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Better Budgeting Means Better Business

Before awarding credit, lenders demand detailed budgets, including cash flow forecasts. They want realistic projections, not unfounded profit and revenue estimates. Cash flow projections are an important element for lenders because they show how you plan to repay the money.

Even if your construction firm doesn't need credit, a well thought-out budget, including cash flow projections, is important for the ongoing operation of your business. For some construction projections, surety companies look closely at budgets before issuing the bond needed. Additionally, by preparing an effective annual budget and comparing it to your actual financial performance, you can find certain situations that need to be addressed. For example, a construction firm that expects $5 million in new projects in the first half of the year, but is awarded only half of that amount in contracts, need to review its bidding procedures. Perhaps the company needs to tighten up its bidding process, have someone review the work of the estimator before bids are submitted, and review other internal procedures to get more work. Upon review of the actual performance, you may find expenses that are out of line and you want to look at instituting controls, safeguards -- and perhaps even institute a bonus system for those responsible for controlling the job.

Avoid These 4 Business Mistakes

Author: Keith Huggett

When you started your business you may have had concerns about staying flush with money.  As time progressed, your company funds have become sporadic and unreliable.  Some months you are performing great, others not so much.  You work hard, try and save every penny you can (and still run your business), but funds are getting tighter and tighter. Business owners often make mistakes with their funds, under the impression that "things will get better" or "we can pay it later." Here are four top mistakes that new business owners make with their funds:

Bookkeeping Problems - Let's face it. No one likes doing their bookkeeping. It brings the truth of your situation too close to home.  It's very time consuming. Sometimes it's really difficult to get a handle on the software.  Either way, bookkeeping is one of those tasks that business owners HATE. A lot of companies try and handle their bookkeeping in house to save money.  This is not the solution. Often you are hiring someone who isn't really qualified for they job or you are trying to do it all yourself.

Solution - Hire a professional to keep track of your books for you. Keep your accounts separate - no comingling of business and personal funds. Keep a strict account of your income and expenses.

Adequate Budgeting - Your business plan should have included a working business budget.  As is common with most businesses, that business plan has hidden itself away.  If you do not have an adequate budget, both monthly and yearly, you may find yourself dipping into other areas to provide funds for what your need.

Solution - Create a two-tiered budget, one as a guideline for the entire year and the other a monthly version of your annual budget that takes into account everyday business realities. List all of your anticipated expenses, such as materials, land and equipment, et cetera.  Stick to the budget!

Uncontrolled Spending - "Bright and Shiny Disease" can strike at any time.  Something is brand new on the market and you have to have it because it will make running your business easier.  What you need to consider is this: Is there anything wrong with what you are currently using? Does it do the job? If you do not have a strong need to purchase something new and unbudgeted for, consider waiting until a later date.

Solution - If an item is not strictly budgeted for don't make the purchase.  Stick to your budget and plan ahead for such purchases in your next year's budget.

Princing Strategies - Often times people focus on price.  Underbidding your service can cause you money problems later on. While you may have successfully gained a new client, that client isn't necessarily paying you what you are worth. 

Solution -  Weigh the costs of your service honestly. If your prices are too low, you may shoot yourself in the foot by creating doubt in the quality of your services.  If you aim too high, you may fall into a pit of "promising too much".  Having a smart price strategy in place is your goal.

If you would like to discuss any questions this article may bring up, The Tax Office, Inc. can provide you with the bookkeeping, budgeting, and business consulting answers you may need. Contact us today.

Getting the Best For Your Bucks

Author: Paul Cantelli

Hiring on a shoestring budget can be challenging, especially if you want to get the best talent available. While you may not have the cash to recruit based on a high salary alone, you can still attract top talent if you play your cards right.

Use the following tips to get qualified applicants when hiring on a shoestring budget:

• Learn how to hire the right people. Hiring the wrong person can be very expensive, both financially and in terms of time lost. Create a clear job description with detailed criteria for the type of employee you are looking for so you can better select the candidate that will best match the job and the company culture. Be patient through the hiring process and only hire the person who you truly believe is the right fit for the job.
• Keep the hiring process inexpensive. While it's important to cast a wide net, multiple job postings can get expensive. Ask your employees if they have any referrals and consider offering them a bonus if you hire a person they recommended. Use free websites, social media and industry contacts to spread the word about your vacancies. The more you can save on posting a position, the more you can pay your new employee.
• Focus on the intangible perks. If you can't offer a big salary, perhaps you can offer other meaningful incentives. Allow employees to work on flex time or to telecommute on some days. Keep the office kitchen fully stocked or offer discounts at a local gym. Small investments that benefit all employees are as important as payroll.
• Offer profit sharing or other future incentives. If you are a start-up or small business that expects to grow, offer shares in the company as partial compensation, bonuses based on profits or other incentives that will help motivate and attract top talent.

Are You Using A Budget?

Author: Keith Huggett 

We all know how hard it is to come up with a balanced budget. Just take a look at our government, they still can't do it. However, to actually run a profitable business you need to use budgeting properly and have a working budget for good financial management.  Even having a workable budget in your personal lives is tough but it's doable, so we just need to apply that to the business.

A "working budget" means that it's a work in progress. It's adjustable. You, the business owner, need to look at it every day. Follow it and make necessary adjustments.  Consider it your guide book.  A budget gives you the ability to know what dangers or opportunies may lie ahead. The SBA has a budget worksheet that can be downloaded for use or you can always just make your own.

If you've been running your business for a while, you have your financial data to use to formulate your budget.  If you're just starting out it's a little different.  You need to do some research on your competion, and estimate your profit and loss, expenses, etc., based on what you can find on your competitors.

What can happen if you don't have a business budget? You could easily become an employee at someone else's business.  You have to be sure that you can make enough income and profit to cover the expenses associated with your business.  The only way to do that is to have a budget.  With a budget in place, not only do you know how much you need to have in income, you know how much is going out in expenses, and on what.  But you have to maintain the budget.  It's easy to forget about it when you are busy focusing on other parts of your business.

Another option you have to help you with budgeting is to talk to your accountant or tax preparer.  This is a service that is often outsourced. Accounting services is not one of the CORE aspects of your business.  Your time can be better spent, and outsourcing your accounting is an option that can save you time, money and often frustration.

Should you have any questions regarding your budget, budgeting practices, or outsourcing your accounting, please contact us.  The specialists at the Tax Office, Inc. are here to answer any questions you may have.

Being Ready for Anything in Today's Economy is a Safe Bet

Author: Keith Huggett

2013 is a third of the way gone and business budgeting season is well underway. Hopefully, you have a budget for your business, but if you don't, it's time to get started on creating a clear plan for your revenue.

Here are four reasons why you should take a careful look at how you budget your operations throughout year:

1. Budgets can be strategic documents: Many businesses allocate funds based on arbitrary criteria, like what a department spent last year. The best business budgeting processes take your business plan into account and allocate funds to ensure that your business has the right money in the right place to execute your strategy. This might require spending significantly more money in some areas while you have significant cuts in other areas. Simply increasing each department's budget line by a few percentage points won't accomplish this.
2. Budgets can include outside information: At the most basic level, you or your CFO should be sitting down with your department heads to review their budgets and their fund requirements. You can go even further by using outside cost data to compare your spending expectations with what other similar businesses spend on an aggregate basis.
3. Budgets help you manage your cash flow: With a budget that takes into account the natural seasonal ebbs and flows of many businesses, you can plan for crucial expenses like payroll and taxes, and not get caught short.
4. Budgets have limitations, too: Business budgeting can help you do a number of things, but it is not a panacea. No matter how perfect your budget is, it may need to be updated periodically to better reflect your business' reality. Budgets are also not useful as performance measures for compensation since many managers can game their numbers to meet the budget without actually meeting broader company objectives.

When Times Are Tough, Honesty is The Best Policy

Author: Keith Huggett

For many small businesses with tight cash flow, whether or not you make payroll from month to month can be a major stress factor. Obviously this situation should be avoided at all costs, but it does happen now and then, and it's important to know how to handle it.

So what happens if you can't make payroll? The following steps can help you get out of this sticky situation:

• Be honest with your employees: If you know in advance that you don't have sufficient payroll funds, don't wait until the last minute to alert your employees. Give them as much advance notice as you can so they can prepare their finances accordingly.
• Get financing as soon as possible: Not paying your employees on time can result in tax penalties and other financial liabilities, so it's important to come up with the necessary cash as soon as possible. You may have to sell assets, tap a credit line, lay off employees, transfer money from personal bank accounts or ask friends or family for financial assistance.
• Use the resources you have: If you have outstanding receivables, you may be able to get cash quickly. One method is to offer a deep discount directly to the customer that owes you money in exchange for immediate payment. However, this course of action will certainly alert customers that your business is in trouble. An alternative method is to factor receivables by working with a third party who will give you a portion of your receivables up front in exchange for the full amount when invoices are paid.

How to Maximize the Hiring Process

Author: Evelyn Keaton

If you need to find good employee candidates without going through the time-consuming and expensive process of using traditional career ads or paying the exorbitant fees that many recruiters and headhunters charge, follow a simple rule: Go with what you know. Hiring on a shoestring is much easier when you are able to get targeted candidate leads from people that you trust and that understand your business. Here are three techniques that can help you:

• Talk to your network. People in your professional network, whether they are business associates, vendors or clients all know people that are looking for positions. By talking to the people that you know and trust you can get real-world recommendations that you can count on. Many of them can also bring you passive candidates that may not respond to one of your ads.

• Work your online network. Between Facebook, Twitter, LinkedIn and other networking sites, you should have no problem finding great candidates that you either already know or that people you know can vouch for. While many sites offer paid job ads, doing things like updating your status to let the world know that you are looking and reaching out to people in your network that are looking for a job are extremely effective ways of hiring on a shoestring.

• Reach out to your educational network. While you can always start with the college of which you are an alumnus or alumna, consider also reaching out to schools that you accept. If you are looking for entry-level workers,  most schools will let you post a job ad in their career services office for free. If you are hiring on a shoestring for a more senior position, reach out to the alumni office since many schools now help their alumni find jobs as well as helping new graduates.

The professional staff at The Tax Office, Inc. has worked with many small businesses that have hired people on a shoestring budget. They can share tips with you, as well as help you prepare to bring a new employee on staff. Contact us to get started.

Who is More Cost Effective? The Contractor or Employee?

Author: Evelyn Keaton

Hiring on a shoestring budget means you have to make smart decisions about who you hire, how much you pay them and what type of worker they are. Contractor and employees have different costs associated with them, and it's important to know the difference before you make a decision.

Financial benefits of hiring a contractor

Contractors typically must supply their own equipment, which means you don't have to invest as much in computers, phones and other office supplies. Because they are not employees, your worker's compensation does not increase when you hire a contractor. Contractors are also responsible for their own income taxes and benefits, saving you on payroll taxes, unemployment insurance, medical benefits and retirement programs. You also have more flexibility to hire and fire a contractor; if the work runs out, it's much easier for you to complete the contract and end your financial obligation.

Financial benefits of hiring an employee

Because contractors supply their own equipment, provide their own benefits and pay a higher self-employment tax rate, their pay rates tend to be higher. You can often hire an employee at a lower hourly wage or annual salary, but you have to factor in all the other associated costs to make a fair comparison. You also have more control when you hire an employee because you can more directly supervise them and influence how they spend their working time.

If you're hiring on a shoestring budget and you decide that a contractor is the most cost-effective way to supplement your staff, make sure you follow all state and federal employment regulations. If you mistakenly classify a contractor, you could be subject to tax penalties later if it's determined that they were actually an employee. If this happens, you'll be liable for unpaid taxes and fines.

If you're hiring on a shoestring budget and need advice from an expert, contact The Tax Office, Inc. We can help you evaluate the costs of hiring an employee versus a contractor so you can make a smart financial decision for your business. Contact us today to schedule a consultation.

Practices Will be Beneficial to Business Growth

Author: Keith Huggett

Business budgeting goes much deeper than simply making sure you have positive cash flow from month to month. You have to look at the bigger picture and define your long-term business goals to ensure that your business can grow sustainably.

While your budget might sometimes feel like a moving target, following these business budgeting practices can help you stay on track:

• The budget should reflect your business goals. No single employee can create a good budget in a vacuum. All of the departments in your company need to provide information and give their input on the potential impact of various strategic directions. Ensuring good lines of communication between senior management and employees can help you create a realistic budget that will foster achievement of your goals.

• Be smart about resource allocation. Most businesses don't have enough money to support every department to the full extent that they would prefer. Setting up processes to allocate cash in a way that supports your goals will make those difficult decisions easier. Standardize the budget review process with clear criteria so every participant understands how and why budget decisions are made.

• Simplify your budget procedures. While it is important to have a review process in place, it need not be cumbersome or overly time consuming. You will not only save valuable time, but streamlining the business budgeting process will also save you money.

• View your budget as a flexible document. It is a fact of life that things change. A new technological development may require your investment before the current budget cycle is complete; a competitor may rise to the top; or you may face an unexpected disaster. On the other hand, you may be faced with an unexpected influx of cash; knowing your business priorities will allow you to allocate wisely. Review your budget frequently and don't be afraid to change it when necessary.

The experts at The Tax Office, Inc. can help you with the tax planning side of business budgeting. We also do online bookkeeping to keep your business operating smoothly on a day-to-day basis. Contact us today to schedule a consultation.

Keeping an Eye on Cash Flow is Vital for Businesses

Author: Chris Coggins

Managing cash flow is like trying to herd cats. Just when you get close to success, it slips through your grasp. So you have to plan for it, make it an element of your 2013 goal-setting, if you haven't already.

Timing is everything. You must coordinate the coming and going of funds (or have sizable reserves). If you don't, poor cash flow can disrupt product development, marketing and overall growth, and it can damage your reputation and credit rating.

Worst case? Inefficient cash flow can put you out of business.

Predictability is critical.

It’s essential to understand your cash flow patterns. In fact, your business depends on your ability to make accurate projections. Developing a systematic approach helps you orchestrate the flow of money and set goals to maintain it.

The cash flow goal-setting process is essentially the same as other business planning. You should:

• Review and analyze your financial history.
• Plot income and expenses. You’ll see clearly when you might not have enough revenue to pay bills.
• Build a budget to establish rough projections.
• Minimize fluctuations. You may need to occasionally borrow money, at least short term.
• Try to increase sales when you most need income.
• Create an investment strategy that puts extra cash to work for you.

Managing cash flow is an ongoing activity that will help ensure that you’ll be prepared if the business environment changes, new opportunities to invest or increase sales appear, or you encounter unforeseen challenges.

Most small businesses need help analyzing the movement of their funds and projecting out to the future. That's where we come in. We've helped countless companies create plans for maximizing cash flow. Turning this task over to us at The Tax Office is a smart, strategic and cost-effective business decision.

Need more comprehensive help managing money? We can provide all of the benefits of an inhouse accounting department -- without the payroll expense and personnel issues. Our working partnership with you can include financial goal-setting. We're also accomplished in managing your day-to-day bookkeeping and other chores like tax preparation and payroll. So contact us today for a free consultation.