
5. Shred all personal information before you throw it away. Identity thieves are not above going through your garbage, hunting for something they can use. Whether it’s a credit card offer, a paid bill, or especially anything with your license number, SSN, or date of birth on it....make sure any documents containing personal data are destroyed before disposing of them.
6. Periodically review your credit reports. Sometimes credit fraud can be detected early if you take the time to get copies of your credit reports a couple times a year. There are three credit reporting bureaus, and all three could show different data, so you will need to look at all three. Report any suspicious activity immediately.
As I mentioned earlier, there is no iron-clad way to prevent identity theft altogether. However, if you will follow these tips, you can at least make yourself a more difficult target for would-be thieves.
--Dan Musick is the Tax Services partner with Cook & Associates, a full-service accounting firm offering audit, tax, consulting, and bookkeeping services to clients from its offices in San Marcos and San Antonio, TX
My family went on vacation this past weekend for the first time since our son was born. We took a long weekend and went to the beach. Of course, Murphy’s Law prevailed and I lost my wallet somewhere on the beach. I guess wrangling a toddler and keeping up with your personal items was just too much for me to handle – especially since my swimsuit had no pockets! As you might guess, the possibility for identity theft is a real concern for me right now.
The sad fact is that an identity thief doesn’t have to get your wallet to steal your identity. In fact, a determined thief can be nearly impossible to deter. There are, however, several things that you can do to at least make it difficult for someone to steal your personal data:
1. Don’t carry your social security card in your wallet or purse. This is the single most important piece of data that identity thieves want to get access to. With your Social Security Number, they can take out loans, apply for credit cards, and even enter into legal contracts in your name....and you won’t even know until they skip that first payment and the bill collector comes calling. Are there cases when you need to know your Social? Certainly – so memorize it and leave the actual card at home. The times that you actually have to show the card are very few and far between.
2. Don’t use your birthday as your Personal Identification Number. It seems like a basic concept, but so many people still do it. One of the easiest pieces of information for someone to steal is your date of birth, and if that’s the key to all of your bank account, credit card, and other financial information, then you’re in deep trouble. Sure, it’s easy to remember, but pick something else and save yourself the potential trouble.
3. Don’t share everything on Facebook. I know social networking sites are all the rage right now. I have more online profiles that I can keep up with. However, in this age of information and quick connections, it’s more possible to ever to share too much. Do all the Mafia Wars and Farmville that you like, but avoid putting your phone number, address, or date of birth on your profiles. This just makes them 'easy pickings' for identity thieves.
4. Don’t reply to suspicious e-mails. “Phishing” is the practice of using fake e-mails to acquire personal information about victims. Often, phishing e-mails will appear to come from your bank, Paypal, or even the IRS. These messages always take a variation on the same theme – they warn you that you are at some sort of risk and ask you to click a link and verify your personal data. The link takes you to a site that looks a lot like your bank’s website, but it’s really there just to steal your personal information. If you ever think a message may be legitimate, close the e-mail and go to the website using an address that you know is safe.
5. Shred all personal information before you throw it away. Identity thieves are not above going through your garbage, hunting for something they can use. Whether it’s a credit card offer, a paid bill, or especially anything with your license number, SSN, or date of birth on it....make sure any documents containing personal data are destroyed before disposing of them.
6. Periodically review your credit reports. Sometimes credit fraud can be detected early if you take the time to get copies of your credit reports a couple times a year. There are three credit reporting bureaus, and all three could show different data, so you will need to look at all three. Report any suspicious activity immediately.
As I mentioned earlier, there is no iron-clad way to prevent identity theft altogether. However, if you will follow these tips, you can at least make yourself a more difficult target for would-be thieves.
--Dan Musick is the Tax Services partner with Cook & Associates, a full-service accounting firm offering audit, tax, consulting, and bookkeeping services to clients from its offices in San Marcos and San Antonio, TX
Friday, September 18, 2009
TAX PREPARATION CHECKLIST FOR INDIVIDUALS
It's coming up! The extension deadline for 1040s is right around the corner (October 15th) and you may be scrambling to compile all your necessary documents. To assist you in your preparation, here's a short checklist of items you or your tax preparer may need.
GENERAL INFORMATION
Names, SSNs, and Birthdates for you, your spouse, and your dependents
Tax return from prior year
Voided check for electronic filing
Payments of estimated federal, state, or local taxes
INCOME INFORMATION
W-2s
Social Security received
1099s – Interest and dividend income, retirement, annuities, unemployment
Alimony received
Gambling income and losses
Securities (date of purchase, cost basis, date of sale, and sales price)
Rental property income (and expense)
SELF-EMPLOYED INFORMATION
Income (1099s, bank deposits, interest income)
Cost of goods sold
Auto expenses (mileage, insurance, interest, repairs/maintenance)
Wages paid
Business expenses
Home office expenses
ITEMIZED DEDUCTIONS
Real estate taxes
Mortgage interest – 1098
Medical expenses (prescriptions, insurance, doctors, dentists)
Charitable contributions
Unreimbursed business expenses
Union/Professional dues, hobby expenses, safe deposit box, tax prep fees
TAX CREDITS AND DEDUCTIONS
Child and dependent care expenses
Education expenses (1098-T or interest on student loans)
IRA contributions
Alimony paid
Wednesday, September 16, 2009
Tidbits from the IRS, or "Is This Any Way to Run a Business?"
IRS Plans New Standards for Tax Preparers:
The Internal Revenue Service is in the process of improving tax preparer standards. Generally speaking, the new process will require anyone signing the return as a preparer to be registered. The new standards would also require preparers to take a certain amount of continuing education each year. These rules are already in place for Enrolled Agents but not other preparers. So essentially, in the future all tax preparers will be held to the standard of Enrolled Agents. CPAs are currently not Enrolled Agents, because they are held to a higher standard of conduct and continuing education. CPAs follow rules established by national and state governing Boards.
As a practicing CPA, I agree with the registration and education process. I have seen some very creative returns prepared at the local pawn shop-rapid refund store. BUT, the IRS also proposes a much harsher penalty on tax preparers for things that they (IRS) consider to be errors. This is where the real debate begins. The Service’s new preparer program wants all preparers to be “de facto” employees of the IRS.
As H & R Block says, “Our job is to get you the lowest tax legally allowable by law.” There are gray areas in tax law. There are disputed areas in tax laws. There are areas subject to interpretation. That is why we have the Tax Court and the judicial system. If the IRS is allowed to execute their proposed program, no tax preparer will ever push the limits of the tax law. “Legally allowed by law” will come to mean “as interpreted by the Internal Revenue Service”. There will be no need for the appeals division of the IRS or the Tax Court since there will be no challenges from preparers scared to death of the preparer penalty.
IRS is Focusing on Filling Increasing Number of Vacancies:
The IRS has approximately 106,000 employees. About 9% of those are managers. Of the 106,000 employees, almost one-half are age 50 or more. More than 39% of all IRS employees are eligible for retirement. Wow.
When I opened my first CPA practice in 1984, I could have the client sign a power of attorney, go to the local IRS office, discuss the case with an agent, and resolve the case with the agent that same day. Today our best approach is the “Practicioners’ Hotline”. Everything is done over the phone. Each time you call, you invariably get someone new. It is not unusual to talk with one IRS agent and come up with a plan, only to have a second agent tell you that your plan won’t work when you call back.
Our clients constantly complain about the IRS. Typically their complaints are not about the taxing process, because we all know the system. Rather, the complaints are about the fairness and difficulty in resolving their issues. Taxes are complex. Most people don’t understand tax rules and regulations. Talking to a computer only intensifies the frustration. This preparer fully supports the Service’s hiring mission. In fact, we believe that 106,000 employees is a woefully inadequate amount to fill the need. We support a significant increase in the number of agents. It will make everyone’s lives easier.
IRS Managers to Get More Involved in Tax Audits:
The IRS policy on audit dispute resolution is to resolve issues at the lowest practical level. This usually means the field agent. Unresolved issues are then pushed up the ladder to the managers. Still unresolved issues may be pushed to Appeals. While most of the field agents that we have encountered over the last 5-6 years have been solid in their tax knowledge, they have been woefully weak in their accounting knowledge. Precious few agents actually understand debits and credits. When you are hiring Art majors, English majors, and Psychology majors as agents this is to be expected.
What the IRS is really saying with this decision is that they have little faith in their field agents to make appropriate decisions. The real knowledge base at the IRS begins at the manager level. This is especially frustrating for the taxpayer and tax preparer because the reality is that no audit will be concluded until a manager is involved. Unfortunately, the manager makes their decision based on the field agent’s workpapers with no input from the taxpayer’s side! As a result, most skilled tax professionals accept that audit resolution will come at the third level - appeals. This costs both the government and the taxpayer money. It is a “no win” for both sides.
Summary:
The common thread in these issues is personnel. Each of issues previously discussed could (and should) be resolved by hiring, training and properly utilizing good personnel. The answer is not to make tax preparers pseudo-government employees, or to increase the number of agents answering the telephone. The IRS must determine its real staffing needs and approach the problem like any other business. Go out and get the right people, train those people well, and give them the tools and authority to do their job. A rather novel concept for your favorite government.
--Steve Cook is the managing partner at Cook & Associates, a public accounting firm offering clients a full range of accounting, tax, consulting, and auditing services through its offices in San Antonio and San Marcos, TX
The Internal Revenue Service is in the process of improving tax preparer standards. Generally speaking, the new process will require anyone signing the return as a preparer to be registered. The new standards would also require preparers to take a certain amount of continuing education each year. These rules are already in place for Enrolled Agents but not other preparers. So essentially, in the future all tax preparers will be held to the standard of Enrolled Agents. CPAs are currently not Enrolled Agents, because they are held to a higher standard of conduct and continuing education. CPAs follow rules established by national and state governing Boards.
As a practicing CPA, I agree with the registration and education process. I have seen some very creative returns prepared at the local pawn shop-rapid refund store. BUT, the IRS also proposes a much harsher penalty on tax preparers for things that they (IRS) consider to be errors. This is where the real debate begins. The Service’s new preparer program wants all preparers to be “de facto” employees of the IRS.
As H & R Block says, “Our job is to get you the lowest tax legally allowable by law.” There are gray areas in tax law. There are disputed areas in tax laws. There are areas subject to interpretation. That is why we have the Tax Court and the judicial system. If the IRS is allowed to execute their proposed program, no tax preparer will ever push the limits of the tax law. “Legally allowed by law” will come to mean “as interpreted by the Internal Revenue Service”. There will be no need for the appeals division of the IRS or the Tax Court since there will be no challenges from preparers scared to death of the preparer penalty.
IRS is Focusing on Filling Increasing Number of Vacancies:
The IRS has approximately 106,000 employees. About 9% of those are managers. Of the 106,000 employees, almost one-half are age 50 or more. More than 39% of all IRS employees are eligible for retirement. Wow.
When I opened my first CPA practice in 1984, I could have the client sign a power of attorney, go to the local IRS office, discuss the case with an agent, and resolve the case with the agent that same day. Today our best approach is the “Practicioners’ Hotline”. Everything is done over the phone. Each time you call, you invariably get someone new. It is not unusual to talk with one IRS agent and come up with a plan, only to have a second agent tell you that your plan won’t work when you call back.
Our clients constantly complain about the IRS. Typically their complaints are not about the taxing process, because we all know the system. Rather, the complaints are about the fairness and difficulty in resolving their issues. Taxes are complex. Most people don’t understand tax rules and regulations. Talking to a computer only intensifies the frustration. This preparer fully supports the Service’s hiring mission. In fact, we believe that 106,000 employees is a woefully inadequate amount to fill the need. We support a significant increase in the number of agents. It will make everyone’s lives easier.
IRS Managers to Get More Involved in Tax Audits:
The IRS policy on audit dispute resolution is to resolve issues at the lowest practical level. This usually means the field agent. Unresolved issues are then pushed up the ladder to the managers. Still unresolved issues may be pushed to Appeals. While most of the field agents that we have encountered over the last 5-6 years have been solid in their tax knowledge, they have been woefully weak in their accounting knowledge. Precious few agents actually understand debits and credits. When you are hiring Art majors, English majors, and Psychology majors as agents this is to be expected.
What the IRS is really saying with this decision is that they have little faith in their field agents to make appropriate decisions. The real knowledge base at the IRS begins at the manager level. This is especially frustrating for the taxpayer and tax preparer because the reality is that no audit will be concluded until a manager is involved. Unfortunately, the manager makes their decision based on the field agent’s workpapers with no input from the taxpayer’s side! As a result, most skilled tax professionals accept that audit resolution will come at the third level - appeals. This costs both the government and the taxpayer money. It is a “no win” for both sides.
Summary:
The common thread in these issues is personnel. Each of issues previously discussed could (and should) be resolved by hiring, training and properly utilizing good personnel. The answer is not to make tax preparers pseudo-government employees, or to increase the number of agents answering the telephone. The IRS must determine its real staffing needs and approach the problem like any other business. Go out and get the right people, train those people well, and give them the tools and authority to do their job. A rather novel concept for your favorite government.
--Steve Cook is the managing partner at Cook & Associates, a public accounting firm offering clients a full range of accounting, tax, consulting, and auditing services through its offices in San Antonio and San Marcos, TX
Monday, September 14, 2009
Blackouts = Bad Business for NFL
As a sports fan and a business blogger, it’s always interesting to try to find ways to merge my two interests. Now, the NFL is providing me with a golden opportunity to do just that.
Since we are in an area without a NFL team, it’s likely that the average sports fan hasn’t heard of the NFL’s “blackout rule”. Since 1973, there has been a clause in the NFL’s television deal that allows it to block the local broadcast of any game that isn’t sold out 72 hours before kickoff. The concept behind the blackout rule was to encourage people to get out and go to the game instead of staying home if there were tickets available and to encourage sellouts of its games.
This rule hasn’t really posed a problem for the league until now. The vast majority of NFL games in recent seasons have been sellouts and not subject to blackout. The New York Times reports that only nine games were blacked out last season (probably Lions games) and that over the past four seasons, only 5 percent of all games were blacked out.
Times, though, are changing. It’s no secret that the economy is struggling, and the average cost of attending an NFL game has skyrocketed in recent years. According to Sports Illustrated, the average ticket to an NFL game will cost $75 this season. For a family of four, with parking and snacks, you could be looking at over $400 to attend a game. By comparison, in 1973 when the rule was passed, a Super Bowl ticket cost just $15!
Between the rising cost of attending a game and the economic troubles, the number of games facing blackout is expected to skyrocket this year. NFL insider Mark Maske writes that the league projects the blackout rate this season could be as high as 20 percent! This past weekend, three games (including the Raiders’ Monday night game) were nearly blacked out, each selling out just before the league deadline....and that was opening weekend!
Here is where we tie this story back to the business world. The NFL’s response to these reports is that they will not review their blackout policy at this time, citing that they “do not react to short term situations”. This reaction strikes me as arrogant beyond belief and in violation of several management concepts that we try to teach our clients.
When we consult with small business clients, we teach them that their mantra should be to gauge and respond to their customers’ needs. No business will last long with the attitude that “this is how we do it and if you don’t like it go somewhere else”. Yet this seems to be exactly what the NFL is doing with their response (or lack thereof) to this situation. Sure, the NFL isn't exactly a "small business", but no company can go on forever biting the hand that feeds them.
We also take issue with the league’s statement that they do not respond to short term situations. While it’s true that having a long-term vision is vitally important to the success of a business, you cannot focus entirely on the long-term and ignore important short-term issues. In the information age, the ability of a company to react and adapt to current market pressures is extremely important. Without a successful short-term policy, there might not be a need for a long-term plan.
I’m not predicting “gloom and doom” for the NFL. However, judging from the number of results to a quick Google search of “NFL Blackout”, the amount of negative toward the league's policies is staggering. The NFL is still stinging from the negative publicity over not being able to get their NFL Network onto some of the nation’s largest cable companies, so this issue really comes at the wrong time for them. Simply put, they need to respond appropriately to this issue.
No matter how popular the NFL has become, all it can take is one issue like this to kill that popularity – just ask Major League Baseball after the 1994 strike. Prior to the strike, baseball was "America's passtime", a mantle that football was able to take from them after 1994. With ill-advised decisions on issues like the blackout rule, I have to wonder - is the NFL on their way to giving it back?
--Dan Musick is the Tax Services Partner with Cook & Associates, a full service public accounting firm with offices in San Marcos and San Antonio, TX
Since we are in an area without a NFL team, it’s likely that the average sports fan hasn’t heard of the NFL’s “blackout rule”. Since 1973, there has been a clause in the NFL’s television deal that allows it to block the local broadcast of any game that isn’t sold out 72 hours before kickoff. The concept behind the blackout rule was to encourage people to get out and go to the game instead of staying home if there were tickets available and to encourage sellouts of its games.
This rule hasn’t really posed a problem for the league until now. The vast majority of NFL games in recent seasons have been sellouts and not subject to blackout. The New York Times reports that only nine games were blacked out last season (probably Lions games) and that over the past four seasons, only 5 percent of all games were blacked out.
Times, though, are changing. It’s no secret that the economy is struggling, and the average cost of attending an NFL game has skyrocketed in recent years. According to Sports Illustrated, the average ticket to an NFL game will cost $75 this season. For a family of four, with parking and snacks, you could be looking at over $400 to attend a game. By comparison, in 1973 when the rule was passed, a Super Bowl ticket cost just $15!
Between the rising cost of attending a game and the economic troubles, the number of games facing blackout is expected to skyrocket this year. NFL insider Mark Maske writes that the league projects the blackout rate this season could be as high as 20 percent! This past weekend, three games (including the Raiders’ Monday night game) were nearly blacked out, each selling out just before the league deadline....and that was opening weekend!
Here is where we tie this story back to the business world. The NFL’s response to these reports is that they will not review their blackout policy at this time, citing that they “do not react to short term situations”. This reaction strikes me as arrogant beyond belief and in violation of several management concepts that we try to teach our clients.
When we consult with small business clients, we teach them that their mantra should be to gauge and respond to their customers’ needs. No business will last long with the attitude that “this is how we do it and if you don’t like it go somewhere else”. Yet this seems to be exactly what the NFL is doing with their response (or lack thereof) to this situation. Sure, the NFL isn't exactly a "small business", but no company can go on forever biting the hand that feeds them.
We also take issue with the league’s statement that they do not respond to short term situations. While it’s true that having a long-term vision is vitally important to the success of a business, you cannot focus entirely on the long-term and ignore important short-term issues. In the information age, the ability of a company to react and adapt to current market pressures is extremely important. Without a successful short-term policy, there might not be a need for a long-term plan.
I’m not predicting “gloom and doom” for the NFL. However, judging from the number of results to a quick Google search of “NFL Blackout”, the amount of negative toward the league's policies is staggering. The NFL is still stinging from the negative publicity over not being able to get their NFL Network onto some of the nation’s largest cable companies, so this issue really comes at the wrong time for them. Simply put, they need to respond appropriately to this issue.
No matter how popular the NFL has become, all it can take is one issue like this to kill that popularity – just ask Major League Baseball after the 1994 strike. Prior to the strike, baseball was "America's passtime", a mantle that football was able to take from them after 1994. With ill-advised decisions on issues like the blackout rule, I have to wonder - is the NFL on their way to giving it back?
--Dan Musick is the Tax Services Partner with Cook & Associates, a full service public accounting firm with offices in San Marcos and San Antonio, TX
Friday, September 11, 2009
CPR for Your Business: Surviving Company Transitions
I am one of only six employees at the firm where I work. As such, I am actively involved in decision making and well aware of the firm’s financial standing. Not only does this give me a sense of ownership and pride in the company, but it also helps me understand the firm’s situation and financial future. It keeps me motivated to work for the good of the firm.
In a difficult economic climate, when layoffs, downsizing, and pay cuts are occurring, it is essential to keep employees motivated and informed. A mid-sized company in my area recently went through lay-offs and pay cuts. The remaining employees not only have more on their plate, but also have smaller paychecks. This kind of situation can often create high tension in the workplace. So what can ease the transition?
Communication
Be clear with your employees about what is going on around them. Allow employees the opportunity to provide feedback and generate discussions. This open dialogue presents two benefits – 1) employees understand the situation and 2) they can offer ideas on how to improve the situation (from the bottom up).
Positive Attitudes
Losing co-workers can be tough, especially at smaller companies. It’s no easy task to plaster a smile on your face in the midst of company turmoil. However, this endeavor is necessary. The attitudes of management tend to have a “trickle-down” effect. If management can portray a positive attitude, employees are likely to follow suit.
In the same line of thinking, it’s important to continue traditions such as birthday celebrations or weekly outings. These events don’t have to be expensive. They are an easy way to brighten the workplace and show workers that the company still cares.
Reassurance and Praise
Employees are particularly anxious after lay-offs. Make sure to keep the “Atta Boy’s” and back pats coming for those who deserve them. Keep in mind that many employees are taking on bigger loads and that a “thank you” can go a long way.
Company transitions are never fast, easy, or fun, but with these few pointers you may be able to relieve some of the strain. So if your company is in need of a little CPR, remember, Communication, Positive Attitudes, and Reassurance.
--LeAnn Carlson is the Audit Manager for Cook & Associates, a full-service public accounting firm offering audit, tax, bookkeeping, and consulting services. The Firm has offices in San Marcos and San Antonio, TX.
In a difficult economic climate, when layoffs, downsizing, and pay cuts are occurring, it is essential to keep employees motivated and informed. A mid-sized company in my area recently went through lay-offs and pay cuts. The remaining employees not only have more on their plate, but also have smaller paychecks. This kind of situation can often create high tension in the workplace. So what can ease the transition?
Communication
Be clear with your employees about what is going on around them. Allow employees the opportunity to provide feedback and generate discussions. This open dialogue presents two benefits – 1) employees understand the situation and 2) they can offer ideas on how to improve the situation (from the bottom up).
Positive Attitudes
Losing co-workers can be tough, especially at smaller companies. It’s no easy task to plaster a smile on your face in the midst of company turmoil. However, this endeavor is necessary. The attitudes of management tend to have a “trickle-down” effect. If management can portray a positive attitude, employees are likely to follow suit.
In the same line of thinking, it’s important to continue traditions such as birthday celebrations or weekly outings. These events don’t have to be expensive. They are an easy way to brighten the workplace and show workers that the company still cares.
Reassurance and Praise
Employees are particularly anxious after lay-offs. Make sure to keep the “Atta Boy’s” and back pats coming for those who deserve them. Keep in mind that many employees are taking on bigger loads and that a “thank you” can go a long way.
Company transitions are never fast, easy, or fun, but with these few pointers you may be able to relieve some of the strain. So if your company is in need of a little CPR, remember, Communication, Positive Attitudes, and Reassurance.
--LeAnn Carlson is the Audit Manager for Cook & Associates, a full-service public accounting firm offering audit, tax, bookkeeping, and consulting services. The Firm has offices in San Marcos and San Antonio, TX.
Wednesday, September 9, 2009
The Impossible Just Takes a Little Longer
“While we pursue the unattainable, we make the impossible realizable”, Robert Ardrey
Sunday I turned 60. My son came to town for a visit and all the important people in my life called to offer their best wishes. As birthdays go, it was a very good day. At the end of the day, I sat down and reflected on my post college life of 37 years.
I have met and worked with a number of very intelligent and insightful individuals. These people helped to shape my views on business and life. Something that my very first boss said to me still resonates today. Bill McCrae was fond of saying, “The impossible just takes a little longer.”
That very short sentence has followed me since. It reminds me that there are no limits. Limits are strictly self- imposed. Think about this - in the early 50’s we were one of the first families in the neighborhood to have a TV. Now, we can get TV on our cell phone.
As I matriculate through life, I am constantly stimulated by the challenge of achieving the unachievable. My parents were always telling me that I could achieve any goal if I would just put my mind to the task. My competition was not someone else, just me.
John Maxwell refers to this concept as “Possibility Thinking”. In the book How Successful People Think, Maxwell offers several reasons why people should think beyond their limits. He believes, as do I, that people who embrace possibility thinking are capable of achieving the impossible.
· Possibility Thinking Increases Your Possibilities: If you believe that something can not be done, then it won’t be done. If, on the other hand, you open your mind to the possibility of accomplishment, you allow yourself the opportunity for success.
· Possibility Thinking Draws Opportunities and People to You: We are all drawn to people that offer a hope and a plan for achieving a desired result.
· Possibility Thinking Increases Others’ Possibilities: Thinking and creating are contagious activities. Being around people that are positive and full of energy gives you the impetus to do the same.
· Possibility Thinking Allows You to Dream Big Dream: The impossible dream is usually a big dream, but today’s impossible dream is usually tomorrow’s big event.
· Possibility Thinking Keeps You from Giving Up: If you are a possibility thinker, you believe you will achieve your goal. Believing in yourself and believing in your objective is half the battle. If you think that you cannot achieve your goal, you won’t achieve it because you will never start.
Over the last 60 years, I have learned that “can’t” is indeed a four letter word subject to having your mouth washed with soap (and no, that isn’t child abuse—its parenting). “Can” however is a three letter word meaning ‘achievable’. Benjamin Disraeli once said “The secret to success is constancy to purpose.” As we pursue the unattainable, the attainable becomes possible. Attainment becomes possible when we think beyond our limits, and apply constancy and dedication to the task. All it takes is time.
Happy Birthday.
Sunday I turned 60. My son came to town for a visit and all the important people in my life called to offer their best wishes. As birthdays go, it was a very good day. At the end of the day, I sat down and reflected on my post college life of 37 years.
I have met and worked with a number of very intelligent and insightful individuals. These people helped to shape my views on business and life. Something that my very first boss said to me still resonates today. Bill McCrae was fond of saying, “The impossible just takes a little longer.”
That very short sentence has followed me since. It reminds me that there are no limits. Limits are strictly self- imposed. Think about this - in the early 50’s we were one of the first families in the neighborhood to have a TV. Now, we can get TV on our cell phone.
As I matriculate through life, I am constantly stimulated by the challenge of achieving the unachievable. My parents were always telling me that I could achieve any goal if I would just put my mind to the task. My competition was not someone else, just me.
John Maxwell refers to this concept as “Possibility Thinking”. In the book How Successful People Think, Maxwell offers several reasons why people should think beyond their limits. He believes, as do I, that people who embrace possibility thinking are capable of achieving the impossible.
· Possibility Thinking Increases Your Possibilities: If you believe that something can not be done, then it won’t be done. If, on the other hand, you open your mind to the possibility of accomplishment, you allow yourself the opportunity for success.
· Possibility Thinking Draws Opportunities and People to You: We are all drawn to people that offer a hope and a plan for achieving a desired result.
· Possibility Thinking Increases Others’ Possibilities: Thinking and creating are contagious activities. Being around people that are positive and full of energy gives you the impetus to do the same.
· Possibility Thinking Allows You to Dream Big Dream: The impossible dream is usually a big dream, but today’s impossible dream is usually tomorrow’s big event.
· Possibility Thinking Keeps You from Giving Up: If you are a possibility thinker, you believe you will achieve your goal. Believing in yourself and believing in your objective is half the battle. If you think that you cannot achieve your goal, you won’t achieve it because you will never start.
Over the last 60 years, I have learned that “can’t” is indeed a four letter word subject to having your mouth washed with soap (and no, that isn’t child abuse—its parenting). “Can” however is a three letter word meaning ‘achievable’. Benjamin Disraeli once said “The secret to success is constancy to purpose.” As we pursue the unattainable, the attainable becomes possible. Attainment becomes possible when we think beyond our limits, and apply constancy and dedication to the task. All it takes is time.
Happy Birthday.
Friday, September 4, 2009
Don't Pull Your Hair Out - Hire a CPA
The extended deadline for corporate and partnership tax returns is upon us. Can you feel the joy?!? The end of summer signals crunch time for tax preparers everywhere. As September 15 approaches, many businesses find themselves frantically compiling the necessary information to submit to their accountants.
In this haste, important documents may be forgotten or closing entries can be haphazardly made. This can create quite a mess of the books! This “mess” often leads to lengthier tax preparation times, which leads to higher fees, which is more money out of your pocket.
Many businesses may feel they are saving money by keeping their own books and hiring a CPA solely for tax preparation, but this is not always the case. Often, paying a CPA a monthly fee to keep the books is more cost-effective than dumping a year’s worth of data on their lap at the last minute. Monthly bookkeeping can save time, money, and most importantly, your sanity! CPAs can add value in other ways too. See for yourself:
· The obvious one – CPAs deal with numbers every day. Maybe it’s inherent, maybe it’s learned, but CPAs know what a set of books should look like. “Debit”, “credit”, and “journal entry” are not dirty words to CPAs, but a way to communicate numbers.
· Continuity. Having a knowledgeable CPA involved with your business over a long period of time can provide a great benefit. This provides the business owner an outside source that is familiar with the history and operations of the business, as well as one who knows how to put it all together. They’ve seen what works, what doesn’t, and can provide feedback to the business managers.
· IRS communications. What business owner wants to deal with IRS? None, I suspect! CPAs can act as intermediaries, saving business owners the headache and hassle that often comes with dealing with IRS issues.
· Record retention. “Pack rats” – that is what CPAs MUST be. Whether it’s electronic copies or hard copies, CPAs are typically vigilant about keeping records. This provides an easy and accessible way for businesses to obtain documentation for loans, business plans, etc.
Does the word “debit” make you cringe? Are you on prescription meds from dealing with the IRS? Is the trashcan your dear friend? If any of these apply to you, I urge you to contact a CPA today!
--LeAnn Carlson is the audit manager for Cook & Associates, a full service public accounting firm with offices in San Marcos and San Antonio, TX
In this haste, important documents may be forgotten or closing entries can be haphazardly made. This can create quite a mess of the books! This “mess” often leads to lengthier tax preparation times, which leads to higher fees, which is more money out of your pocket.
Many businesses may feel they are saving money by keeping their own books and hiring a CPA solely for tax preparation, but this is not always the case. Often, paying a CPA a monthly fee to keep the books is more cost-effective than dumping a year’s worth of data on their lap at the last minute. Monthly bookkeeping can save time, money, and most importantly, your sanity! CPAs can add value in other ways too. See for yourself:
· The obvious one – CPAs deal with numbers every day. Maybe it’s inherent, maybe it’s learned, but CPAs know what a set of books should look like. “Debit”, “credit”, and “journal entry” are not dirty words to CPAs, but a way to communicate numbers.
· Continuity. Having a knowledgeable CPA involved with your business over a long period of time can provide a great benefit. This provides the business owner an outside source that is familiar with the history and operations of the business, as well as one who knows how to put it all together. They’ve seen what works, what doesn’t, and can provide feedback to the business managers.
· IRS communications. What business owner wants to deal with IRS? None, I suspect! CPAs can act as intermediaries, saving business owners the headache and hassle that often comes with dealing with IRS issues.
· Record retention. “Pack rats” – that is what CPAs MUST be. Whether it’s electronic copies or hard copies, CPAs are typically vigilant about keeping records. This provides an easy and accessible way for businesses to obtain documentation for loans, business plans, etc.
Does the word “debit” make you cringe? Are you on prescription meds from dealing with the IRS? Is the trashcan your dear friend? If any of these apply to you, I urge you to contact a CPA today!
--LeAnn Carlson is the audit manager for Cook & Associates, a full service public accounting firm with offices in San Marcos and San Antonio, TX
Wednesday, September 2, 2009
Small Business Failures - How, Why, and When
The Coleman Report, which provides lenders with small business data, reported that in 2004 the number of SBA backed loans that failed was 2.4 percent. This rate increased to 8.7 percent in 2007 and again to 11.9 percent in 2008. During the 2008 reporting period, the SBA’s 7(a) and 504 programs approved 78,324 loans totaling $18.2 billion. If you “do the math,” this means a whopping 9,300 loans failed! The exact amount of dollars was unknown, but 11.9 percent of $18.2 billion is $2.17 billion.
These numbers will no doubt increase as the economy sputters along. The real questions are these:
o Why are small businesses failing at such an alarming rate?
o How can we fix the problem?
o When will the change occur?
Businesses fail for four primary reasons. It is impossible to determine which of these pitfalls is more significant than the other. The reason for failure can vary with each business situation. In our experience, one or more of the following four items can be tied to a small business obituary:
1. Decreasing Revenues – Revenues can decrease for a variety of reasons. Actual sales can decline. In today’s climate, however, sales volume may not be the root issue. Collections may be the real issue. To this, we would remind all of those that embrace the “sell ourselves out of the problem” management types that sales without collections are not sales.
2. Operational Deficiencies – When times are good and the profit margins are strong, operational deficiencies are often hidden or just overlooked. When times are tough, however, all of the ugly operational issues that were buried beneath a hefty profit margin will raise their head. A thorough analysis of the “back-end” of the business may reveal unused capacity, excess inventory, excess personnel, or all of the above.
3. Lack of Adequate Capital – As a practicing CPA of 25 years, the lack of adequate capital is usually the most significant issue confronting most small businesses. Most small businesses start with an idea and minimal capital. The company is anticipating and dependent upon turning a substantial profit from opening day. These funds are critical for developing adequate capital levels for future growth and, in many cases, cash to fund current production. The fact that 88% of the SBA loans are repaid indicates that this approach is possible; but the fact that 12% of the SBA loans fail indicate that this approach is high risk.
4. Lack of Credit – If the business doesn’t have capital, it had better have credit. The SBA generally offers banks an 80% guaranty. This basically assures banks (lenders) that their bad debt exposure will be minimal. The problem from the business’ perspective is that not all businesses will qualify of the SBA guaranty. In addition, SBA guaranteed loans come with a number of stifling restrictions which may not make an SBA guarantee an option for a growing operation.
So, how do we effectively fix these problems? The answer lies with your business model. All models begin with basic income and expense assumptions that are quantified and filter to a bottom line. It’s a start.
Your model must be based on reality. Reality is not what you want it to be, or what you hope it should be. Reality is what it is! One tongue in cheek measure is to build your model based on half your anticipated revenues and twice your anticipated expenses.
When aspiring entrepreneurs come to our offices to discuss their impending triumph, they inevitably produce a projected profit and loss. This is not a model - it is an estimate. Your model should include a process that takes your product from conception to the consumer. Your model must include processes that account for variables such as changes in sales volume, changes in raw material availability and costs, changes in market conditions, changes in available personnel, etc.
In short, you fix your problems by being prepared for them. Good preparation and planning will assist you in managing the changes as they occur. The government may change the SBA programs, the banks may change their lending habits and your market may change for uncontrollable reasons. Flexibility and adaptability will determine your survival rate.
Change is inevitable. Change is your friend. Adaptability to change is what gives you the edge on your competition. So don’t be afraid of change, embrace it. With the proper business model and uncompromising attention to the plan, change will be your ally.
If your business is exhibiting signs of failure, don’t think you are Superman. You are not! There are, however, key factors that will determine your success. You can be a well prepared entrepreneur, able to navigate the turbulent waters of Why, How, & When, if you recognize the issues that affect your business and prepare for both the best and worst.
Steve Cook is managing shareholder of Cook & Associates, PLLC, a firm with offices in San Antonio and San Marcos, Texas. The firm offers tax, assurance and consulting services.
These numbers will no doubt increase as the economy sputters along. The real questions are these:
o Why are small businesses failing at such an alarming rate?
o How can we fix the problem?
o When will the change occur?
Businesses fail for four primary reasons. It is impossible to determine which of these pitfalls is more significant than the other. The reason for failure can vary with each business situation. In our experience, one or more of the following four items can be tied to a small business obituary:
1. Decreasing Revenues – Revenues can decrease for a variety of reasons. Actual sales can decline. In today’s climate, however, sales volume may not be the root issue. Collections may be the real issue. To this, we would remind all of those that embrace the “sell ourselves out of the problem” management types that sales without collections are not sales.
2. Operational Deficiencies – When times are good and the profit margins are strong, operational deficiencies are often hidden or just overlooked. When times are tough, however, all of the ugly operational issues that were buried beneath a hefty profit margin will raise their head. A thorough analysis of the “back-end” of the business may reveal unused capacity, excess inventory, excess personnel, or all of the above.
3. Lack of Adequate Capital – As a practicing CPA of 25 years, the lack of adequate capital is usually the most significant issue confronting most small businesses. Most small businesses start with an idea and minimal capital. The company is anticipating and dependent upon turning a substantial profit from opening day. These funds are critical for developing adequate capital levels for future growth and, in many cases, cash to fund current production. The fact that 88% of the SBA loans are repaid indicates that this approach is possible; but the fact that 12% of the SBA loans fail indicate that this approach is high risk.
4. Lack of Credit – If the business doesn’t have capital, it had better have credit. The SBA generally offers banks an 80% guaranty. This basically assures banks (lenders) that their bad debt exposure will be minimal. The problem from the business’ perspective is that not all businesses will qualify of the SBA guaranty. In addition, SBA guaranteed loans come with a number of stifling restrictions which may not make an SBA guarantee an option for a growing operation.
So, how do we effectively fix these problems? The answer lies with your business model. All models begin with basic income and expense assumptions that are quantified and filter to a bottom line. It’s a start.
Your model must be based on reality. Reality is not what you want it to be, or what you hope it should be. Reality is what it is! One tongue in cheek measure is to build your model based on half your anticipated revenues and twice your anticipated expenses.
When aspiring entrepreneurs come to our offices to discuss their impending triumph, they inevitably produce a projected profit and loss. This is not a model - it is an estimate. Your model should include a process that takes your product from conception to the consumer. Your model must include processes that account for variables such as changes in sales volume, changes in raw material availability and costs, changes in market conditions, changes in available personnel, etc.
In short, you fix your problems by being prepared for them. Good preparation and planning will assist you in managing the changes as they occur. The government may change the SBA programs, the banks may change their lending habits and your market may change for uncontrollable reasons. Flexibility and adaptability will determine your survival rate.
Change is inevitable. Change is your friend. Adaptability to change is what gives you the edge on your competition. So don’t be afraid of change, embrace it. With the proper business model and uncompromising attention to the plan, change will be your ally.
If your business is exhibiting signs of failure, don’t think you are Superman. You are not! There are, however, key factors that will determine your success. You can be a well prepared entrepreneur, able to navigate the turbulent waters of Why, How, & When, if you recognize the issues that affect your business and prepare for both the best and worst.
Steve Cook is managing shareholder of Cook & Associates, PLLC, a firm with offices in San Antonio and San Marcos, Texas. The firm offers tax, assurance and consulting services.
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