Your Small Business Survival Guide for If (and When) the Economy Slows Down

According to one recent study conducted by the Small Business Administration, there are approximately 28.8 million small businesses in the United States that are collectively responsible for about 99.7 percent of all economic activity in this country. In many ways, they represent the “canary in the coal mine” for a nation. When small businesses are doing well, this is a sign that the economy is strong and that the future is a bright one.

Unfortunately, the reverse is also true as NSBA revealed that the greatest challenge to both small business growth and survival is economic uncertainty. That idea in and of itself may be nothing new, but a number of recent studies and surveys have revealed that a slowdown in the economy is an issue that may be significantly more timely than many realize.

A Recession and Your Business: A Primer

According to the latest CNBC/SurveyMonkey survey, 53 percent of respondents say that they expect an economic recession sooner rather than later. In fact, many of them think that it could arrive as soon as 2020. This comes despite the fact that 52 percent of respondents described business conditions as “good” for the first quarter of 2019; 57 percent expect increased revenue; and 28 percent actually plan to increase their own full-time staff in the short term.

One of the major factors that contributed to the devastation wreaked by the last recession was that it was so sudden. Things got very bad very quickly, and a lot of small business owners suffered as a result.

But, if most people are in an agreement that another recession is on the way (and indeed, a lot of people seem to think we’re overdue), that knowledge itself becomes your most powerful asset. If you truly want to make sure that your small business is capable of surviving when the economy slows down, there are a few key things you’ll want to keep in mind.

Always Be Prepared

Experts agree that one of the best ways to make sure that your small business comes out of the next economic slowdown in one piece has to do with being as proactive and as prepared as possible.

Your business might not need a working capital injection today, for example, but it may once the next recession begins. At that point, it might be difficult to gain access to that capital thanks to poor or uncertain economic conditions.

To combat this, consider taking out a new line of credit to help make sure those funds are available if and when the time comes. Getting a credit line for $20,000 doesn’t mean that you have to borrow that money today or even in full. But the peace of mind that comes with knowing you do have access to these funds will go a long way toward making sure that you can stay afloat during those slow periods.

It All Comes Back to Cash Flow

Likewise, if you know with some certainty that an economic slowdown is inevitable, there are steps that you can take in the short term to avoid traps and other pitfalls that would cause additional damage during a recession.

When the economy does slow down, you’ll need to make sure that your cash flow is in order. If that is currently a problem for you, it’s only going to get worse as time goes on. Make an effort today to collect on accounts receivable at a faster pace. Improve and optimize your own processes and workflows to make sure that you’re getting the money for services rendered as quickly as possible. If you take meaningful steps to improve your cash flow situation now, it will be one less thing you have to worry about if the economy does slow down dramatically next year.

The Art of Inventory Management

Finally, one of the best steps you can take to protect your business during slow economic periods has to do with performing an overhaul of your inventory management practices.

Inventory costs are always a major pain point for most small businesses, but this is especially true during a recession. Again, take a look at some of the problems you may have today that could cause major damage down the road.

Do you currently order far too many of one specific item? Is there an item that you have that can be sourced somewhere else for a better price? Are you capitalizing on every opportunity to reduce shipping and warehousing costs?

These are the types of questions you need to ask yourself prior to the next economic slow period. If you wait until things start to get tough before taking a look at your inventory management practices, you’ll have waited far too long. You may be able to make progress at that time, but the lion’s share of the serious damage will have already been done.

However, by following tips like these to strengthen the foundation of your business right now, it will still be as solid as you need it to be moving forward – regardless of what happens with the economy during that time. If nothing else, these steps will all help to make sure that your business comes out of the next recession stronger than ever, which is definitely the position you want to be in.

February 2019 Business Due Dates

February 11 – Non-Payroll Taxes

File Form 945 to report income tax withheld for 2018 on all non-payroll items. This due date applies only if you deposited the tax for the year in full and on time.

February 11 – Social Security, Medicare and Withheld Income Tax

File Form 941 for the fourth quarter of 2018. This due date applies only if you deposited the tax for the quarter in full and on time.

February 11 – Certain Small Employers

File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2018. This due date applies only if you deposited the tax for the year in full and on time.

February 11 – Farm employers

File Form 943 to report Social Security and Medicare taxes and withheld income tax for 2018. This due date applies only if you deposited the tax for the year timely, properly, and in full.

February 11 – Federal Unemployment Tax

File Form 940 for 2018. This due date applies only if you deposited the tax for the year in full and on time.

February 15 – Social Security, Medicare and Withheld Income Tax

If the monthly deposit rule applies, deposit the tax for payments in January.

February 15 – Non-Payroll Withholding

If the monthly deposit rule applies, deposit the tax for payments in January.

February 16 –  Payroll Withholding 

Begin withholding for employees who claimed exemption for withholding in 2018 but have not provided a W-4 (or W-4(SP)) to continue the exemption for 2019.

February 28 – Payers of Gambling Winnings

File Form 1096, Annual Summary and Transmittal of U.S. Information Returns, along with Copy A of all the Forms W-2G you issued for 2018. If you file Forms W-2G electronically, your due date for filing them with the IRS will be extended to April 1. The due date for giving the recipient these forms was January 31.

February 28 – Informational Returns Filing Due

File government copies of information returns (Form 1099) and transmittal Forms 1096 for certain payments you made during 2018, other than the 1099-MISCs that were due January 31. There are different 1099 forms for different types of payments.

February 28 – Large Food and Beverage Establishment Employers
File Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. Use Form 8027-T, Transmittal of Employer’s Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically, your due date for filing them with the IRS will be extended to April 1.

February 28 –  Applicable Large Employers (ALE) – Form 1095-C

File Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, with the IRS, if filing on paper. Otherwise, if filing electronically, the copy to the IRS is due April 1, 2019.

Getting the W-4 Right Is Important

Article Highlights:

  • W-4 Complications
  • Working Spouse
  • Adjusting Refund
  • Other Income and Tax Issues

As they do at the beginning of every year, employers will be requesting employees to complete the IRS Form W-4. Its purpose is to provide employers with the information they need to determine the amount of federal income taxes to withhold from an employee’s paycheck. So, it is very important that the form be completed correctly.

The problem is that as simple as the form looks, getting those entries on the form to produce the desired withholding amount can be tricky. The passage of the tax reform added additional complications, and the IRS has delayed a major revision of the W-4 until the 2020 tax year. In the meantime, taxpayers must get along as best they can using the old version of the W-4.

Even though the W-4 form itself appears to be simple, the instructions come with an extensive worksheet, which may or may not produce the desired results. In addition, there are other issues to consider, such as:

  • Perhaps you desire to have a substantial refund when your taxes are completed next year. This generally requires custom W-4 adjustments, to produce excessive withholding. Keep in mind: when you have a large refund, you have provided Uncle Sam with an interest-free loan.
  • Your spouse may also work, and your combined incomes may put you in a higher tax bracket. Although the IRS provides a special worksheet for married taxpayers if both spouses work, it may not always provide the desired results.
  • In addition to payroll income, you may also have self-employment income, which is subject to both income tax and self-employment, and so you may require a combination of payroll withholding and estimated tax payments, adding additional complications to the W-4.
  • These are just the tip of the iceberg, as there may be investment income or losses, business losses, tax credits, special deductions and loss carryovers, just to name a few more situations that could impact your tax prepayments and withholding for the year.

If you are concerned about getting your withholding correct, please contact this office. We can project your 2019 tax liability and complete your W-4 after taking into account multiple employments, a working spouse, self-employment income and other tax issues unique to your specific tax situation.

Reasons Why Your Small Business Needs an Employee Identification Number

Entrepreneurs often shrug off the idea of obtaining an employee identification number, or EIN, believing that their small business really doesn’t need one. Though there are some cases where a solo business can get away with merely utilizing the business owner’s Social Security Number, doing so is not necessarily the best idea, even if you don’t have plans to hire employees in the future. In almost all instances, having an EIN is a good idea. It provides many benefits that go beyond facilitating the payment of employees.

Using an EIN Instead of Your Social Security Number Protects Your Personal Information

One of the top benefits offered by an Employee Identification Number is that it can help protect your personal identity. Though you still need to protect your EIN and shouldn’t share it without being certain of how it will be applied, using it for your business means that your personal information will have less exposure. Government forms and documents require an identifier, and the EIN (which is issued by the IRS) can be used on all of these instead of the Social Security Number. Though you can still suffer significant damage if your EIN is stolen, the information that is limited to your business is less sensitive than the information that is connected with your Social Security Number. Both require vigilant protection.

If You’re Going to Incorporate, You Need an EIN

Immediately incorporating your business makes it into a separate entity, and as such, it needs its own form of identification, especially if you’re going to have employees. Even if you’re considering yourself an employee, you will need to pay yourself a salary, and that means that you will need to collect payroll tax and take other steps that keep you in step with the IRS requirements. This is true whether your entity is established as a corporation, an LLC, and especially as a partnership, as you can’t use two Social Security numbers for filing financial papers.

The EIN Has Multiple Applications

Having an Employer Identification Number has long-term benefits that go far beyond its initial issuance. In addition to facilitating payroll, it can also be used to apply for all types of credit accounts and bank accounts needed by entities including general partnerships, LLCs, S corporations and sole proprietorships. You’ll need to have that number available for filing to change your business’ entity, for filing your tax returns every year, for setting up financial instruments such as profit-sharing plans, pensions, and retirement plans, and more.

Every business is different, and though we encourage all business owners to give serious consideration to obtaining an Employer Identification Number, we know that it may not apply to your situation. Please call this office if have questions related to an Employer Identification Number and your particular circumstances.

Are You an S Corporation Stockholder? Are You Taking Reasonable Compensation in the Form of Wages?

Article Highlights:

  • S Corporation Compensation
  • Reasonable Compensation
  • Factors Determining Reasonableness
  • In the Spotlight
  • Sec. 199A Deduction

S corporation compensation requirements are often misunderstood and abused by owner-shareholders. An S corporation is a type of business structure in which the business does not pay income tax at the corporate level and instead distributes (passes through) the income, gains, losses, and deductions to the shareholders for inclusion on their income tax returns. If there are gains, these distributions are considered return on investment and therefore are not subject to self-employment taxes.

However, if stockholders also work in the business, they are supposed to take reasonable compensation for their services in the form of wages, and of course, wages are subject to FICA (Social Security and Medicare) and other payroll taxes. This is where some owner-shareholders err by not paying themselves a reasonable compensation for the services they provide, some out of unfamiliarity with the requirements and some purposely to avoid the payroll taxes.

The Internal Revenue Code establishes that any officer of a corporation, including S corporations, is an employee of the corporation for federal employment tax purposes. S corporations should not attempt to avoid paying employment taxes by having their officers treat their compensation as cash distributions, payments of personal expenses, and/or loans rather than as wages.

If the S corporation does not pay its working stockholders a reasonable compensation for their services, then the IRS generally will treat a portion of the S corporation’s distributions as wages and impose Social Security taxes on the deemed wages.

There is no specific method for determining what constitutes reasonable compensation, and it is based upon facts and circumstances. Generally, it is an amount that unrelated employers would pay for comparable services under like circumstances and based upon the cost of living in the area where the business is located. The following are just some of the many factors that would be taken into account in making this determination:

  • Training and experience
  • Duties and responsibilities
  • Time and effort devoted to the business
  • Dividend history
  • Payments to non-shareholder employees
  • Timing and manner of paying bonuses to key people
  • What comparable businesses pay for similar servicesCompensation agreements
  • The use of a formula to determine compensation

The problem here, of course, is that it is easy for the IRS to list contributing factors used by the courts in determining reasonable compensation and leave it to the corporation to quantify these factors into a reasonable salary but still have the ability to challenge the selected amount later if an auditor, off the top of their head, decides the compensation is unreasonable.

The IRS has a long history of examining S corporation tax returns to ensure that reasonable compensation is being paid, particularly if no compensation is shown being paid to employee-stockholders.

Reasonable Compensation in the Spotlight – With the passage of tax reform, reasonable compensation will be in the spotlight because of the new deduction for 20% of pass-through income. This new Sec. 199A deduction is equal to 20% of qualified business income (QBI) and will figure intro the shareholder’s income tax return. The QBI for the stockholder of an S-corporation is the amount of net income passed through to the stockholder and designated as QBI on the K-1, but the stockholder may not include the reasonable compensation (wages) he or she was paid as QBI. Thus, wages paid to stockholders actually reduce the QBI because the S corporation deducts the wages as a business expense, therefore reducing the corporation’s net income and QBI. But that does not mean wages can be arbitrarily adjusted to maximize the Sec. 199A deduction.

IRC Sec. 199A Deduction – Here are some details about how the 199A deduction works and the impact of the reasonable compensation wages on the Sec. 199A deduction.

  • The S corporation’s employee-stockholder’s wages are NOT included in qualified business income (QBI) when computing the 199A deduction. Thus, the larger the wages, the smaller the K-1 flow-through income (QBI) and thus the smaller the 199A deduction, which is 20% of QBI. In this case, an S corporation would tend to pay the stockholder a smaller salary to maximize the flow-through income and, as a result, the 199A deduction.
  • If married taxpayers filing a joint return have taxable income that exceeds $315,000 ($157,500 for other filing statuses), the 199A deduction begins to be subject to a wage limitation, and once the taxable income for married taxpayers filing a joint return exceeds $415,000 ($207,500 for other filing statuses), the 199A deduction becomes the lesser of 20% of the QBI or the wage limitation. For these high-income taxpayers, an S corporation will tend to pay stockholders less wage income for them to benefit from the Sec. 199A deduction.
  • If an S corporation is a specified service trade or business, the Sec. 199A deduction phases out for married taxpayers filing a joint return with taxable income between $315,000 and $415,000 (between $157,500 and $207,500 for other filing statuses). And although the wage limitation is used in computing the phase out, once the taxpayer’s taxable income exceeds $415,000 ($207,500 for other filing statuses), the taxpayer will receive no benefit from the wage limitation and therefore would again want to minimize their reasonable compensation to minimize FICA taxes. Specified service trades or businesses (SSTBs) include those in the fields of health, law, accounting, actuarial science, performing arts, athletics, consulting, and financial services (for more information on what constitutes an SSTB, please call).

Of course, taxpayers cannot pick and choose a reasonable level of compensation to minimize taxes or maximize deductions. Therein lies a trap for taxpayers who do not consider the factors related to reasonable compensation. There are commercial firms that have the data necessary to determine reasonable compensation and specialize in doing so. These firms can be found by searching the Internet for “reasonable compensation.” Even the IRS has employed these firms to provide reasonable compensation data in tax court cases.

If you want additional information related to reasonable compensation, please give this office a call.

6 Common Small Business Accounting Problems That Are Killing Your Growth

If you’re a small business owner, you want your organization to do far more than survive: you want it to thrive! Unfortunately, to make sure that customers are happy and the lights stay on there are a lot of details that need attention, and some end up being overlooked. The intricacies of accounting are neither sexy nor fun, and most business owners don’t have the training or background that’s needed for this vital area of operations. To help make sure that you’re doing everything you can to maximize your profitability and fiscal responsibility, here’s a list of the six most common accounting problems small businesses encounter. By addressing each, you’ll go a long way toward assuring your business’ success and growth.

1. Not Using Accounting Software
There are a lot of benefits to using accounting software, and the most obvious of these is that if you try to do all of the necessary calculations by hand, you’re at risk for making a small mistake that can lead to a giant headache. There is a fantastic selection of software available — it may even feel overwhelming when you first begin doing the research – but if you take your time, read reviews and look for something that is designed to meet the needs of your particular type of business, you’re sure to end up satisfied. If you’re not sure what to look for, use this checklist of minimum requirements:

  • Sales tracking
  • Financial statements, cash flow statements and balance sheet
  • Generating Invoices
  • Contacts management and contact history tracking
  • Budget planning
  • Account to accept credit card payments
  • Inventory management
  • Payrolls
  • Taxation

2. Not Knowing How to Use the Software That You Have
It may seem funny, but the second most common mistake that small business owners make in terms of accounting is also about accounting software – it’s having the software in-house but not using it, not using it the right way, or not really knowing how to use it. Like the treadmill that sits in the corner of your bedroom and slowly becomes something to throw your clothes over, having invested in accounting software and then not actually using it (or using it the right way) is a reason for regret, and so much more beyond that. When you’re not using your software the right way, you leave yourself vulnerable to making accounting mistakes. More importantly, you end up taking far too much time on bookkeeping tasks that it could do for you quickly and efficiently. Most of the packages available come with tutorials, but if you need help, contact an accounting professional and ask them to run through bookkeeping basics with you so that you can use it to its best benefit.

3. Failing to Produce Monthly Financial Reports
A lot of small businesses tend to minimize the importance of financial reports, feeling that if they produce some snapshot every few months or even twice a year, it’s good enough. The truth is that if you have financial backers or are interested in getting additional investment in your business, having a monthly report is an essential tool for them, as well as a sign that you’re taking their investment seriously. More importantly, the more closely you monitor your company’s financial activities, the faster you can pick up on issues as they develop, including slow-paying clients, oversites in your accounts payable, and more.

4. Having the Numbers, But They’re Wrong
There are a lot of things that can lead to your financials being incorrect: it can be not using accounting software (or not using it correctly); failing to update data; inputting incorrect data; and more. Whatever the cause, the result is never good and can cause problems significant enough to close your business or scare investors away. Worse, it can leave you vulnerable to bad actors who can use the inaccuracy to perpetrate fraud.

5. Mixing Your Personal Accounts with Your Business Accounts
Even if you are operating a pass-through business, it is essential that you keep separate books, separate credit cards, and separate banking for your personal needs and your business needs. Failing to do this will make it nearly impossible to determine what expenses are deductible, what capital investments generate profit and more. Small oversights are more likely to occur in accounting for out-of-pocket expenses, and this generally leads to paying more in taxes than you need to. Worse, if you face an audit, it will lead to a nightmare of having to separate and justify accounting measures that have been taken.

6. Failure to Properly Manage Your Payroll
Payroll is one of the most complex areas of running a business. Not only do you want to make sure that you’re paying your employees appropriately, but you need to be sure that essential areas like payroll taxes and withholding are being done accurately. When in doubt, it makes sense to bring in outside professionals for assistance.

12 Common Tax Problems to Avoid

If you’re one of those who gets worked up over filing your tax return, there are specific steps you can take to help ease the struggle and avoid the most common tax issues that are reported each year.

Here are the top 12 tax issues, broken down into categories for business owners and individual taxpayers, and how everybody can minimize their impact this year.

If you own your own business:

1. Avoid penalties and fines by understanding the rules about deductions.

Though tax deductions are a great way to minimize taxes when they’re used the right way, they are frequently abused and overused. The whole point of deductions is to provide businesses the ability to eliminate taxes for items they purchased in the furtherance of their business. Though this includes capital expenditures, client gifts, and business travel, it does not mean that you can include expenses that you incur while talking about your business while you’re on vacation with your family. The IRS has published rules about how much of each expense can be deducted, what type of expense can be deducted and under what circumstance. If you include something that is questionable, you’re going to be asked to justify it, and if you can’t, you’re going to end up worse off than if you hadn’t made an attempt in the first place.

2. Failing to keep track of business expenses that can be deducted.

The flip side of people try to game the system by taking expenses to which they’re not entitled is people failing to deduct expenses that they could have because they’re not careful about keeping track. This frequently happens when people don’t have a credit card or account that is dedicated specifically to their business expenses, or when cash is used when traveling or attending business meetings. When you don’t deduct legitimate expenses, you’re cheating yourself out of tax savings, so start keeping all receipts, and talk to a tax professional so that you understand exactly what you can write off, and what you can’t.

Individual taxpayer problems:

3. Failing to choose a reputable professional tax preparer.

It’s nice of your cousin or next-door neighbor to offer to help, and you might save money by going to a storefront tax preparer that claims they will do the whole job quickly and at a low cost, but an awful lot of taxpayers end up in big trouble as a result of these types of offers. Whether the issue is incompetence or fraud, plenty of people are finding themselves facing penalties and fines or having their refund money stolen as a result of choosing the wrong tax preparer. Do your homework and be willing to spend the money to have your return prepared by a legitimate professional. The things to watch out for include promises of specific refund amounts prior to reviewing your documentation, fees that are based on the amount of your refund, and fly-by-night operations that appear right before tax season and then are gone on April 16th. If you do find a fraudulent tax preparer has victimized you, contact the IRS and attorney right away who will pursue justice and act as your advocate.

4. Filing after the deadline.

If you were late in filing last year, you had plenty of company – the IRS reported that almost 45 million taxpayers waited until April. But filing late is a mistake. You are likely to end up paying extra money in fines and penalties, and the later you are, the more likely you are to make errors that will make the entire process take longer and may lead to audits and delays. More importantly, if your lateness is a recurring theme and you still haven’t gotten in paperwork from previous years, it affects the accuracy of your current return and may impact your ability to get any refund or credit that you’re owed.

5. Failure to file a return at all.

Plenty of people disregard the tax laws and don’t submit a return. Many of them may not actually owe any taxes, while others reason that since they can’t afford to pay what they owe, they’re better off not submitting anything. This is absolutely wrong. If you are anticipating a problem with submitting the tax that you owe, you can file an installment agreement request that will help you set up a schedule of periodic payments instead of submitting the amount in full at tax time. This is a much better option than not filing, as even though you may have to pay some interest or penalties, they won’t be as punishing as the fees you’ll pay for failure to file a return. You can also choose to file an application for an automatic extension, which gives you more time to get the documentation together, if not the payments. Again, penalties and interest rates are much lower when you avail yourself of this option rather than failing to file.

6. Simple mathematical errors

Remember when you were a kid in math class and you’d get a quiz back with mistakes that you’d have spotted if you’d just double checked? Same is true with your taxes. Take the time to go back over your math before you sign on the dotted line or send your return in. It just takes a few extra minutes, and it can save a lot of time and aggravation. Alternatively, use a professional tax preparer and then you don’t have to worry about it at all.

7. Administrative errors

Just as you need to check that you’ve done your math computations correctly, you also need to take the time to take a second look at the forms that you’re filling out to make sure that you’ve filled in every box, used all the appropriate forms, and filled in your information correctly. You’d be amazed at how many people transpose the numbers of their social security number or whose handwriting is so bad that it can’t be read by the IRS and gets sent back. Take your time, be careful and do it right to save yourself a headache in the future. A few areas worth double-checking include:

  • Social Security Number
  • Bank Account Numbers and Routing Numbers
  • Signature and Date Lines

8. Not staying current with updates to tax laws.

Every year, there are new updates to the tax code that can make a big difference, and every year there are taxpayers who fail to take advantage of them because they simply weren’t aware that they existed. If you’re going to do your taxes yourself, take the time to stay up-to-date. Alternatively, you can work with a tax professional: part of their job is to know all the new laws and apply them to your best advantage.

9. Don’t use the wrong filing status.

Single. Head of Household. Married filing jointly. Married filing single. It can be very confusing to know which benefits you most, and choosing wrong can make an enormous difference. There are a lot of things that married couples are entitled to if they file jointly, and a lot of disadvantages to filing single. Take the time, do the math so that you know you’re doing the right thing.

10. Clutter may be bad, but you should hold on to your old tax returns.

No matter how much you try to keep it simple and purge old paperwork, your past tax return is one thing you really need to hold on to in case the IRS comes back and asks questions or you realize that you’re entitled to a refund if you file an amended return. Having the paperwork handy means you can give it to attorneys, mortgage brokers, accountants and the IRS itself in case they ask for it or if providing it would help your situation.

11. Learn about and take advantage of every potential deduction

Of all the painful mistakes that taxpayers make, overpaying is at the top of everybody’s list. What could be worse than giving the government more of your hard-earned money than you needed to? The best way to avoid this mistake is to go through the lists of possible deductions and write down every one you might be able to take, then see if you can use it.

12. Not using the right tax forms for your needs or status.

Though most people are familiar with the 1040 form, it’s not necessarily the right one for everyone. While the 1040 works for those who itemize or who own their own business, people who are W-2 employees without a lot of complicating factors may be better off using the 1040EZ form. Likewise, you need to make sure that there aren’t mistakes on any of the paperwork that you’re handing in, whether it’s your W-2 or information from any of your banks. Finally, many people are taking advantage of electronic filing to get their returns in on time and get their refunds more quickly, and if you’re doing that too, make sure that you’ve input the correct.

If there are errors on your W-2 Forms or other financial forms, make sure you address them sooner rather than later, or else the IRS will become involved. If you’re filing electronically, double check every digit of your information to avoid delays.

What if you can’t avoid a tax issue?

No matter how hard you try, at some point, you may find yourself facing one or more of the issues cited above (or something entirely different that we haven’t included). If that happens to you, contact us immediately for expert professional help.

10 Ways to Improve Profits in the Coming Year

In the U.S., the economy is thriving and expected to grow over the next few months. Businesses are expanding. The Federal Reserve has inched up interest rates, creating investment opportunities, and lenders are offering small business loans. All of this points to a promising outlook for the coming months. As a small business owner, this is the time to take a closer look at your profit and loss sheets to determine how you can make the most out of this current economy.

How Can You Increase Revenue and Profits in the Coming Year?

For most companies, increasing revenue and profit margins is a goal. Yet, there’s strong competition in most sectors. Here’s a look at ways you can boost your profit margins without having to invest heavily.

#1: Increase Pricing Marginally

Inflation is a key component of the current market. As the U.S. consumer increases confidence in spending, it becomes possible to increase prices. Re-evaluate your current price points. Are you getting enough from each sale to build profits?

#2: Don’t Overlook the Impact of Tariffs

The ongoing trade war with China has many business owners worried about cost. Plan now. Tariffs are impacting nearly all industries including construction, retail, restaurants, and manufacturing to name just a few. Work with your team to understand the impact on your business’s bottom line, such as the higher cost of goods, and build those costs into your prices.

#3: Get Rid of Tasks Not Adding Value to the Customer

Take a closer look at what you are spending on within your profit and loss. Is each one of these expenses directly contributing to your customers’ needs? Eliminate costs that do not contribute to customer value.

#4: Review Competitor Prices

Along with increasing your prices, take a closer look at what your competition is charging for services. There are two things to focus on here. If their prices are higher, why? Are they offering something better for their product or service that encourages a higher price point? Second, are your prices competitively aligned with theirs? If not, what can you do to offer something extra to your customer?

#5: Reduce Overstock

Carrying a significant amount of stock does not improve business operations and increases costs. It can drive up waste when product is lost or forgotten. It also hampers your company’s ability to keep inventory costs in line with your goals. Pair down stock.

#6: Find a Way to Increase the Value of Every Sale

Provide some last-minute addition your customer could buy to enhance their product or service. Ensure your sales team is speaking to each customer about this offer, right as they close the deal. If you sell cars, offer an add-on feature for a certain additional amount. If you sell professional services, determine if your customers could benefit from a monthly check-in or other add-on services.

#7: Expand Product or Services Lines With Care

Look for complimentary services and products that do not require a lot of investment to offer them to your customers. What additional products or revenue streams could enhance what you already provide? This may not require additional equipment or a large amount of inventory.

#8: Build Your Team’s Skillset

Beyond a doubt, in a sales-oriented business, your company cannot build revenue if your sales team misses their market. Invest in sales training for the modern audience. Focus on moving away from traditional methods toward more efficient and brand-building methods for sales.

#9: Get Your Numbers in Line Now

Hiring a team to help you explore your current profit margins is critical. However, bringing on a professional organization to help with managing your books is only effective if you apply the information and insights they provide to you. In other words, find a team you can sit down with and discuss opportunities you can apply right now.

#10: Build Your Customer Base

Use a variety of tools to help build your customer base. Complete a market analyses to better understand who your target customer is. Then, work to modernize your marketing efforts to attract that specific audience. When you do, you turn heads and capitalize on a new set of customers.

Building revenue and profits starts with knowing where you are specifically. Review your prices, financial accounts, and books with care. Then, look for small ways to reduce costs that don’t contribute to your profits and build up services, products, and prices for those that help your company to grow. Always have a focus on the bottom-line benefit of any investment you make.

Mitigating the Effects of Employee Burnout: What You Need to Know

Make absolutely no mistake about it: Not only is employee burnout very real, it’s probably costing your business a lot more money than you realize. It’s also not a problem that you’re necessarily going to be able to buy your way out of, either.

According to one recent study, a massive 70 percent of the workforce in the United States is not engaged with their current jobs in any type of meaningful way ― and employee burnout is a major contributing factor to this. As stated, if you think that this is because people don’t feel like they’re making enough money, the chances are very high that you’re wrong. The same study revealed that 89 percent of employers THINK that people leave jobs to get more money elsewhere, but in reality, that’s only actually true about 12 percent of the time. But perhaps the most damning statistic of all is the following: Collectively, disengaged employees cost organizations in the United States between $450 and $550 billion every year in terms of lost productivity alone.

So, once you’ve come to the realization that this is, in fact, a problem, you must then turn your attention toward taking advantage of any possible solution in front of you. The good news is that it is possible to mitigate the effects of employee burnout ― you just need to keep a few key things in mind.

Understand What Employee Burnout Looks Like

Not every employee is necessarily burned out ― even if they’re pulling long hours or giving everything to help you achieve your goals. But in an effort to avoid the major downsides of burnout on your business, you need to know more about how to spot it in its nascent stages. If an employee is burned out, they’re probably exhibiting one or even all of the following signs:

  • They’re exhausted, either physically or emotionally. The resources needed to cope with their work environment in these two areas are totally spent, and they tend to act accordingly. We’ve all been here, so you should know what it looks like.
  • They’re increasingly cynical. They know what they’re supposed to do and why it matters, but they’re less convinced that it really matters to THEM in the long run.
  • They’re growing more inefficient as time goes on. Burned-out employees tend to give up “trying” pretty quickly as a result of the cynical attitude outlined above, and the quality of the work they offer suffers as a result.

Put a Premium on the Mental Health of Your Employees

If you truly want to mitigate the effects of employee burnout, you need to focus not on correcting the problem but on trying to prevent it from happening in the first place.

This means placing a high priority on the mental health and wellness of all of your workers, something you can do in a few different ways.

Some experts recommend that you should hold walking meetings, for example. Instead of holding yet another meeting with your team in a stuffy boardroom with absolutely no natural lighting, get outside and take a walk around the block. You can still discuss all the same things (and thanks to cloud technology, you can likely refer to all of the same files on devices like smartphones and tablets), but the change of scenery will really make a big difference.

Along the same lines, don’t be afraid to encourage people to take mental health days ― especially during busy periods or the holiday season. Remember that a burned-out employee ultimately isn’t doing you any good anyway, so if they need to leave early one day or not come in at all, they’ll be at far more of an advantage than you are at a disadvantage in terms of lost productivity. Just knowing that you support their health and wellness like this will really go a long way toward mitigating this type of risk.

Likewise, you should always maintain an open door policy with your employees. If they feel like they need to come in and talk to you for any reason, good or bad, they should feel comfortable with their ability to do so. If they need something to thrive in their job every day, they shouldn’t be afraid to come ask for it because they should know you’ll work hard to get it. If they have a problem, they should feel willing to come talk to you to look for a solution. Again, the importance of this level of managerial support is something that you absolutely cannot overstate.

Everyone feels burned out every now and again ― this is not something you can avoid. But if you truly want to avoid letting employee burnout have a long-term negative effect on everything that you’ve already worked so hard to build, you need to recognize the problem and take steps now to do something about it. Oftentimes, success to that end is less the product of one big move and more about a series of smaller ones. Provided you follow tips like these every day, you’ll soon realize that a large portion of the hard work has already been done for you.

Rejoice – Business Meals Are Still Deductible

Article Highlights:

  • Ban on Deducting Entertainment Expenses
  • Business Meals
  • Mixed Entertainment and Meals
  • Substantiation Requirements
  • Disallowed Employee Business Expenses

If you are a business owner who is accustomed to treating clients to sporting events, golf getaways, concerts and the like, you were no doubt saddened by the part of the tax reform that passed last December that did away with the business-related deductions for entertainment, amusement or recreation expenses, beginning in 2018. You can still entertain your clients; you just can’t deduct the costs of doing so as a business expense.

While the ban on deducting business entertainment was quite clear in the revised law, a lingering question among tax experts has been whether the tax reform’s definition of entertainment also applied to business meals, such as when you take a customer or business contact to lunch. Some were saying yes, and others no. Either way, both sides recommended keeping the required receipts and documentation until the issue was clarified.

The IRS recently issued some very business-friendly guidance, pending the release of more detailed regulations. In a notice, the IRS has announced that taxpayers generally may continue to deduct 50 percent of the food and beverage expenses associated with operating their trade or business, including business meals, provided:

  1. The expense is an ordinary and necessary expense paid or incurred during the taxable year in carrying out any trade or business;
  2. The expense is not lavish or extravagant under the circumstances;
  3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
  4. The food and beverages are provided to a current or potential business customer, client, consultant or similar business contact; and
  5. Food and beverages provided during or at an entertainment activity are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices or receipts.

The IRS notice also included the following interesting examples related to #5: The taxpayer invites a business contact to a baseball game. The tickets to the game are entertainment and not deductible. However, the taxpayer also purchased hot dogs and a beverage for himself and the business contact. Because the food and drinks were purchased separately, they are not disallowed as entertainment and are deductible if they otherwise qualify as an ordinary and necessary business expense. Had the ticket price included the hot dogs and beverages, they would be treated as non-deductible entertainment. If the ticket price separately stated the ticket price and the food and beverage price, then the food and beverage portion would not be disallowed as entertainment.

Of course, the substantiation requirements still apply. You must be able to establish the amount spent, the time and place, the business purpose and the business relationship and names of the individuals involved. You should keep a diary, an account book, digital files or similar records with this information and record the details within a short time of incurring the expenses. If the meal expense is $75 or more, documentary proof (receipts, etc.) is also required.

If you are an employee, starting in tax year 2018, you will not be able to deduct your unreimbursed employee business expenses, including the cost of client meals. These expenses have been deductible as miscellaneous itemized deductions when you itemized deductions and when your total deductions in that category exceeded 2% of your adjusted gross income. Under the tax reform, this category of deductions is not deductible for years 2018 through 2025. So, unfortunately, the IRS’s expansive definition of meal expenses will not benefit you.

If you have questions related to business meals, substantiation or the ban on entertainment expenses, please give this office a call.