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
Tuesday, September 29, 2009
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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