Strassel: Big Business Sells Out Small Business – WSJ.com


Here’s a great column from the WSJ about how Big Business has sold you out.

Strassel: Big Business Sells Out Small Business – WSJ.com.

I’ll have an update soon about how you can properly prepare your business for the fiscal cliff.

 

 

Why does my accountant take so long


Or cost so much.

Because:

  1. You never bring the information that I request.  Yes I need your W-2, 1099 and every other damned form you get;
  2. You want me to save to save you the most money.  Sometimes it takes meditation or a stroke of genius or a bottle of Jim Beam to find the deductions or planning that ordinary accountants miss;
  3. The price is already set and I’m a craftsman.  Do you think the Pope bugged Michelangelo while he painted?
  4. There’s a lot at stake.  Mess with the IRS?  Are you insane?
  5. I am really @#$?&! busy.  Working 16 hour days can wear a guy out.

My advice to any client, even if you are not enlightened enough to have me prepare your books and tax returns, is be prepared.  If you’ve been working with your accountant for more than one season, you should know what information is needed.  Ask questions in August not February.  Bring cookies or booze or Rolos when you come to see me.  And, realize that I’ve saved people and companies millions of dollars (seriously) in my career.  Sometimes it just takes a little longer to get it right.

 

Small Business 2013 – Saving Money Idea #3


Make better use of outsourcing.  Outsourcing and off-shoring have bad reputations perpetuated by folks who have no factual idea about either concept.  Outsourcing is simply delegating necessary tasks to people or companies outside of your business.  Off-shoring is buying goods or services from lower cost regions.  Yes, both concepts can cost people their jobs but your job/business should always be your priority.

Does it make sense for you to manage your books, build your website, create your own logo, etc?  You may need to perform a cost/benefit analysis to answer the question but generally speaking the answer is no.  Isn’t your time better spent with your customers or growing your business or innovating.

Here’s an example.  There’s a one person business in my building.  He is a craftsman who works 10+ hours a day building things with his hands.  Then he spends a few more hours at night and on weekends managing his books, filing tax returns and dealing with other paperwork.  Maybe he needs a break from actually being productive.  I’d like to think that his time would be better served making things that he can sell.  He can find a decent bookkeeper for $12/hour.  His tax returns would cost him less than $1,000 a year and he could probably get by at about $400 a year.  I’m discouraged to think that he couldn’t find the extra business or cost savings to pay for these services.

Look to outsource any activity that does not serve your customers or grow your business.  A short list includes:

  • accounting, taxes, and payroll
  • web design and maintenance
  • social media and blog maintenance
  • personal assistants
  • lead generation (maybe)
  • cleaning and maintenance, and
  • IT services

Some businesses have also begun to off-shore these tasks.  I watched a brilliant webinar where one business owner off-shored his personal assistant duties to the Philippines.  I don’t have personal experience with these services so I don’t want to endorse them just yet.  I get inundated with proposals to have firms in India prepare tax returns for me.  They aren’t cost effective yet for me but the idea is tempting.

The whole idea of outsourcing is based on old economic principles of scale and specialization.  If you find the right partners, you’ll definitely save time and money.

 

Small Business 2013 – Saving Money Idea #2


Occupancy is a fancy term for the cost of housing your business.  It can include rent, property taxes, utilities, depreciation, maintenance, janitorial and so on.  Rent is a major expense for most businesses.  If you don’t rent or own your business building, move on to the next post.  If you do rent or own your building, here are some ideas for saving money in 2013.

Yes, rent is always negotiable.  Even with a signed contract, you may be able to renegotiate your lease and rent expense.  Commercial vacancies are down in my area but there are still plenty of vacant offices and buildings.  Landlords don’t want to lose a good tenant.  You’ll need to have a valid argument for negotiating.  Remember that you never get what you don’t ask for.

Reduce capacity.  I keep downsizing my office in the same building.  I don’t need three offices and a private lobby any longer.  My first downsizing saved me $1,200 plus I negotiated to use the private restroom.  I’m aiming to save another $2,400 this year my reducing my space and using a shared lobby.  My landlord doesn’t mind because he can charge higher rents for my existing space and has trouble filling smaller spaces.  Every business should always look for ways to reduce the amount of space they use.  It can always be done.

Move.  There are plenty of opportunities out there.  Remember to calculate moving costs and additional marketing costs into any cost savings.

Share space.  Find complementary businesses to share space with you.  This takes patience but could save you some cash.

Fight the tax man.  Property taxes are crazy here.  If you own your space, think about challenging your assessment.  If you rent, have your landlord fight the assessment.  You might just get a break.

Shop around for lower prices on heat and electric.  If your business is a heavy user, you may find some sizable savings.

Next Post:  Hello, this is Raj from customer service.

Small Business 2013 – Money Saving Idea #1


I used to pay about $4,000 each year for telecommunications including internet.  I also purchased a phone system back in 2005 when I hired employees.  My telecommunication expenses were almost as much as my rent expense.  My first Money Saving Idea for 2013 is cutting telecommunication expenses.

Do you really need landlines for phones or faxes?  I cancelled by landlines and switched to Ooma for phone and Efax for faxes.  I needed to buy the Ooma hardware for $99 and ported my phone number for $20.  I pay $4 each month for the taxes on the service versus $60 per month for a landline.  In two months, I recouped by initial investment.  Efax costs $17 instead of $40 for an add on fax line.  You will also need a scanner to send documents through Efax but my office printer already had one.

I also have a mobile phone.  Wireless isn’t reliable enough in my area to only rely on my mobile phone.  But I was able to reduce my monthly expense by $20 by negotiating the service.

I cancelled by 1-800 toll-free number as most of my clients don’t have to pay extra to call me.

I negotiated my internet service down to $50 per month from $70 by saying that I was leaving.  Most internet providers will make a deal with you if you call them.  You can also look into sharing internet with neighbors.  It might not be ethical but it might be all you need.

So in 2012 I cut my telecommunications bill from $4,000 to about $1,700.  I think $1,700 is still astronomical but I know that I made better use of the $2,300 in savings.

Next Post:  Occupancy

 

Starting a Small Business – Crowdfunding


Quickly, Congress passed the JOBS Act this year with a provision allowing companies to solicit investments from “unsophisticated” investors.  Previously, solicitations could only be made to high net worth investors.  The provisions were to become effective on January 1, 2013 pending rules to be written by the SEC.

The SEC has not written the rules yet and probably won’t by January 1.  (I don’t know if that is a permanent link.)  This delays everyone and everything related to crowdfunding.  DISCLOSURE – I plan both selling crowdfunded investments and providing consulting to businesses wanting crowdfunding.  I believe it will help boost the economy.

PROS:  Small businesses requiring up to $1,000,000 in capital will have a new source for funds.  Owners can cash out of companies without having to sell their entire interest.  Ordinary investors can find new revenue streams and investment opportunities.

CONS:  There will probably be a lot of con-men involved in crowdfunding.  Most business ventures fail and ordinary investors may not be able to handle the failure and loss of investment.  Congress will probably overturn the law once some crying Grandma appears on 60 Minutes with a sob story about losing her life savings.

Obviously, I’m in support of the law.  I signed a petition here in support of it.  I live in a depressed area that could use a capital infusion.  I’m sure there are plenty of local businesses that would get a boost from crowdfunding.  There are also plenty of local investors looking for a better rate of return than CDs and Money Market accounts.  There will be plenty of hucksters (see .com bust and real estate bust).  More importantly, there are plenty of good businesses and good business ideas that will benefit from this law.

 

Right to Work for Starting a Small Business


This is not a political post.  As I’ve said before, unions are great, as long as you already have a job.  The recent change in Michigan to a right to work state will not hurt the private sector unions in the short-term and may help them in the long-term.  This is a decent description of right to work.  Basically, the law means that you don’t have to join a union to be eligible for a job.  Michigan’s economy could use a boost.  See ratings here.  They also have one of the highest unemployment rates in the country (right behind my beloved CT.)

Right to work protection will help Michigan attract more business investment.  Unions are one more hassle for a business to consider when choosing a location.  My personal experience with unions is mixed.  Some unions understand the need for flexibility while others shoot themselves in the foot, thigh and waist by being inflexible.  But, in general, capital tends to flow to businesses that aren’t unionized.    This means that investors will view Michigan’s business climate as more friendly.  Companies involved in the auto industry may consider relocating closer to their customers in Michigan.  Business may also move out of non-right to work states like Illinois and Ohio and into Michigan.  Indiana and Wisconsin have had some success in poaching businesses from Illinois.

Increased business in Michigan will be good for both union and non-union employees.  Union shops can stay union and continue to collectively bargain for wages, benefits, work rules, etc.  Non-union shops can start or expand without the threat of the additional time and expense of negotiating with unions.

The result will be measured by a decrease in the unemployment rate in Michigan and increase in its’ GDP.  As the law is effective on April 1, 2003, it may take until Spring 2015 to demonstrate any success or failure.

 

 

Starting a small business – Income Tax


I hate paying taxes.  I hate when my clients have to pay taxes.  I hate when my clients say, “I’m happy that I make enough money to have to pay taxes.”  You really shouldn’t be.  Imagine what you could do with the money if you didn’t have to pay it – give to charity, invest in your business, invest in anything, save for your kids, pass it on to your kids, etc.

If you own a business and it’s profitable, you will have to pay Federal, State and maybe local income taxes on the profit.  There is no way around it.  If you don’t, the government will find out and they will come after you.  There are basically three ways to report and pay income taxes on business income:

  1. as a corporation;
  2. as a pass-thru entity, and;
  3. as an individual.

The method depends on the legal and tax structure of your business.  The rates may be higher or lower for a corporation than the other two methods.  A pass-thru entity is a business that does pay the income tax.  Instead, it passes the income thru to your individual tax return and you pay taxes at the individual rates.

Pass-thru entities include partnerships and S corporations.  Your business is automatically a partnership if there is more than one owner.  S Corporation status is an election that your business makes.  It can be made for qualifying regular corporations, partnerships and single person LLCs.  A Limited Liability Company is a legal entity designed to give corporate legal protections to non-corporate entities.  My business is organized as a single person LLC.  LLC really has nothing to do with taxes unless you elect to be taxed as a C Corporation or S Corporation.

If your business is a C Corporation, the profits are taxes at the corporate level.  The corporation files a tax return and pays any tax due.  The owners do not include the corporate profits on their Form 1040.  They would only need to report dividend income if the corporation paid dividends.

If you are the sole owner of your business, you will report your revenue and expenses on Schedule C of your Form 1040.  The earnings are taxed at individual rates.  You are required to pay estimated taxes on a quarterly basis towards your income taxes from your business.

Selection of a tax entity usually makes sense once your business is profitable with annual net income over $40,000 or you have employees.  Otherwise, for the sake of simplicity, it is probably best to use the default tax entity based on your legal structure.