STARTING A BUSINESS? HERE’S YOUR TO-DO LIST
There is an almost endless list of things to do when you start a new business. Here is a brief list of some of the most important ones:
*Write a business plan.
*Consider location issues.
*Decide on the legal form of entity for the business.
*Get necessary licenses.
*Register with tax authorities.
*Involve your advisors.
Business plan. Your business plan will be useful to you and to lenders. It should present who will own the business and what the legal entity will be. It should identify your qualifications to run this type of business. You should identity your market, the products or services you will sell, and how you intend to advertise to prospective customers. The business plan should spell out the funds needed for start-up and the source of those funds.
The plan should contain projected financial statements for the first couple of years. It should also address any insurance requirements and possible lease agreements. The business plan should be lengthy enough to cover the necessary items but brief enough to serve as an operating guide. It should be referred to on a regular basis and adjusted as needed.
Location. Where you locate may be one of your most important decisions. If your business will be online sales, you could operate out of your garage. But if you intend for customers to visit your establishment, it must be located in suitable surroundings. Does the general area tie into your product/service line? Is access or parking an issue? Do the other businesses in the area compliment yours; do they have similar clientele?
Legal form. Under what legal form of business do you want to operate? Should you incorporate, operate as an LLC, a partnership, or sole proprietorship? It is imperative that you discuss these options with your accountant and attorney early in the business planning stage. There are very valid tax and non-tax reasons for selecting a given entity.
Licenses. Your accountant and attorney can also assist you with applying for the necessary permits and licenses. This should be done early on to avoid possible delays.
Taxes. Your accountant will see that you have the proper registration with taxing and filing authorities such as the IRS, the state agencies for tax filings, and worker’s insurance if you have employees.
Advisors. You should run your business ideas past your business advisors before you make sizable financial commitments. Who are your advisors? You will have an ongoing need for a banker, an insurance agent, an attorney, and an accountant. You will benefit by involving them early and frequently.
If you have questions about operating your business, please contact us. We are here to assist you.
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DO A YEAR-END BUSINESS REVIEW
Business owners and managers spend most of their time monitoring operations and dealing with everyday problems. But just as an annual checkup from your physician helps to monitor and manage your personal health, an annual checkup can do the same for your business. The benefits of such a review are holding your company accountable and evaluating current performance to better plan and execute future operations. Here are seven things that you should make time to do every year. These are important for your longer-term business health and personal success.
1. Review your business insurance coverage. Don’t just automatically write a check to renew your insurance policies when they come due. Instead, you should sit down with your insurance agent every year. Review your business operations, focusing on any changes. Discuss types of risk that could arise. Ask about new developments in business insurance. Use your agent’s expertise to identify risk areas and suggest suitable coverage.
2. Review your business tax strategy. Consider adjusting taxable earnings for the year, perhaps by accelerating expenses or delaying income at year-end. (You may want to reverse that strategy this year if you think tax rates will actually increase in 2013.) If you’re a cash-basis taxpayer, you could boost 2012 deductions by declaring and paying bonuses in December rather than in early January. Also, you may be able to defer invoicing or make early purchases to reduce your 2012 tax bill.
Look into the “Section 179″ rule that allows you to take an immediate tax deduction for most purchases of business furniture and equipment. By deducting the full cost immediately instead of depreciating it over several years, you’ll cut this year’s tax bill. For 2012, you can deduct up to $139,000 of qualifying purchases, subject to limits.
As your business grows, it’s always good to make sure you’re using the most appropriate form of business — whether it’s sole proprietor, S or C Corporation, LLC, or partnership.
Look for other tax breaks, such as specialized tax credits, that you might not be using to full advantage.
3. Survey your customers. An annual customer satisfaction survey is a great way to assess performance, obtain insight on potential new products or services, and to let your customers know how much you value their business.
4. Check the effectiveness of your marketing. Are your current methods and channels working well, or are you simply doing what you’ve always done?
5. Update succession planning for your business. Review your succession planning annually. You should have a specific plan for each key manager position, including yourself. Be prepared for a short-term absence or a permanent vacancy. Your plan might mean promoting from within or recruiting externally. An up-to-date plan can be invaluable if you have an unexpected vacancy.
6. Review your business banking relationships. Annually, you should go over your cash balances and banking relationships with your controller, CFO, or accountant. Then both of you should meet with your banker. Ask about new products or services that could help your company. Address any service concerns or problems you might have had. Look for ways to reduce idle cash, boost interest earned, and improve cash flows.
7. Review and update your personal estate planning. If you’re a business owner, your company is likely to be a significant part of your estate. A good estate plan is essential if you hope to pass the business on to your heirs. Your company, your personal circumstances, and the tax laws are continually changing. You should take time each year to make sure your plans are current.
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ANALYZE YOUR CUSTOMERS FOR A BETTER BUSINESS
If your business is like most, you put a lot of effort into attracting new customers. After all, that’s an essential part of growing the business. But sometimes it’s more productive to step back and review your existing customers, and perhaps even get rid of a few.
You might be surprised at what you find if you take the time to analyze your customers. Start by listing customers in order of sales. Then make your best estimate about the cost of those sales. For example, you might give volume price breaks to your biggest customers that make them less profitable than smaller customers. But don’t just look at the cost of sales. Ask your sales staff, your customer service staff, and your accounting staff to assign a simple grade to your customers (e.g., A, B, C, D, or F). This will give you a relative measure of how much time and effort each customer requires.
Once you have profitability and customer care information, you can begin to rank your customers in groups from best to worst. The “best” are easy. They’re the customers you should make a special effort to appreciate and retain.
You have several options for the “worst” group. With some customers, you might want to change your pricing structure to charge them for the excessive costs and attention they require. With others, you might want to sit down and address specific problem areas. Sometimes just making customers aware of problems can produce positive joint solutions.
In some cases, the only solution is to part ways. Do this gracefully, without creating unnecessary ill will that can come back to haunt you. If possible, find a plausible business reason to support your action. But if necessary, be blunt and tell the customer that you’re cutting back to provide better service to your top customers. Suggest alternative suppliers they might contact to fill their needs.
Eliminating customers may be counter-intuitive, but it can work wonders for your bottom line and your staff’s morale.
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TIPS FOR CUTTING COSTS IN YOUR BUSINESS
Keeping costs under control is crucial in today’s challenging business environment. Without a doubt, one of the quickest ways for a business to cut costs is through staff reduction. But cutting jobs is not always the best cost-cutting strategy. Drastic job cuts can lead to a vicious cycle of reduced productivity, followed by even slower growth and decreased profitability. Replacing skilled workers when times improve may be difficult, leaving your company to struggle longer still.
Here are some alternative cost-control strategies that companies could consider.
* Look at the cost of your office or plant. If the company owns expensive office space, consider moving to a less costly location that will not mean losing clients or business. If a move is out of the question, consider sharing office space with a compatible company. What you save in shared operating costs goes directly to the bottom line (after taxes, of course).
* Consider sale-leaseback arrangements, which enable the company to generate funds for operations and transfer the burden of ownership to the buyer from whom you rent back the office space.
* Review the cost of supplies and inventory. Analyze the cost of materials and supplies. Are you stocking too much material too far in advance? Can you arrange to have products shipped directly to customers by your suppliers?
Periodically conduct a competitive review of suppliers, and select those who can deliver good quality and service at the lowest cost possible. Also, you may not have to pay full price; inquire about volume discounts.
* Outsource some processes. Consider outsourcing certain activities that either consume a great deal of time and resources or are prone to errors. For example, you may be able to have payroll processing done by a vendor at a fraction of the current cost to you.
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ACT SOON TO CUT YOUR 2012 TAXES
Time is running out to make tax-saving moves for 2012. Here’s a sampling of ideas to consider.
* Maximize the contributions to your employer’s tax-deferred retirement savings plan, thereby saving taxes immediately and deferring taxes on earnings in your account. Also don’t overlook an IRA contribution if you qualify.
* If you’ve held appreciated stock for more than one year, consider donating those shares to charity rather than making cash donations. You’ll avoid paying taxes on the stock’s appreciation, but can generally claim the full fair market value of the stock as a charitable deduction.
* Adjust your withholding. Increase the income tax withheld from your paycheck through year-end to cover extra amounts due from Roth conversions or other taxable income increases in order to avoid underpayment penalties. Alternatively, reducing your withholding to account for an overpayment puts money in your pocket now, instead of next year when you file your return.
* Schedule charitable contributions. Cash and checks mailed by year-end count as 2012 deductions, as do credit card charges you make by December 31. Donations of appreciated securities are deductible when you relinquish control. Allow extra time for stock transfers handled by your broker or a mutual fund company.
* Make family gifts. For 2012, the annual amount you can give away to any individual, free of gift tax, is $13,000 ($26,000 when you’re married and make the gift with your spouse).
* Plan for elective health care expenses. Use up the balance in your flexible spending account (FSA) by year-end, and figure out how much you’ll contribute in 2013. No FSA? You still have time to set up a health savings account (HSA) and make a deductible contribution.
* Remember required minimum distributions. Failing to take a required distribution from your traditional IRA before year-end could cost you 50% of the amount you should have withdrawn.
These are just a few of the tax-cutting moves you should review.
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