Eight out of ten entrepreneurs crash and burn within the first 18 months of starting their business according to Bloomberg News. On the other hand, 51% of small businesses are surviving after 5 years. The federal government’s Small Business Administration says this is the highest rate since 1994. Here’s the difference between business survival and failure according to two long time CPA’s who work with small and medium size businesses.
WHAT ARE SOME COMMON CHARACTISTICS OF CASH FLOW PROBLEMS? (2:03 in)
In Scott’s words – Without sales no cash is going to come in the door. The business owner has to monitor collecting receivables.
In Mark’s words – A lot of businesses don’t do budgets when they get into business. They have to be prepared, some clients won’t pay them.
Tip – Prepare for the lag time between the period to generate the sale, complete the work or produce and deliver the product, invoice, and be paid. Business survival requires that you make sure resources are available to handle the lag time and receivables that you may not collect.
IF A COMPANY USES QUICKBOOKS TO DO ITS BOOKKEEPING, WHEN DOES IT NEED AN ACCOUNTING FIRM? (3:15 in)
In Scott’s words – A business owner needs to determine how much time he is spending doing the work. It doesn’t generate sales.
Tip – Use an accounting firm to teach you QuickBooks and streamline the process so it doesn’t hinder running the business. With access via the cloud, an accountant can collaborate on any journal entries that need adjustment and compiling statements.
WHAT ARE THE ADVANTAGES/DISADVANTAGES OF RECORDING FINANCIAL TRANSACTIONS IN THE CLOUD? (5:15 in)
In Mark’s words – Being in the cloud hopefully offers some better backup.
Tip – Having financials in the cloud allows for easy accessibility while travelling. Assistance from your accountant is faster. If your server or in house backups fail, you have an additional safety net.
WHAT DO WE NEED TO KNOW IN CLASSIFYING SOMEONE AS AN EMPLOYEE VS. AN INDEPENDENT CONTRACTOR? (10:25 in)
In Scotts’s words – They (the IRS) is going to look at control, control over the employees.
Tip – Check out the IRS 20 factor list at IRS.gov that defines the appropriate business relationship to have with an independent contractor.
WHAT ARE SOME TRAITS OF SUCCESSFUL BUSINESSES? (11:54 in)
In Mark’s words – You have to have goals set out and budgets in place. What you can measure you can manage.
Tip – Monitor the financial picture according to what impact changes in staff, products and prices have on how the business performs. Use your accountant to model business variables like price changes, inventory changes, impact of new hires, etc. Business survival is much more likely implementing these practices.
WHAT SHOULD BUSINESSES NOT IGNORE FOR TAX PURPOSES BEFORE THE END OF THE YEAR? (14:54 in)
In Scott’s words – Take the 179 Section tax deduction on equipment purchases. Defer income, accelerate expenses.
Tip – Don’t forget retirement contributions too.
WHAT RED FLAGS WOULD TRIGGER AN AUDIT? (16:05 in)
In Mark’s words – (The IRS) They have such a large database. They are comparing you to industry norms. Any category that is out of the norm, the more of those you have the more likely you are to be audited.
Trend – Fewer numbers of small businesses are being audited.