Planning: The “Rudolph’s nose” of your business

Every week I email a “Tax Tip of the Week,” to clients, business associates and acquaintances, and some family members.   And every week I get back a handful of “Auto replies” stating this individual or that individual will be out of the office on vacation starting today and going through ____.   Some weeks these auto replies are greater than others – especially the summer and especially this week.

For many employees, the week between Christmas and New Years can be pretty quiet (retail aside).      That being said, it’s the perfect time to create your plan; whether it be something monumental like a business plan to use as the blueprint for your business, or a strategic plan for the next 1, 5, and 10 years, or a marketing plan or budget to help propel you through the next 12 months.

If I may offer a suggestion, if you don’t have a long-term plan, such as a working business plan or a strategic plan, outlining your business’s core vision and mission, start there.   Reason being that these documents can help move your organization in the direction you want it to go.   After this, you can determine how you would like to market yourself (marketing plan) and where you would like to spend your dollars this year (budget).

Below are some links to help you plan:

Business plan –

Strategic plan –

Marketing plan –

Budget –

Posted in Uncategorized | Leave a comment

Productivity: It’s right in front of you

Everyone is looking for ways to be more productive.   For many, the answer to better productivity lies in your surroundings…on your desk that is.   I’m amazed at the number of clients’ desks that I’ve sat at and looked for a standard office supply that, at my desk is right within reach, only to find it somewhere it shouldn’t be – a stapler shoved in a drawer; paper clips tangled up with rubber bands (if on the desk at all); or the keyboard taking up major real estate on the desk top leaving very little room to work.   The time it takes to retrieve the stapler or untangle the paper clips could be time spent completing the next task on your “To Do” list.

We recently brought on another staff member.  Doing so required additional office furniture so I was the lucky one to get a new workstation and reconfigure the layout of my office.   Once the new furniture arrived, I was tasked with the arduous process of putting everything back where it belongs.   As I got accustomed to my new layout, I was constantly changing the location of the different desktop office supplies to comply with my daily tasks.

While it may seem like a very trivial topic, saving 15 seconds every time you have to staple something or 30 seconds whenever you need a paperclip (not to mention the frustration of having to separate them) all adds up and could be the difference between getting that extra task accomplished or putting it off till tomorrow.

Posted in Uncategorized | Leave a comment

Budgets: What are they, why should I use one, and how do I develop one?

As the 4th quarter begins, companies should be starting their budgeting process.  While there are A LOT of businesses that are highly budget-focused, there are also A LOT that don’t take the time to create one…for whatever reason.

As I mentioned in a previous post, there are 2 different ways to create your budget – 1) Revenue first or 2) Expenses first.   I’ll address each one below.

Revenue first

If you know or can project how much revenue you will earn in a year, then you can fit your expenses into that #.   With a gross profit margin of 50%, a budgeted revenue of $1mil will produce gross profit of $500,000.   Based on this, you can then determine how much labor you will need, how much the plant will have to run, as well as other aspects of you business, many of which will be fixed.  Once you budget for the expenses necessary to fulfill that $1mil of revenue, you can then begin to plan for any excess – bonuses to employees, investment into property, plant, equipment, dividend payments to shareholders, or into a “rainy day fund.”

This method could begin with a revenue goal that you want to achieve – a certain $$ amount or maybe a certain percentage increase from the prior year.   Generating this additional revenue could require additional resources which would find there way into the expense portion of the budget.

Expenses first

Hopefully you are already controlling your costs and know what they will be year over year – how much for labor, insurance, rent, software, etc.   Once you have these figured out/budgeted, you then know how much revenue you’ll need to meet these expenses.  If this revenue number seems out of reach, you’ll know that you’ll need to cut back in the expense area.   This could be a good time to look at the Return on Investment of your marketing programs or inquire of alternate insurance plans to reduce your costs.

Once you have created a budget, you can compare it to your actual results at any point throughout the year and (hopefully) explain any differences.  This could be by knowing how to correct any negative ones or how to continue improving any positive differences.

Regardless of which method you use to create your budget, I strongly suggest that you take the time to create one.  If nothing else, it will give you a great look at your performance from the prior year and the ability to adjust any programs you may be participating in.

Posted in Uncategorized | Leave a comment

Yes, accountants work more than 3 months!

Situation: April 15th has come and gone.  The question inevitably comes up, “So what do you do now?  You’re on vacation for the next 9 months, right?”   Most of these comments are said in jest, and we know that.   However, some people truly may not know what accountants do for the remainder of the year as they may only come in contact with theirs for the preparation of their individual income tax return.   Well, here are a list of due dates, as they stand now, that we have to contend with:

  • March 15th – Calendar year-end Corporate returns
  • April 15th – Individuals and partnership returns
  • May 15th – Calendar year-end Non Profit returns
  • August 15th – Non Profit 1st extension
  • September 15th – Calendar year-end corporate and partnership extensions
  • October 15th – Individual extensions
  • November 15th – Non Profit 2nd (final) extensions

Add to that non-calendar year end corporate returns (15th day of the 3rd month following year-end), non-profits (15th day of the 5th month following year-end), and payroll tax returns (quarterly) and we are busy just with returns all year long.

So, the next time you want to rip into your accountant about taking 9 months off after April 15th, think again.

Posted in Uncategorized | Leave a comment

Keep good records. CORRECTION – Keep records

I’ve often said in the past that you should keep good records for many reasons – to know your actual bank balance; to understand how you are performing for the year; to understand how you are performing in comparison to prior years; to make informed business decisions; to make it easier on your accountant to prepare your tax return(s).   But for some, I need to take one step back and say to just keep records, never mind good records.  It is amazing how many business owners just don’t keep records on some type of General Ledger (G/L) system or allow someone else – your accountant for example – to do it for you.

Common rebuttals are “I know how much I have in the bank by looking at my balance online” and “what types of decisions will I have to make?  I make them as they come up.”   My responses have been and always will be:

Bank balance

  • This “system” doesn’t account for checks that haven’t cleared yet therefore you don’t know how much you actually have to determine which upcoming bills you can pay.
  • Your online balance doesn’t factor in any auto debit amounts that you have set up to come out in the coming days.  In a G/L system such as QuickBooks®, you can set up these auto debits to be entered automatically and as much as 7 days in advance giving you plenty of notice as to you upcoming balance.
  • Based on the above, you will save on overdraft fees.

Business decisions

  • When you know where your sales are coming from you can determine where to market more aggressively.  For example, let’s say you are seeing a large growth in online sales.   You can then focus your marketing dollars to internet advertising.   Or if there’s a large uptick in local online advertising, you can increase your reach that way by adding additional towns/cities.
  • You can see the relationship between the amount spent on advertising and sales.
  • By recording your purchases you can see how much you are spending and possibly negotiate with your vendors for a volume discount or better payment terms.
  • You’ll save on professional fees since your accountant won’t have to recreate your books and records and you won’t have to hire representation for unpaid/unfiled taxes.
  • You will have a better understanding of your business – cost per sale, net profit, tax liabilities – therefore understanding how different decisions impact your cash flow.
  • You will be able to value your business in the event of a sale, bringing on additional owners, drafting a buy/sell agreement, or any other reasons for needing to place a value on your business.
  • You will be prepared in case you need financing and the bank needs to see financial statements.

The list can go on and on regarding the types of decisions you can make with accurate records.   If this aspect of business ownership is not in your “wheelhouse” then outsource it.   Many accountants enjoy doing this work and most have a member of their firm that specializes in it.

Posted in Uncategorized | 1 Comment

Tax savings – it’s not as hard as you think

This Thursday, 7/23, The Believe Project, a 501(c)3 charitable organization that brings the joys of Christmas to children stricken with an illness, is holding a Christmas in July fundraising event. My wife was talking with our neighbors who plan on joining us and gave CASH to purchase the tickets.   Now, maybe I’m overly sensitive due to my line of work but, while cash still is king, you don’t give CASH to purchase tickets for a charity event! Where’s the paper trail to prove the charitable deduction?!

This got me thinking.   I’m always asked “how can I save on taxes?” and it seems that the answer can be a lot simpler than one may think.   It’s true that many tax savings options require a cash outlay – contributing to an IRA; purchasing equipment for your business; paying your vendors early (cash basis business), and many others. However, there are certain ways where you don’t have to spend more money but rather tweak what you are already doing – make all charitable contributions w/ a check or credit card; if you are required to drive for your job, keep track of your miles (NOTE: it’s better if your company reimburses you then it would be to deduct the miles); if you are looking for a job, keep track of all expenses – miles to interviews, postage for sending of resumes, binding of portfolios; if you have side job – photography, web site creation, etc. – keep track of expenses (I will post on Hobby activities in the coming weeks). Those are just a few of the more common ones.

When you head to church on the weekend or attend a charity event, write a check, pay by credit card and/or use your envelope.   Always, I repeat always, keep good (and traceable) records.

Posted in Uncategorized | Leave a comment

The Professional Service Entrepreneur


The retirement planner who left a job on Wall Street to start his own firm.

The title insurer that is constantly updating his business to comply with ever changing regulations.

The insurance agent that started his own business in an industry completely new to him.

The list can go on and on.   But when you hear about these professionals the term “Entrepreneur” (typically) doesn’t come to mind.   That term generally evokes an image of someone creating an app for the newest smartphone, an e-commerce site, or a network marketing company.  Images of Richard Branson, Mark Cuban, or Elon Musk come to mind.  Typically, the general public doesn’t view accountants, financial planners, attorneys, or any other professional service professional as an “Entrepreneur” and part of that reason could be because these professionals don’t view themselves as entrepreneurs.

A special report issued by the University of Michigan Masters in Entrepreneurship program defines an entrepreneur as “anyone who has started or acquired a venture; an owner, founder or co-founder.   While that may be a dictionary definition, it definitely doesn’t define the term “entrepreneur” in practice.   I recently read an article in Accounting Today, an industry publication, where the author shares a personal experience to define the term entrepreneur.

“A couple of years ago, one of the new partners in my firm pointed out that the accounting profession has been run the same way for the last 75 years.   How do you know that the different approaches that we are taking with our firm are right?   I replied that I didn’t but I do know for sure that nothing stays the same for 75 years.”

He goes on to state that this conversation frames the different mindsets separating the business owner from the entrepreneur.  While the business owner asks, “Why mess with it?” the entrepreneur asks, “Why leave it alone?”

Next time you hear the word “start-up” don’t automatically turn your thoughts to tech related products/ services.  Remember that start-ups can include professional service businesses and, in many cases, they may be the ones that are better prepared to handle your needs.

Posted in Uncategorized | Leave a comment

Self-employment tax: What is it and how does it affect me

As a self-employed individual or partner in a business, you may not understand self-employment (SE) tax, how it’s calculated, or how it affects you.

As an employee SE tax doesn’t affect you at all.   While you can stop reading at this point, I suggest you continue in case 1) you plan on starting your own business, 2) become partner, or 3) want to understand the tax consequences of your boss (assuming (s)he’s a sole proprietor or partnership).

When an employee gets a paycheck they are required to have Social Security (6.2%) and Medicare (1.45%) taxes withheld.   This amount is held by the employer and deposited with the IRS either immediately or on a monthly basis, depending on certain factors.   When this amount is deposited with the IRS, the employer is required to match this amount (7.65%) for a total of 15.3%.   (There are limits on the amount withheld and matched for Social Security but we won’t get to that here.)

As a self-employed individual you are considered both employee and employer.   And while you don’t receive a “paycheck” per se, you are still responsible for contributing to Social Security and Medicare.   This is done via the SE tax calculated on your tax return each year and paid along with your quarterly estimated payments.   Another way to look at it is your business profit is your salary and you, the employEE, have Social Security and Medicare tax withheld.   Then you, the employER, match it.

What really gets people is if they have enough other losses or deductions to reduce their taxable income to $0 but still have a balance due.   Wait.  What?  That’s possible?   Yes it is.   Let’s say you have $50,000 of business profit either from a Schedule C business or a partnership.   You also have a $15,000 loss from a rental property and itemized deductions – R/E taxes, mortgage interest, charitable contributions – totaling $25,000.   A family of 4, for 2014, will have an exemption amount of $15,800 ($3,950 x 4).   Just like that your taxable income is $0 ($50,000-$15,000-$25,000-$15,800).   But the return is showing a balance due of $7,064!   The $50k is still subject to SE tax to cover Social Security and Medicare taxes.   If that $50k was on line 7 as Salaries and wages, your portion of the Social Security and Medicare taxes would have already been withheld and matched by your employer.   In this care you are both.

“OK, that’s fair.  But your math is off,   $50,000 x 15.3% = $7,650, $600 more than what you show above.”   That is absolutely correct.   Let me show you how.   Typically the matching portion of employment taxes submitted by an employer is a deduction on their return.  This is no different on a self-employed individual’s return, it’s just calculated differently.   First the profit, $50,000 in this example, is multiplied by 92.35% (100% – 7.65%) then that result is multiplied by the 15.3% to calculate your SE tax thus giving you a “deduction” for the employer matching portion.

Posted in Uncategorized | Leave a comment

Recordkeeping, recordkeeping, recordkeeping

In real estate it may be location, location, location but in business it’s definitely recordkeeping, recordkeeping, recordkeeping.   In my August 28, 2012 post, I used the TV show Shark Tank to demonstrate the importance of keeping good records and knowing your numbers.   Why am I bringing it up again?   Because it’s THAT IMPORTANT!

I encountered 2 business owners today that don’t keep good records – 1 has to amend his return and the 2nd came to see me because he got a letter from the IRS.   See my point?  An often used excuse as to why their books aren’t kept up to date is because they don’t have the time.   In all honesty, if you don’t find the time to keep your books up to date, you are going to find A LOT of time when your business fails and you are sitting at home unemployed.

“Why do I need to?   I can just go online and see how much money is in my account.   As for my taxes, I just give my accountant my bank statements and he does whatever it is that he does.”   There are so many things wrong with this common response, I don’t know where to begin so I’ll go in order:

  1. The amount shown online doesn’t take into consideration the checks that have been written and haven’t cleared yet.  It also doesn’t allow you to see a real-time Balance Sheet and P&L, 2 important reports necessary to run your business and make decisions
  2. While your bank statements are helpful, they don’t paint the whole picture.   For instance, what if we take the total deposits for the year and record that as your sales?  This won’t factor in any personal $$ put into the business or any loans taken.   Looking at each check image is also very time consuming for your financial professional which, in the long run, will cost you more.
  3. As a business owner, you really should know the basics of accounting as far as how you are structured therefore how you are taxed, what forms need to be filed and when, what gets included in income, and what is deductible as an expense.

If those reasons aren’t enough, another reason is to track your progress/regress.   Being able to compare your results of this year with those of last year really helps you notice if something has gone awry.

Why are sales down from last year?

What month(s) is my income the lowest and what kind of business can I try to attract during those months?

How much cash do I actually have?

As I think about it while writing this post, any struggling or failed business that I’ve worked with has not kept good records.  Unfortunately too many people think that because they can do a job and perform a task that they can run a business.

Posted in Uncategorized | Leave a comment

Mortgage payoff

I recently met with a client that had come into a pretty significant sum of money.  The first thing she did, to the chagrin of her financial advisor, the bank, and some friends, was pay off her mortgage.   Many people, banks included, suggest that you keep the mortgage because of the tax deduction.   While you do get a tax deduction for mortgage interest, we’ll see below how much this deduction actually saves you. Truth be told, there is no 1 right answer to the question should I pay off my mortgage.   A lot of different factors come into play, both financial and emotional, and not one is more important than the next:

  1. Peace of mind. The client that I referred to above wanted the peace of mind to know that she owned her home outright.   Period.   End of discussion.   This was of utmost importance to her therefore, no matter what kind of return the professionals said they could get her in the market, she wanted nothing to do with that.
  2. Interest rate differential. If you are risk averse and keep your money in a savings account, you know that the interest rates paid by banks are abysmal with most, if not all, falling below 1%.   That being said, you are guaranteed to be paying a higher interest rate than what you are receiving.   In this situation and assuming that cash isn’t a problem, then by all means pay off the mortgage.
  3. Tax deduction. This is a partial continuation of #2 above since we’ll have to tax affect the interest you are paying.  (Writer’s warning for the math phobic:  Calculations to follow!).   As tax accountants, the happiness of our clients typically falls on whether they owe vs. getting a refund and, if the latter, how much of a refund.   Looking at the total picture, we need to know how much this mortgage interest tax deduction is really saving us.   If you have total mortgage interest expense for the year of $10,000 and you are in the 25%, you will save $2,500 in taxes.   Yes that’s a significant amount of taxes but you paid $10,000 to do so.   Of course if I was a bank I’d want you to do this :-)When comparing what kind of return you can get on your investment in the market, you would have to compare that to the tax affected rate of your mortgage.   Using a 4% mortgage rate and again, the 25% tax bracket, your tax affected rate is 3% (4% – (4% x 25%)).   If you can earn anything over 3% in the stock market or the real estate market, you should keep your cash and only make the minimum amount possible.

Notice that I started with the emotional decision.   If making that mortgage payment each month is an emotional burden, then you have your answer.   If not and you look at it strictly from a financial perspective, then you need to weigh all of the factors.   An option that combines all three factors is to make more aggressive payments.  If your monthly payment is $2,500 then pay $3,000+ with the extra amount going to principal.   This way you 1) will pay it off quicker, 2) will hold onto the majority of your cash enabling it to continue earning a return, and 3) still get a tax deduction (albeit not as much).

Posted in Uncategorized | Leave a comment