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.

The business owner was an electrician and had been in business for over 20 years and was in his 50's.  Additionally, he had not saved for retirement.  He didn't realize it but his largest asset was the client base that he had established over a 20 year time period. 

This business owner did not have any other employees he did all the work from electrical work to bookkeeping.  He never took a vacation because if he was not working the business was not making any money.  He simply owned a job and not a business.  In fact it was worse than a job because he never could take a vacation.

One day he had a heart attack he was very fortunate and survived the heart attack.  Little did he realize it at the time but his troubles were just beginning.  As he was unable to work for several weeks the business did not generate any revenue.  What was worse his business phone kept ringing and when he was unable to take care of his customers what do you think happened?  You guessed it they had to call someone else and there is a good chance he has lost a large percentage of his customer base. 

If you are a business owner in a similar situation give us a call at 405-759-2796 to discuss ways a similar result can be avoided.     

Pricing correctly is the quickest and most efficient way to grow profits.  The correct price will increase profits more quickly than just increasing the volume.  Consider the following example.

Fixed costs = $250,000

Variable costs = $6.5 per unit

Sales = $1,000,000

Volume = 100,000 units

The scenario above would result in a profit of $10,000

What would happen if you raised the price by 1%?  Sales would be $1,010,000 an increase of $10,000.  What would happen to variable costs they would remain constant ($650,000) because we just raised the price per unit and did have produce more units.  Fixed costs would also remain the same.  This would result in an increase in profit of $10,000 a 10% increase in profit. 

Now lets say increase the volume by 1%.  Your fixed costs would remain constant, however your total variable costs would go up to $656,500.  Sales would be $1,010,000 which equals the same price as raising the price by 1% and holding the volume steady.  By raising the volume by 1% you would increase your profits by $3,500 a 3.5% increase in profit. 

If you would like to explore how much selecting the pricing strategy would mean to your bottom line give us a call today at 405-759-2796. 

Advances in technology has brought about an increase in virtual organizations.  A virtual organization contracts out all activities except those in which it is superior.  This brings a network of independent companies together – each doing what it does best – acting together as if it were a virtually a single organization. The virtual organization model provides several key strategic business advantages.

• Allows adopting firms to concentrate on what they do best and outsource the rest.
• Provides flexibility of size.
• Allows firms to gain size without gaining critical mass.

While the virtual organization business model has many advantages there are a couple of disadvantages firms should consider before adopting this model.

• When working within a virtual organization you have to work very closely with other companies and you may have to share proprietary information.
• Since there are several other companies involved you will lose some control.

Key organizational design issues that need to be addressed as follows:

Partnering strategy – This delineates the company's role in the network of companies and determines the activities to own and perform and those to outsource.

External relationships – Once a company has decided its role in the network and which activities it will perform and which it will contract out, it needs to design process to coordinate the activities performed by third parties.

Partner selection – One of the most important things to do is to understand a potential partners strategic intentions.  The selection of a partner takes a lot of time and effort but is worth in the long run. 

Partnership structure – There are three main types of partnership structures commonly used today.

• Operator model
• Shared model
• Joint venture

Supporting policies – The ability to work with people from different organizational cultures is vital. 

If you would like to discuss if your organization can thrive as a virtual organization call our office for a consultation at 405-759-2796.

Are you currently using industry benchmarks to evaluate your company's performance?  Do you know if your cost of goods sold as a percentage of sales is worse than the industry average how about your operating margin?  Looking at how your company's financial results compare to other companies within your industry can help you see where your company is coming up short and where it is out performing the other companies in your industry.   We subscribe to three different industry data benchmarking services to provide our clients with the most up-to-date industry data available. 

Our industry data reports contain financial ratios,  common size financial statements, and industry recommendations.  Call our office today at 405-759-2796 to schedule a free 30 minute consultation where we will go over with you the industry data we have available for your industry.