If you are a business owner you probably have heard of the marketing funnel.  Picture a funnel which is wide at the top and then necks down to be very small at the bottom.  From a business prospective this means you would put all your potential customers into the funnel at the top and a few would fall out at the bottom and become customers. 

There is a growing segment of the business community that views the funnel as being flipped upside down where the smallest part of the funnel is at the top and the wide part is at the bottom.  The idea is we put our current customers in the top or top prospects and we take such good care of them and provide them ways to refer our business that in the end we have a lot of new customers at the wide end of the funnel.  Think about it if you actively engage in conversations with your current customers and take excellent care of them and let them know you are looking for new business they will more than likely help you obtain what you want.  Think about all the money that you spend in advertising trying to get a complete stranger to purchase your product service.  What was your new client acquisition cost last year defined as total spent on advertising divided by the total number of new clients.  If you had your existing clients working as your marketing department what do you think that number would be in 2012? 

Look for ways to encourage your existing clients to get the word out about your services.  With social media sites such as Facebook, Twitter, etc. it is easier than every for your customers to share their experiences with your business than every before.  During 2012 look for ways to "flip the funnel" to help drive up your company's profits. 

Knowing what you know now would you buy your own business?  This is a question every business owner should address before it is too late.  The sad reality is that most business owners never think about it until they want to get out of the business and then they realize all they own is a job and not a business.  I mean really would you want to buy a job?  Most people that have the resources to purchase a business could go get a job without buying one. 

I just meet with a new client last week who owned a business and was considering taking a job with a company in the same field as his business after six years in business.  As we began to discuss his situation it became clear what he owned was a job not a business.  We discussed the possibility of selling the business but there was nothing to sell.  The reality was that all the customers of the business were coming from contacts of the business owner there were no systems in place to generate new customers.  Would you buy a business that was solely dependent on the relationships of the previous owner?  Of course you wouldn't but yet that is what some many business owners are hoping for when they are ready to get out of the business. 

Additionally, the business owner didn't have any documentation on what he did on a day-to-day basis.  Of course when you are starting out in your business you are going to have to a lot of the technical work of the business.  What most business owners don't understand is they need to develop a system that can be put in place so someone else can do that technical work and allow the business owner to do the strategic work of the business. 

Let's pretend that you have a landscaping business and you have four hours of time that you can spend anyway you want.  A lot of business owners would spend that time working in the business on one of the landscaping jobs and make let's say $300.  Was that a profitable use of the business owner's time?  Most business owner's would say yes because they made $300 but I would say to them at what cost?  What if the business owner would have spent those four hours developing a scheduling system that would result in less travel time between jobs.  Think about how much that could potentially save the business over the next  12 months in travel time and fuel?  I am sure it would have been more than $300.  The business owner could have paid someone $60 dollars to perform the four hours of landscaping work that needed to be done and made a profit of $240 plus they could have saved thousands of dollars over the next several years because of the new scheduling system they developed. The business owner could have used those four hours to develop a new referral campaign that could generate thousands of dollars in referrals.  There is so much more to running a business than just doing the technical work the business does. 

Had my new client taken the time to work on his business and not just in his business he might have had something to sell.  Instead he closed his six year old business and all he had to show for it was W-2 income he paid himself over the six years which he could have had if had worked for someone else. 

A business can't grow if the owner only spends his time doing the technical work.  There are only so many hours in a day and only so many days in a year.  If you are already covered-up then how can you grow the business where is the extra time going to come from?  As a business owner you need to leverage your time to make the most of it.  Start thinking about how you can spend your time that will produce the largest return on investment. 

One of the first steps in starting a new business is deciding what type of entity to form, if any.  Business owners have number of different entity structures to select from when setting up a new business.  A few of the more common are listed below. 

• Sole Proprietor
• Partnership
• LLC
• S-Corp
• C-Corp

What most business owners don't know is by selecting the right entity structure they can reduce their tax burden around 15% on the profits of the company.  Think about that for a minute tax savings of 15% each year on the profits of the business for the life of the business.  The amazing thing is most business owners don't even seek out professional guidance when making this decision they just do what their buddy did when he or she setup their business.  

Before you setup the business meet with a qualified CPA and seek professional advice before you make the decision.  By paying a couple hundred dollars in fees you could save tens of thousands of dollars in taxes over the life of the business.  You will be in good shape if the rest of your investments in your business result in that type of return on the money spent.  

Many business owners mistakenly view the price paid for a service as the cost of the service.  The cost of the service runs much deeper than just the price paid.  

Let me give you an example of what I am talking about.  We meet with a business owner recently who we will call Bill.  Bill was not happy with the service his CPA was providing and was considering making a switch.  Bill did not feel the CPA was providing much needed financial and tax advice.  Bill said he was paying around $6,000 to the CPA for the services she was providing.  After discussing Bill's businesses we were able to make recommendations to save Bill around $25,000 in taxes.  In addition there was a real estate transaction that took place where with some creative tax planning capital gain rates of 15% could have been paid instead of Bill's marginal rate of 35%.  

We quoted a price of $18,000 per year for our services.  Bill brought up the fact that his current CPA was "only" charging him $6,000.  We explained to Bill the other CPA's services were actually costing him $31,000 a year (the $6,000 paid to the CPA and the $25,000 in additional taxes).  Professional services are much like anything else you get what you pay for.  

Had Bill been using our service he would have paid us $18,000 which would only cost him $11,700 after tax.  Bill would actually make $13,300 by using our service.  Bill would have realized tax savings of $25,000, which is dollar for dollar as there would be no taxes paid on the savings, less our after tax fee of $11,700.  

The moral of the story is you can't look at only the price paid for a service in determining if it is a good deal you have to look at the total cost.  We believe a good CPA firm can more than pay for themselves.  Our goal as a firm is to save our clients more money in taxes than they pay us in fees.  So how much is your CPA really costing you?

Meet with a new client today we will call David.  David owns a C-Corp that is in the retail industry.  During our discussion he mentioned that he and his wife and cut payroll checks to themselves in 2010 but didn't cash them because their wasn't enough money in the company bank account.  Between them they were holding nine checks with gross pay equaling over $20,000.  Given the fact the company was strapped for cash the last thing the company or the owners needed to do is incur more taxes.  Unfortantley for them that is exactly what happened.  When the company issued the paychecks that costs the company and the owners over $3,000 in employment taxes (FICA) which has to be paid regardless if the checks are cashed or not.  In addition federal and state withholding were taken out of the paychecks and had to be sent to the IRS and Oklahoma Tax Commission.  As a result the company had to pay out over $4,000 in taxes between FICA and federal and state withholdings.  A pretty tough blow for an already cash strapped business. 

If you are having trouble making ends mee in your business you need to go talk to your CPA.  There are a couple of reasons business owners don't meet with their CPAs:

• The business owner dosn't want to get billed for the CPA's time.  If David would have spent around $300 for a meeting with a CPA that billed by the hour the result would have been over $4000 in tax savings.  That is a pretty could return on $300.  Knowing that may business owners will not want to meet because of the costs involved we charge a flat fixed fee to our business owner clients to insure there is an open line of communication between our office and their office.  

• The CPA is too busy to meet with the business owner.  If this is the situation you find yourself in you need to find a new CPA.

The ecomomy is still pretty sluggish and small business can't afford to keep making mistakes with their money that could be prevented.  Give your CPA a call today and setup a meeting if they don't have time to talk about your business then give us a call at 405-759-2796 and we will meet with you. 

I met with a couple who we will call the Smith's this week who had a bought out their business partner in their business back in 2003.  The business was very small and the only asset was about $10,000 in cash or so they thought.  The company had a few customers but was still a part-time venture for the owners.  After paying $80,000 to buyout their business partner the Smith's quickly learned the business partner had lied about the cash in the bank so the Smith's paid $80,000 for a business that had very few customers and now they had no cash to kick start the business.  The end result the Smith's had to file both business and personal bankruptcy.  This completely wrecked their financial future as they still are having to live in a rent house as they can't get a loan to buy a house of their own. 

If you are thinking about buying a business be sure to do your due allegiance before you plunk down your money to buy a business. Don't feel uncomfortable asking some tough questions of the seller and requesting to see documentation of what you are buying. 

At the very least you should do the following;

• Review the balance sheet and verify that the assets on the balance sheet actually exist.
• Look over several years worth of income statements and balance sheets.
• Look for trends in the numbers.
• Get a customer list and research their best customers to be sure they are financially stable.
• Calculate the A/R turnover
• Be sure there is not one customer making up most of the sales because if that customer goes somewhere else then you are going to be in a world of hurt.
• If you are not able to get financial statements audited by a Certified Public Accountant then I would recommend you have the sellers request copies of their actual tax returns they filed with the IRS.  This may be the most important thing of all to do. 

If you decide you want to buy the business then you will need to negotiate the sales price and the asset allocation.  The asset allocation you will make has a big impact on the amount of tax you pay once you start operating the business. 

Buying a business is a big commitment and can change your life for better or worse.  If you are not experience in this process it is best to seek qualified help.  I am certain if the Smith's would have retained a CPA to guide them through the process and point out trouble signs this would not have happened. 

I ran across this article tonight regarding the top ten reasons why small businesses fail.  I have to say that I agree with each of the reasons the author provides.  Note reason number four is poor accounting records.  The author states “many business owners fall under this misconception that an outside CPA firm hired to do the tax return will keep watch over the business”.  There is no way a CPA firm is going to be able to look after someone’s business who brings in their books one time a year to make matters worse it is the CPA firms most hectic time of year. 

Businesses and markets which businesses operate in our changing monthly if not daily.  Our small business accounting packageallows us to operate as your part-time CFO.  We will meet with you each month and discuss your financial results and stratgic business ideas that will help your company improve its profitability. 

 For one thing, it is a common — and disastrous — misconception that an outside accounting firm hired primarily to do the taxes will keep watch over the business. In reality

In business cash is king so it is very important to have an understanding of where all your cash is going.  When you look at your profit and loss do ask yourself if I made that much money where is it?  Many business owners don’t realize what the profit and loss statement is telling them and what is worse they don’t realize what it is not telling them.

The profit and loss statement doesn’t reflect all the uses of cash.  For example, did you buy any fixed assets during the year?  If so they should have been recorded on the balance sheet and not the profit and loss statement.  Over time the asset purchased will be depreciated and that will show up as an expense on the profit and loss statement.

Another scenario of using cash that doesn’t appear on the profit and loss is loan payments.  When you make your loan payment the payment should be broken down into two pieces the principal repayment and the interest expense.  The former dosn’t show up on the profit and loss statement. 

Another factor could be that you are looking at accural based financial statements and comparing that to the cash you have in the bank.  Assume at the end of 2009 you had $20,000 in accounts payable assuming those payables were related to expenses they would be recorded on the profit and loss in 2009.  When you look at your profit and loss for 2010 you are not going to see that use of cash. 

So what should you look at to monitor your use of cash?  You should examine your Statement of Cash Flows.  This report shows all the cash that comes into a company and all the cash that goes out of a company.  The Statement of Cash Flows is made up of three categories:

• Cash flows from (used in) operating activities
• Cash flows from (used in) investing activities
• Cash flows from (used in) financing activities

Study your Statement of Cash Flows and post and be sure to post any comments or questions you have.

As 2010 comes to and end business need to start planning for 2011. You would not set out on a cross country trip without a map or GPS. If you don’t have a plan how can you get where you want to go? Small business should take a lesson from their older and larger cousins big businesses. Big companies have an extensive planning and budgeting process. The best way to stay a small business is act like a small business. If you want to grow your business you need to plan for growth. The planning process should consider the following items: 1. Financial strategy 2. Management strategy 3. Marketing strategy 4. People strategy If yu are not sure how to develop a plan consider hiring a business coach to walk you through the process. It is ironic how many people will hire a personal trainer to help them reach thier fitness goals but don’t hire a business coach to help them reach their business goals. Once you have developed your goals you can enter them in QuickBooks and track how the actual results compare to the goal. I encourage you to take the first step and start thinking about your goals for 2011.

Suppliers provide three types of benefits to their customers.

• Functional benefits – This relates the the physical nature or performance of a product.  Some examples include, the frame rate of a camera, the picture on an HD TV, or storage capacity on a MP3 player.  Functional benefits are often the only benefit considered because of the ease of measure against competing products.

• Process benefits – These benefits make the transaction between buyer and seller simpler, quicker and even more pleasant.  Apples ITunes store is a great example where customers can download music, books, movies, and TV shows and they sync automatically to various Apple devices. 

• Relationship benefits – These benefits are more softer in a nature and include relationship benefits such as a customer's emotional attachment to a brand or professional service provider.  Relationship benefits are also derived from loyalty reward programs, etc. 

To learn more about how to leverage these type of benefits for your company call our office today at 405-759-2796.