To help you make sure you don’t miss any important 2019 deadlines, we’ve provided this summary of when various tax-related forms, payments and other actions are due. Please review the calendar and let us know if you have any questions about the deadlines or would like assistance in meeting them.
In the broadest sense, strategic planning comprises two primary tasks: establishing goals and achieving them. Many business owners would probably say the first part, coming up with objectives, is relatively easy. It’s that second part — accomplishing those goals — that can really challenge a company. The key to turning your strategic objectives into a reality is a solid implementation plan.
Start with people
After clearly identifying short- and long-range goals under a viable strategic planning process, you need to establish a formal plan for carrying it out. The most important aspect of this plan is getting the right people involved.
First, appoint an implementation leader and give him or her the authority, responsibility and accountability to communicate and champion your stated objectives. (If yours is a smaller business, you could oversee implementation yourself.)
Next, establish teams of carefully selected employees with specific duties and timelines under which to complete goal-related projects. Choose employees with the experience, will and energy to implement the plan. These teams should deliver regular progress reports to you and the implementation leader.
Watch out for roadblocks
On the surface, these steps may seem logical and foolproof. But let’s delve into what could go wrong with such a clearly defined process.
One typical problem arises when an implementation team is composed of employees wholly or largely from one department. Often, they’ll (inadvertently or intentionally) execute an objective in such a way that mostly benefits their department but ultimately hinders the company from meeting the intended goal.
To avoid this, create teams with a diversity of employees from across various departments. For example, an objective related to expanding your company’s customer base will naturally need to include members of the sales and marketing departments. But also invite administrative, production and IT staff to ensure the team’s actions are operationally practical and sustainable.
Another common roadblock is running into money problems. Ensure your implementation plan is feasible based on your company’s budget, revenue projections, and local and national economic forecasts. Ask teams to include expense reports and financial projections in their regular reports. If you determine that you can’t (or shouldn’t) implement the plan as written, don’t hesitate to revise or eliminate some goals.
Succeed at the important part
Strategic planning may seem to be “all about the ideas,” but implementing the specific goals related to your strategic plan is really the most important part of the process. Of course, it’s also the most difficult and most affected by outside forces. We can help you assess the financial feasibility of your objectives and design an implementation plan with the highest odds of success.
© 2019
As an individual, you’ve no doubt been urged to regularly check your credit score. Most people nowadays know that, with a sub-par personal credit score, they’ll have trouble buying a home or car, or just getting a reasonable-rate credit card.
But how about your business credit score? It’s important for much the same reason — you’ll have difficulty obtaining financing or procuring the assets you need to operate competitively without a solid score. So, you’ve got to be vigilant about it.
Algorithms and data
Business credit scores come from various reporting agencies, such as Experian, Equifax and Dun & Bradstreet. Each agency has its own algorithm for calculating credit scores. Like personal credit scores, higher business credit scores equate with lower risk (and vice versa).
Credit agencies track your business by its employer identification number (EIN). They compile data from your EIN, including the company’s address, phone number, owners’ names and industry classification code. Agencies may also search the Internet and public records for bankruptcies, judgments and tax liens. Suppliers, landlords, leasing companies and other creditors may also report payment experiences with the company to credit agencies.
Important factors
Timely bill payment is the biggest factor affecting your business credit score. But other important ones include:
Level of success. Higher net worth or annual revenues generally increase your credit score.
Structure. Corporations and limited liability companies tend to receive higher scores than sole proprietorship’s and partnerships because these entities’ financial identities are separate from those of their owners.
Industry. Some agencies keep track of the percentage of companies under the company’s industry classification code that have filed for bankruptcy. Participation in high-risk industries tends to lower a business credit score.
Track record. Credit agencies also look at the length and frequency of your company’s credit history. Once you establish credit, your business should periodically borrow additional money and then repay it on time to avoid the risk of being downgraded.
Best practices
Business credit scores help lenders decide whether to approve your loan request, as well as the loan’s interest rate, duration and other terms. Unfortunately, some small businesses and start-ups may have little to no credit history.
Build your company’s credit history by applying for a company credit card and paying the balance off each month. Also put utilities and leases in your company’s name, so the business is on the radar of the credit reporting agencies.
Sometimes, credit agencies base their ratings on incomplete, false or outdated information. Monitor your credit score regularly and note any downgrades. In some cases, the agency may be willing to change your score if you contact them and successfully prove that a rating is inaccurate.
Central role
Maintaining a healthy business credit score should play a central role in how you manage your company’s finances. Contact us for help in using credit to help maintain your cash flow and build the bottom line.
© 2019
As the old saying goes, “Knowledge is power.” This certainly rings true in business, as those who best understand their industries and markets tend to have a knack for staying on top. If that person is a company’s owner, however, great knowledge can turn into a vulnerability when he or she decides to retire or otherwise leave the business.
As you develop your succession plan, consider how to mitigate the loss of pure know-how that will occur when you step down. One way to tackle this risk is to implement a knowledge management strategy.
Two types of knowledge
Knowledge management is a formal process of recognizing and treating knowledge as an asset that your company can identify, maintain and share. Generally, a business can subdivide knowledge into two types:
1. Explicit knowledge. This exists in the tangible world and typically includes company reports, financial statements and databases. These items are usually easy to access, extrapolate from and append. For your succession plan, however, you may need to dig deeper into your own confidential files, memos or emails.
2. Tacit knowledge. This is information that resides solely between the ears of a business’s leadership, employees and perhaps even service providers. As such, it’s not easily retrievable. In terms of succession planning, this may be the stuff that you haven’t written down or even talked about much.
Typical categories
Typical knowledge management categories include:
In addition, knowledge management should account for your company’s intellectual property —trade secrets, for example. Many business owners keep such details close to their vests and even managers may not know the full value of the company’s intellectual property. This could put your business at risk following your departure.
A comprehensive knowledge management effort related to your succession plan will call on you to undertake a full inventory of every category listed above and perhaps others. Gathering your explicit knowledge may entail compiling years’, even decades’, worth of documents, files and writings. This may not be an easy task, but it’s still a matter of straight research.
You’ll likely find capturing your tacit knowledge somewhat more challenging. One idea is to ask a suitable employee or engage an outside consultant to interview you regarding all the pertinent categories. Many business owners find these conversations arduous at first but eventually enlightening and enjoyable.
A legacy preserved
A solid succession plan is imperative to maintaining the future stability and success of your company. Knowledge management can strengthen that plan and help preserve the legacy you’ve worked so hard to build. Contact us for further information and for help identifying knowledge related to your tax filings, accounting methods and other financial matters.
© 2019
Despite the government shutdown the IRS has announced they will begin to process tax returns beginning January 28,2019 and provide refunds to taxpayers as scheduled. Currently, the IRS is working with a reduced staff but has recently communicated that they will be recalling a significant portion of its workforce. Taxpayers and tax professionals will be facing reduced services, such as certain transcript requests and general telephone assistance.
The 2018 tax year is the first year impacted by the Tax Cuts and Jobs Act, which is the most significant change to the income tax code in thirty years. The new law not only changed a large amount of tax forms but also introduced new concepts and computations.
Despite the shutdown tax deadlines remain unchanged. Fourth quarter estimated taxes are still due on January 15, 2019. The filing deadline to submit 2018 tax returns is Monday, April 15, 2019.
We will continue to prepare income tax returns as normal with the anticipation of releasing returns for e-filing as soon as possible. If you have any questions, please feel free to contact us.
Tax planning is a year-round activity, but there are still some year-end strategies you can use to lower your 2018 tax bill. Here are six last-minute tax moves business owners should consider:
Most of these strategies are subject to various limitations and restrictions beyond what we’ve covered here, so please consult us before you implement them. We can also offer more ideas for reducing your taxes this year and next.
© 2018
If your estate includes forms of intellectual property (IP), such as patents and copyrights, it’s important to know how to address them in your estate plan. Although these intangible assets can have great value, in many ways they’re treated differently from other property types.
2 estate planning questions
For estate planning purposes, IP raises two important questions: 1) What’s it worth? and 2) How should it be transferred? Valuing IP is a complex process, so it’s best to obtain an appraisal from an experienced professional.
After you know the IP’s value, it’s time to decide whether to transfer the IP to family members, colleagues, charities or others through lifetime gifts or through bequests after your death. The gift and estate tax consequences will affect your decision, but also consider your income needs, as well as who’s in the best position to monitor your IP rights and take advantage of their benefits.
If you’ll continue to depend on the IP for your livelihood, for example, hold on to it at least until you’re ready to retire or you no longer need the income. You also might want to retain ownership if you feel that your children or other transferees lack the desire or wherewithal to exploit its economic potential and protect it against infringers.
Achieving your objectives
Whichever strategy you choose, it’s important to plan the transaction carefully to ensure that your objectives are achieved. There’s a common misconception that, when you transfer ownership of the tangible medium on which IP is recorded, you also transfer the IP rights. But IP rights are separate from the work itself and are retained by the creator — even if the work is sold or given away.
Suppose, for example, that you leave to your child a film, painting or written manuscript. Unless your estate plan specifically transfers the copyright to your child as well, the copyright may pass as part of your residuary estate and end up in the hands of someone else.
Revise your plan accordingly
If you own patents or copyrights, you probably have great interest in who’ll take possession of your work after you’re gone. Addressing IP in your estate plan can give you peace of mind that your wishes will be carried out, but the law surrounding such property can be complex. Discuss your options with us.
© 2018
Business owners are constantly bombarded with terminology and buzzwords. Although you probably feel a need to keep up with the latest trends, you also may find that many of these ideas induce more anxiety than relief. One example is change management.
This term is used to describe the philosophies and processes an organization uses to manage change. Putting change management into practice in your company may seem scary. What is our philosophy toward change? How should we implement change for best results? Can’t we just avoid all this and let the chips fall where they may?
About that last question — yes, you could. But businesses that proactively manage change tend to suffer far fewer negative consequences from business transformations large and small. Here are some ways to implement change management slowly and, in doing so, make it a little less scary.
Set the tone
When a company creates a positive culture, change is easier. Engaged, well-supported employees feel connected to your mission and are more likely to buy in to transformative ideas. So, the best place to start laying the foundation for successful change management is in the HR department.
When hiring, look for candidates who are open to new ideas and flexible in their approaches to a position. As you “on board” new employees, talk about the latest developments at your company and the possibility of future transformation. From there, encourage openness to change in performance reviews.
Strive for solutions
The most obvious time to seek change is when something goes wrong. Unfortunately, this is also when a company can turn on itself. Fingers start pointing and the possibility of positive change begins to drift further and further away as conflicts play out.
Among the core principles of change management is to view every problem as an opportunity to grow. When you’ve formally discussed this concept among your managers and introduced it to your employees, you’ll be in a better position to avoid a destructive reaction to setbacks and, instead, use them to improve your organization.
Change from the top down
It’s not uncommon for business owners to implement change via a “bottom-up” approach. Doing so involves ordering lower-level employees to modify how they do something and then growing frustrated when resistance arises.
For this reason, another important principle of change management is transforming a business from the top down. Every change, no matter how big or small, needs to originate with leadership and then gradually move downward through the organizational chart through effective communication.
Get started
As the cliché goes, change is scary — and change management can be even more so. But many of the principles of the concept are likely familiar to you. In fact, your company may already be doing a variety of things to make change management far less daunting. Contact us to discuss this and other business-improvement ideas.
© 2018
How efficient is your not-for-profit? Even tightly run organizations can use some improvement — particularly in the accounting area. Adopting the following six tips can help improve timeliness and accuracy.
1. Set cutoff policies. Create policies for the monthly cutoff of invoicing and recording expenses — and adhere to them. For example, require all invoices to be submitted to the accounting department by the end of each month. Too many adjustments — or waiting for different employees or departments to turn in invoices and expense reports — waste time and can delay the production of financial statements.
2. Reconcile accounts monthly. You may be able to save considerable time at the end of the year by reconciling your bank accounts shortly after the end of each month. It’s easier to correct errors when you catch them early. Also reconcile accounts payable and accounts receivable data to your statements of financial position.
3. Batch items to process. Don’t enter only one invoice or cut only one check at a time. Set aside a block of time to do the job when you have multiple items to process. Some organizations process payments only once or twice a month. If you make your schedule available to everyone, fewer “emergency” checks and deposits will surface.
4. Insist on oversight. Make sure that the individual or group that’s responsible for financial oversight (for example, your CFO, treasurer or finance committee) reviews monthly bank statements, financial statements and accounting entries for obvious errors or unexpected amounts. The value of such reviews increases when they’re performed right after each monthly reporting period ends.
5. Exploit your software’s potential. Many organizations underuse the accounting software package they’ve purchased because they haven’t learned its full functionality. If needed, hire a trainer to review the software’s basic functions with staff and teach time-saving shortcuts.
6. Review your processes. Accounting systems can become inefficient over time if they aren’t monitored. Look for labor-intensive steps that could be automated or steps that don’t add value and could be eliminated. Often, for example, steps are duplicated by two different employees or the process is slowed down by “handing off” part of a project.
Contact us. We can help review your accounting function for ways to improve efficiency.
© 2018
You’ve spent years building your company and now are ready to move on to something else, whether launching a new business, taking advantage of another career opportunity or retiring. Whatever your plans, you want to get the return from your business that you’ve earned from all of the time and money you’ve put into it.
That means not only getting a good price, but also minimizing the tax hit on the proceeds. One option that can help you defer tax and perhaps even reduce it is an installment sale.
Tax benefits
With an installment sale, you don’t receive a lump sum payment when the deal closes. Instead, you receive installment payments over a period of time, spreading the gain over a number of years.
This generally defers tax, because you pay most of the tax liability as you receive the payments. Usually tax deferral is beneficial, but it could be especially beneficial if it would allow you to stay under the thresholds for triggering the 3.8% net investment income tax (NIIT) or the 20% long-term capital gains rate.
For 2018, taxpayers with modified adjusted gross income (MAGI) over $200,000 per year ($250,000 for married filing jointly and $125,000 for married filing separately) will owe NIIT on some or all of their investment income. And the 20% long-term capital gains rate kicks in when 2018 taxable income exceeds $425,800 for singles, $452,400 for heads of households and $479,000 for joint filers (half that for separate filers).
Other benefits
An installment sale also might help you close a deal or get a better price for your business. For instance, an installment sale might appeal to a buyer that lacks sufficient cash to pay the price you’re looking for in a lump sum.
Or a buyer might be concerned about the ongoing success of your business without you at the helm or because of changing market or other economic factors. An installment sale that includes a contingent amount based on the business’s performance might be the solution.
Tax risks
An installment sale isn’t without tax risk for sellers. For example, depreciation recapture must be reported as gain in the year of sale, no matter how much cash you receive. So you could owe tax that year without receiving enough cash proceeds from the sale to pay the tax. If depreciation recapture is an issue, be sure you have cash from another source to pay the tax.
It’s also important to keep in mind that, if tax rates increase, the overall tax could end up being more. With tax rates currently quite low historically, there might be a greater chance that they could rise in the future. Weigh this risk carefully against the potential benefits of an installment sale.
Pluses and minuses
As you can see, installment sales have both pluses and minuses. To determine whether one is right for you and your business — and find out about other tax-smart options — please contact us.
© 2018
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