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Strategies for Thriving in a Tough Economy

August 8th, 2022

Whether or not you believe we’re heading into a recession, or even if you have come to believe that what we have now is pretty much as good as it’s going to get, there’s no getting around the fact that we’re experiencing poor economic times. An enduring lack of consumer confidence and decreased sales threaten all businesses, but small businesses are particularly vulnerable as they often don’t have the reserves to help them survive difficult times.

Entrepreneurs who are survivors will look at this as an opportunity to improve their business practices so they can not only weather the tough times, but thrive during them. How, then, can you recession-proof your business? Thinking through the following practices and how you can make them your strategies will help ensure your business’s success in a tough economy.

1. Protect your cash flow

To keep your business healthy, cash needs to continue flowing through it. As long as your business exists, you will have expenses. But the harder times get, the harder it can be to keep the cash flowing into your business. Be more diligent in how you are spending money. It’s important to be frugal and aware of your income and expenses. By doing a line item cost for each expense, you will be able to identify areas that need greater attention. Efficient cash flow management is crucial. The sections below are all, for the most part, areas that will have impact on your cash flow, but take special note of the ones regarding evaluating your vendors, reviewing your inventory management, and keeping your personal credit in good shape.

2. Streamline your business practices

This is an opportune time to review your business procedures for effectiveness. Consider areas that can be combined into one. Consider areas that can be structured differently to reduce costs. Think about sharing resources, like administrative or payroll work, with other entrepreneurs to reduce overhead. The goal is to streamline operations so you can still provide a quality product or service, yet realize a greater profit by reducing the expenses to produce it.

3. Evaluate your vendors

If you use vendors for packaging, labeling, distribution, or in other areas of your business, this is a good time to do some price comparisons. There is a lot of competition among vendors to attract new business, so you could realize some serious savings in this area. Since no one wants to lose business during a bad economy, chances are good that your current vendors will meet the competitor’s price. If not, it’s time to move your business to the lowest bidder, just as long as you’re not sacrificing quality.

4. Review your inventory management practices

See what can be done to reduce inventory costs without sacrificing the quality of goods or inconveniencing customers. Are you ordering too many of particular items? Can an item be sourced somewhere else at a better price? Is there a drop-shipping alternative that will work for you, eliminating shipping and warehousing costs?

Just because you’ve always ordered something from a particular supplier or done things in a particular way doesn’t mean you have to keep doing them that way, especially when those other ways may save you money.

5. Focus on your core competencies

A diversification strategy is often recommended for small business success. But too often small business owners simplify the concept of “diversification” to “different”. Just adding other products or services to your offerings is not diversification. It’s potentially just a waste of time and money. Worse, it can damage your core business by taking your time and money away from what you do best. It may even damage your brand and reputation. If you have diversified out into different areas over the years to improve market reach, it might be time to regroup and focus on the core of your business and outsource the rest. Evaluate what is and isn’t working and put more effort into what started you out as a successful entrepreneur in the first place. It’s important to get in touch with your core business and make sure it continues to meet the changing needs of customers. So consider dropping the extras and focus on what you do best and which is most profitable to recession-proof your business.

6. Develop and implement strategies to get your competition’s customers

If your small business is going to prosper in tough times, you need to continue to expand your customer/client base. If you have competitors, then they have customers. So, there are already people out there buying what you sell, just not from you. What will it take to attract those customers? You’ll need to offer something more or something different. Research your competition and see what you can offer to entice their customers into becoming your customers. It’s not only lower prices or a better price/quality trade-off that gets the business. Providing better customer service is often identified as one of the easiest ways to outdistance the competition. But you need to do the research in your own market to find out what it takes to be the customer’s first choice.

7. Make the most of the customers/clients you have

They say that a bird in the hand is worth two in the bush. The bird in the hand is the customer or client you already have. These customers are an opportunity to make more sales without incurring the costs of finding a new customer.

Even better, he or she might be a loyal customer, giving you many more sales opportunities. If you want to recession-proof your business, you can’t afford to ignore the potential profits to be had from established customers. But remember that your customers are going through tough times too. In order to retain their business, implement measures to express your appreciation. This could be a one-time price reduction, a customer loyalty card, or a referral incentive. Whatever the strategy may be, it should be something of value to the customer and within your marketing budget.

8. Continue to market your business

In lean times, many small businesses make the mistake of cutting their marketing budget to the bone or even eliminating it entirely. But lean times are exactly the times your small business most needs marketing. Consumers are restless and looking to make changes in their buying decisions. You need to help them find your products and services and choose them rather than others by getting your name out there. So don’t stop marketing. In fact, if possible, step up your marketing efforts.

9. Keep your personal credit in good shape

Hard times make it harder to borrow and small business loans are often among the first to disappear. With good personal credit, you’ll stand a much better chance of being able to borrow the money needed to keep your business afloat if you need to. To recession-proof your business, keep tabs on your personal credit rating as well as your business one and do what’s necessary to keep your credit ratings in good shape.

There’s absolutely nothing that will make your small business one hundred percent recession-proof. But implementing the practices above will help ensure your small business survives tough times and might even be able to profit from them.

Sole Proprietor Start-Up Tips

August 4th, 2022

When starting a new business, many aspiring entrepreneurs will launch it as a side venture to their current career employment, a.k.a. their day job. So there may not be a big rush to create a complex and expensive legal entity such as a Corporation. In many situations a simple sole proprietorship is the most appropriate way to go.

KISS

Keep it simple starting out. The simplest form of entity for running your new business is a sole proprietorship. This form of ownership requires no special communication or filings to the Internal Revenue Service until you start paying employees and/or taxes.

Sole Proprietor

As a sole proprietor you are the owner of a business that might only need a business license/permit if your county or city requires it. If you are the owner of a business that sells items that require sales tax, you will need a reseller permit, and are liable to remit all state and/or city taxes on retail, and maybe wholesale, sales your business collects. Service businesses and most cross state sales are exempt from state sales tax.

Liability Insurance

If you are concerned about personal liability, then the simplest thing to do is to buy a personal liability umbrella policy. Additionally, the best way to avoid liability is to learn your trade well and keep accurate accounting records.

No Company Taxes, Just Yours

Profit from a sole proprietorship is reported on your personal tax return. The IRS won’t even know your company exists until after you file your first personal income tax return. This will include a Schedule C which reports all of the revenue and expenses your business has incurred. In most states, including California, certain state minimum taxes are not require of sole proprietorships. You will, however, have to pay any sales tax you have collected from your customers. And since sole proprietorship losses will offset income from you day job, you might even receive a tax refund. So concentrate on building your business, not communicating with the IRS

Just a Personal Bank Account Will Do, But Don’t

Although advisable as a sound business practice, you are not required to have a separate bank account which is a necessary compliance for a LLC or Corporation. As you get your business set up you could pay your startup costs out of your personal bank account, but once you’re in business and making sales, file a Fictitious Business Name Statement and use the paperwork to open a business bank account. Keep complete and accurate records so you can be sure to get the best possible tax advantage from those early-stage costs, and not get them mixed up with your personal expenses.

Simple to Start, Simple to End

Over 85% of small businesses fail or change ownership within the first five years. Plan your business to thrive but if it fails as a sole proprietorship, you simply stop doing business. No communication or special forms with the IRS, no additional taxes to get your investment returned and no high accounting fees to close out your company. Just mark the Schedule C in your next personal tax return as “final”.

Getting Paid

In a sole proprietorship you just take the money out as a draw. No payroll taxes or quarterly forms needed. Many startups lose money for the first year, and maybe longer, so keep your day job to pay your living expenses.

Evolving Beyond the Sole Proprietorship

As your business becomes profitable talk with a CPA about another entity type that might save you taxes. Just a simple bookkeeping entry transfers all of the business assets from the sole proprietorship into the new entity without any tax penalties.

Reduce Payroll Tax Expenses with an S-Corp

May 17th, 2017

Payroll taxes are a large reoccurring expense for most employers. How can they be reduced? Setting up your company as an S-Corp may be your best solution.

As an S-Corp, the owners can take an additional percentage of their payroll-based income as straight disbursements. These disbursement allow you to avoid the employer side of the federal payroll taxes on the disbursed amounts. Speak with your CPA about determining the maximum percentage amount you can legally take.

Other than that, you are stuck with whatever payroll taxes your employees generate. But remember the total payroll tax expenses include each employee’s tax as well as the employer contributions. That number may look large to you, but realized that these employee tax amounts are not your expense, they are part of the compensation to your employees, who are the ones actually paying it. Only the employer side of taxes are a tax expense to your company.

Banking Mistakes to Avoid

October 4th, 2016

Business owners are so busy working on their business rather than in their business–as they should be–that sometimes your friendly neighborhood banker can end up robbing you blind! The following are four common banking mistakes made by busy small business owners.

Only Banking at One Bank: As a small business owner with 100 things to do, it is easy to settle in with one bank and do all of your banking activity through that one institution. This can have a number of ill side effects. When it comes time for a loan and your bank denies you, if you don’t have a relationship with another bank, you may be out of luck. Secondly, you should make banks compete for your business. Don’t simply give all of your business to one bank by default. Shop around for the best deals.

Failing to Focus on Collateral in Loan Application: When you are submitting a loan application, you may be asked for an executive summary. Make sure that your executive summary focuses on why you are a good risk for the bank. Don’t talk about your exponential growth or potential. Bankers want to know about the facts of your financial situation: your assets, liabilities, and what you can offer as collateral.

Relying Too Much on Line of Credit: If you run your business on a line of credit, as many entrepreneurs do, you may be setting yourself up for disaster if your bank decides to reduce or eliminate your credit line. This happened to many small business owners during the last recession. Try to wean yourself off your line of credit if at all possible.

Carelessness With Bank Fees: Small business owners remember: Cash is king. You must avoid bank fees at all costs. What a careless way to let your money literally vanish into thin air. Don’t get too lax with your banking, even during those busy weeks and months, because when you look back at your bank fees you will realize what a hindrance they can become to your business if they are a recurring issue.

Don’t fall victim to these common banking mistakes. This may mean you need to hire a part-time bookkeeper. Of course there are many, many good reasons to have an expert handle your books, financial reporting and analysis, but at least be prudent in how you use banks.

From Financial Data to Profit & Growth

August 4th, 2016

Too often business owners are so preoccupied with certain parts of the bookkeeping process that they don’t realize just how valuable their full set of financial data can be; should it be made available to them in an actionable way. Some business owners focus on preparing the yearly tax statement. Others may worry about that and their cash flow. And others might just use it to balance their checkbooks. If you choose to have us do your accounting, we can do all that and more. And most importantly, we can help you become more profitable.

First you need a reputable accountant, what we like to call a Profit and Growth Expert, to determine your business goals. These goals may include, but are not limited to, growth expectations, marketing plans, profit margins, and overall labor expenses. We ask important questions like, what do you want? And why do you want it?

Here is a technical way of looking at bookkeeping:

Bookkeeping: The practice involved in the systematic recording of transactions affecting a company, beginning with the data-entry process and ending with the preparation of financial statements. The art, practice, or labor involved in the systematic recording of the transactions affecting a business.

In layman’s terms, bookkeeping is the practice of determining which numbers are important to you and your business. Once that’s decided, we can set up a customized system that will organize the information you want and need. This is the different between the accounting services provided by a bookkeeper as opposed to a Profit and Growth Expert.

Let my firm, Solid Growth Accounting Services, be that Profit and Growth Expert, and advance you from a business that keeps financial records, to one that uses financial data to determine the best path to successful growth and prosperity.