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Are All Your T's Crossed?

Author: Keith Huggett

If you are starting a business, you know that you have a lot to do. You have to develop a product, create a marketing plan, build a staff and handle all of the administrative issues of setting up a business. While you are doing all of this, you need to figure out how to pay for everything. The federal government's Small Business Administration can help you find money and bonding, letting you focus on the rest of your business.

The SBA's Guaranteed Loan Program gives your start-up access to money. While the SBA does not directly lend money to people starting a business, it provides guarantees to help protect lenders against the risk that you will not pay back your business loan. If you take out a loan that qualifies for an SBA guarantee, it will usually offer better rates and terms than non-guaranteed business debt.

The SBA can also help you get venture capital through its Small Business Investment Company program. The SBA provides money at favorable rates to SBICs in various communities. Those investment funds then provide debt and equity financing to small businesses like yours. As you know, venture capital involves diluting your ownership in your company, but it usually does not carry the payments that debt financing requires.

Finally, the SBA can help you with one more challenge that you will likely face: getting a surety bond. Surety bonds are a form of insurance that protects your clients against the risk that you will not meet your obligations to them. If you don't, for instance, finish a job for a client, the surety bonding company will compensate him or her. Many companies require their contractors to carry surety bonds. To make it less expensive and safer for companies to insure you, the SBA's Surety Bond Guarantee program provides partial guarantees under which the SBA bears some of the cost that your bonder incurs when they pay off.

The professionals at The Tax Office Inc. have experience dealing with SBA programs. Contact us to learn how they and the SBA can help you with starting a business.

Avoid the Wrong IRS Determination

Author: Keith Huggett

In today's economy, many people are finding it difficult to survive with only one source of income. The business minded people often choose to start a business from something they love to do - putting a hobby to good use.  If this happens to be a choice you would like to explore, there are a few regulations you should know about.

What is a hobby business?

A hobby business is usually operated from home. Jewelry making, refinishing antiques, even quilting can be, and usually are, a hobby business.  Almost any hobby can be transformed into a "hobby business."

Proving that your hobby is a business...

Having a side (hobby) business allows you to deduct losses from this business activity on your tax return. The issue here is that these deductions can only be made for a bona fide business. If the IRS decides that your business is actually a hobby, you wll lose the ability to claim these deductions.

So how do your prove to the IRS that you are actually running a business? It's simple, at least on paper.  Your business must be out to gain a profit.  The IRS uses several different criteria for deciding if your business is operating to gain a profit.  The one they use the most is called a "3 out of 5" test.  If your business made a profit in any three of the last five years, you are obviously working to gain a profit.

There are additional ways to prove your business is not just a hobby.  Having professional business cards and stationery, well maintained books, and separate bank accounts are only a few.  It is also helpful, and usually required, that you have a business license from your city.

Running a business is a very time consuming, high energy, work in progress.  As a business owner you will find yourself wearing many different hats.  Our specialists at The Tax Office, Inc., have received training to assist business owners like you to help you grow your business.  Should you have any questions regarding determining if your business is a hobby, please contact us for a free, no obligation consultation.

Get Into the Back-to-School MindSet

Author: Keith Huggett

The Back-to-school season is always an exciting time. You can feel it in the air…a time of new beginnings and opportunities. And while the kids are enjoying reconnecting with friends and teachers and the thrill of new school clothes, business owners can adopt their own form of back-to-school spirit to revitalize excitement around their business. Here are a few tips to help you get into this mindset…

• Establish new goals. If it’s all about new beginnings, then new business goals are in order. Successful business owners are always looking for ways to improve and face change with a positive attitude, so make it a point to set new goals for your business as you re-energize.
• Continue your education. As business owners, you are life-long learners…because there is always something new to learn. Enroll in an online class, register for informative webcasts, or get involved in other events that serve to advance your business education. By sharpening your skills, you will ultimately grow your business.
• Expand your network. Like the kids reconnecting with friends, you can take this time to reconnect with your community—both on the personal and business side. Join in on community projects and make a visit to your local Chamber of Commerce. You never know where you might pick up a new customer or referral source.
• Plan your next break. It can be very cathartic to plan a getaway…away from the busy life of the business owner. Identify a period when you can carve out some “me time,” even if it is a ways out. Then make sure you actually get away. Days off, even if only a few, can do wonders for reducing business stress.

You are now armed with some strategies to get into a “back-to-school” mindset and re-energize your business. You’d be surprised at the positive changes that can come from it.  Contact our office if you would like to discuss re-energizing your business.

When is the Right Time?

Author: Keith Huggett

There are two key things that business buyers think about, and keeping them in mind will help you make money when you are selling a business: If they see that they can make money buying your business and that they will have to do less work do it, they will pay more. 

Making more money

Most businesses sell at a multiple of their sales or a multiple of their profits. Increasing either will give you a higher selling price. One way to improve profitability is to focus on your expenses. Most businesses have room to cut expenses through great efficiency, rebidding vendor and supplier contracts and the like. If you do not have the time or perspective to do this, consider bringing in an outsider to help you.

While lowering expenses is the low hanging fruit of boosting values, you really need to increase sales when you are selling a business. First of all, increasing sales increases income, which boosts profit. If you do it in conjunction with lowering expenses, you will get a double push. Even more important than generating more income is the ability to show that your business is growing. When buyers look at a business and see growth, they will usually pay a slightly higher multiple since they know that an investment will pay off that much more quickly.

Making ownership easier

While selling a business is hard work, buying one is equally challenging. While preparing for the sale, get your business affairs in order so that the buyer can easily step in and have access to what they need to manage it. At the same time, find ways that you can step away from running the organization. When a buyer sees a business that runs without the seller's active involvement, they know that they can own it without needing to put in an inordinate amount of work. 

The Tax Office Inc. is ready to help if you are selling a business. Our team can help you find efficiencies, organize your books and prepare for a sale. Contact us to get started.

How You Can Avoid the IRS Hobby Determination

Author: Keith Huggett

When you are a successful business owner, the IRS is fully aware of it.  Being a successful business owner and starting a second business that does not perform as well as it should, tends to throw a red flag at the IRS, indicating that the second business is more of a hobby than a business. To be a "business" your goal must be to have a profit. If, year after year, you claim a loss in your second business, the IRS may take a closer look. Here are some tips for avoiding the Hobby classification:

1. Model your "hobby" after your primary business. If this isn't feasible, document why, and come up with a different strategy.
2. Create a new business entity for your "hobby" along with new business bank accounts.
3. Keep a log of the time and effort you spend working on the business aspects of your "hobby."
4. Have a written business plan.

While these tips may not always be enough to avoid the classification of a  "hobby" having good records may save you from tax penalties.  As always, if you are being contacted by the IRS, we suggest that you seek assistance from a professional tax preparer.

At the Tax Office, Inc., our Tax Professionals are available to answer any questions you may have on taxes, hobby businesses, business entities, or IRS audits. Please contact us with your questions.

Having a Clear Business Plan Will Lead to Achieving Goals

Author: Keith Huggett

Whether you're a one-man shop or a small business with several employees, setting business goals is necessary for success, especially in the first several years of operation. Knowing where you want your business to be, and how you plan to get there, can help you achieve success more quickly and instill confidence in employees, customers and other stakeholders.

Creating a comprehensive business plan can be intimidating, but it doesn't have to be. Set smaller, achievable objectives to make the process less overwhelming; you can create business goals in virtually any area:

• Operational: Improving efficiency can help you dramatically reduce overhead costs. Explore new tools and cloud-based resources to help you streamline operations. Start by analyzing the current time and costs associated with tasks such as bookkeeping, payroll, tax filing and other necessary business operations. How can you make these tasks more efficient? Consider outsourcing, especially if you are doing this work yourself. As a business owner, you should spend your time developing and implementing strategies for growth, not handling the mundane (but necessary) day-to-day tasks.

• Sales: For most businesses, this is the key metric that defines success. Set monthly or quarterly sales goals that include plans for growth. Work with your sales team to set goals that are both realistic and challenging. Your employees will thrive when they know what is expected of them, and everybody will benefit from the financial gains.

• Marketing: Increasing sales requires targeted marketing. Setting concrete business goals such as increasing website traffic, bringing strategic allies on board and expanding your social media presence are effective ways to keep marketing efforts on track.

• Financial: Set targets for both short and longer periods of time. When you set financial business goals, it's important to understand the steps and costs associated with getting there. Working with a qualified financial planner can help you set realistic goals that will result in profits.

The professionals at The Tax Office Inc. can help you create a solid financial plan that includes tax strategies and much more. We also offer online bookkeeping and other cloud-based services. Contact us today to schedule a consultation.

Is Your Business On Track?

Author: Keith Huggett

Many business people write a business plan, start a business and then put that business plan in the filing cabinet. If you are doing this, you're wasting your business' greatest asset. Your plan is more than a tool you use to get started. It's a living document that helps keep you accountable, guides you as you grow your business and provides you with inspiration as to how you can evolve your business.

Now that we are entering the fourth quarter, dig out your business plan. See how your company is doing relative to the goals found in your plan. If you haven't reached all of your goals, figure out why. This exercise will help you look at your business not from a day-to-day operational perspective, but by comparing it to the big-picture goals that you set when you wrote the plan.

If you're ahead of your goals, do the same thing. If you're ahead of your plan because of good luck or outside influences, you know that you may not be able to plan on that in the future. On the other hand, if your business is performing better than you have expected, figure out where and why, and use what you learn to focus your improvement efforts for the rest of your business. It may be time to expand into a new business structure.  The Tax Office, Inc. is presenting Destination: Incorporation, a seminar on the A-Z's of Incorporating your Business at the end of October.

Analyzing your business can also help you plan what you will need in the coming year. You might be able to shift capital expenditures or other expenses to better plan your cash flow or manage your tax liabilities. If your company needs additional help, you can also get started on recruiting new employees or contractors.

When you are done with the process, update your business plan. Your plan isn't set in stone -- it should represent where your business is and where it's going, and those things can, and should, change. For help updating your business plan, talk to the business and accounting experts at The Tax Office, Inc. Getting professional input can help you better ground your plan in your business' operating and accounting realities.

Solid Business Plan Critical for Success

Author: Keith Huggett

For many companies, growth comes with forming a business partnership. Combining forces with another individual or company that complements your strengths and weaknesses is an excellent way to expand quickly and with less capital. However, no matter what business path you decide to take, having a strong business plan in place is critical. Consider it a road map to success. A solid business plan will be helpful in not just enticing investors, but also for keeping your business running smoothly.

Your business plan should include the following components in a clear, concise document:

• Describe the marketplace gap that your company fills. Whether you offer an innovative product that no other company has, or simply provide an unparalleled customer service experience within your industry, the first step is defining the gap your company aims to fill.

• Explain how your company fills this gap. What product features or unique service offerings does your company provide that others do not?

• Define your market. It is important to fully understand the size of your industry and how your company fits into it. You should also describe your target customer in this section.

• Outline your business model. You are presumably in business to make money; your business model defines how you will do this effectively.

• Understand your competition. Who else sells a product or service similar to yours? What advantages do you have over them and are they sustainable?

• Describe your sales strategy. In real life, "If you build it, they will come" is not an effective marketing strategy. You need to know how you will generate new customers and promote sales growth from year to year.

• Have an exit strategy. Do you plan to form a business partnership, keep it in the family or sell to a competitor in five years?

If you need help with developing a new business, forming a business partnership or tax planning for your existing company, contact the professionals at The Tax Office, Inc. We can help you with the day-to-day tasks of bookkeeping and the bigger picture strategy issues that every business faces. Contact us today to learn more.