Could Your Business Survive a Disaster?

As business owners, we want to remain optimistic about our business’s future. But life can happen, and we need to be prepared. A good business owner thinks about all the risks to their business and has a plan in place to reduce or eliminate them. In 2017, we’ve already had floods in the Midwest and California, a healthy dose of tornadoes, and an ice storm earlier in the year. And those are just the weather disasters. Are you ready?

In 2015, Nationwide ran a survey that revealed that three out of four small business do not have a disaster plan. The same survey noted that 52 percent of small business owners thought it would take three months to recover from a disaster.

The most common solution is to create two plans:

A disaster recovery plan, which details the steps needed to recover the business from a catastrophic loss
A business continuity plan, which details the steps needed to keep the business running in case of a major loss, such as a loss of electricity, location, or key personnel

There’s a lot of help online to help you create your plan. A few of the major items that should be covered include:

Employee safety: you’ll need an evacuation plan in case of a disaster that is life- or health-threatening.
Communication plan: how will you reach employees in an emergency?
Electricity contingency: will you need to access a generator?
Internet contingency: can your business survive without the internet for long periods of time, or will you need to find a way to get connected?
Location contingency: if your worksite is inoperable, do employees have another place to report to?
Employee roles: who will carry out the plan?
Private data: how will you safeguard private company and customer data?
Systems: do you have an inventory of hardware and software, including vendor technical support contacts? How will you prioritize which system to get back up first? Do you have agreements with vendors who can come to your aid quickly?

Creating a disaster recovery plan can be the lowest priority item on your to-do list as a business owner – until it isn’t. If you have a lot to lose, then consider spending some time on a plan to give you peace of mind.

The Power of Influencer Marketing

One of the hottest buzzwords in marketing this year is influencer marketing. Influencer marketing uses key people in thought leadership positions to spread the word about your brand. These people may be paid or unpaid spokespersons for your brands, products, and services.

The profitable thing about influencer marketing is the leverage. Instead of marketing or selling to one person at a time, you are marketing to key leaders with followings who can influence many people at once.

Influencer marketing varies by industry; here are some common examples:

Locating photos of your product already on social media and reaching out to those people to do more
Hiring a social media expert with a large following to talk about your clothing line
Having a prominent lifestyle blogger post a photograph containing your juice product
Starting a referral program for a makeup company so “regular” women will spread the word

The common theme to all of the above examples is finding people who have a huge number of followers that just happen to be your ideal customers.

To take advantage of this marketing method, ask yourself who is influential in your industry that has the ear and respect of your customer base. How could you partner with them so it’s a win for you, them, and their following? You may or may not need to compensate them, depending on their revenue model.

There are plenty of apps to help you locate influencers relevant to you. A favorite is Ninja Outreach at ninjaoutreach.com.

Try reaching out to influencers to leverage your existing marketing and make your marketing dollars go farther.

What Is Reasonable Compensation?

For small businesses formed as an S Corporation and with plenty of profits, reasonable compensation is a term you may want to be familiar with.

Many small businesses have organized as an S Corporation form of entity. In many cases, the S Corp election allows a business owner to save money on self-employment taxes, especially if they are operating as a sole proprietor. S Corp profits, or distributions, are not subject to payroll taxes.

If you are a business owner taking a salary and contributing substantially to the operations of the business, you may think that you should just take the distributions and forget the salary. After all, think how much you would save in payroll taxes. But this has already been tried and shot down by the IRS in the courts. And this is where the term reasonable compensation comes in.

The IRS requires that business owners that perform a substantial contribution to the business be paid a salary according to a number of factors. This is called reasonable compensation. You can’t pay yourself below market and take a large amount in distributions.

The IRS has issued a fact sheet that describes the guidelines that can be used to determine reasonable compensation. They include employee training, experience, duties, time spent, history of distributions, bonuses, and many other factors.

There are also reasonable compensation ramifications for C Corporations as well.

If reasonable compensation is an issue or concern for your business, please feel free to reach out and let us know how we can help.

Five Numbers You Should Know About Your 2016 Performance

Before we get too far into 2017, let’s take a look back at 2016 results and five meaningful numbers you may want to discover about your business’s performance. To start, grab your 2016 income statement, or better yet, give us a call to help you compute and interpret your results.

Revenue per Employee

This number measures a company’s productivity with regard to its employees and is relevant and meaningful for all industries. If you have part-time employees, compute a full time equivalent total and use that as your denominator.

Compare this number to prior years to see if your company is getting more or less productive. Also compare this number to businesses in your same industry to see how your company compares to peer companies.

You may also want to compute other revenue calculations, such as revenue by geography, revenue by product line, or average sale: revenue by customer, if you feel these may be meaningful to your business.

Customer Acquisition Cost (CAC)

How much does it cost your business to acquire a new customer? That is the customer acquisition cost and is made up of marketing and selling costs, including marketing and selling labor. You’ll need the number of new customers acquired during 2016 in order to calculate this number.

Compare this number to prior years as well as industry peers. You can potentially do a lot to lower this number by boosting your marketing skills and implementing lower cost marketing channels.

Overhead Costs

Overhead costs are costs that are not directly attributable to producing or selling your products and services. They include items such as rent, telephone, insurance, legal expenses, and executive salaries. Although it’s not standard practice to break out overhead expenses from other expenses on an income statement, it’s valuable to know the numbers for performance purposes.

Compare your overhead costs to prior years and industry averages. You can actively manage your overhead cost by re-negotiating with vendors on a regular basis and trimming where it makes sense.

Profit Margins

Your profit margin can help you determine which division of your business is most profitable. If you sell more than one product or service, you can compute a gross or net margin by product or service. You can also compute margins by geography, sales rep, employee, customer, or any other meaningful segment of your business.

Your accounting system may be able to generate an income statement by division if everything has been coded correctly and overhead has been allocated appropriately. Reach out if you’d like us to help you with this.

Seeing which service or product is most profitable can help you decide if you want to try to refocus marketing efforts, change prices, discontinue items, fire employees, attract a different type of customer, or any number of other important decisions for your business.

Breakeven Point

Do you know how many units you need to sell in order to start generating a profit? If not, the breakeven calculation can help you learn this information. The formula is Fixed Costs / (Sales Price per Unit – Variable Costs per Unit) which results in the number of units you need to sell in order to “break even” or cover your overhead costs.

The breakeven point helps you plan the amount of volume you need in order to ensure that you have healthy profits and plenty of cash flow in your business.

These five numbers can help you interpret your business performance on a deeper level so you can make better decisions that will lead to increased success in your business. If we can help with any of them, please give us a call any time.

Understanding Payment Terms

If there is a period of time between when your customers receive your goods or services and when they pay for them, then several things are true:

You have a balance in Accounts Receivable on your balance sheet that represents how much customers owe you
You have an invoice process that you follow
You have granted credit to customers
You may have some that don’t pay as quickly as you’d like them to

Each invoice you send should have payment terms listed. A payment term is the period of time you expect the invoice to be paid by the customer. Your payment terms should be set by you, not your customers!

Payment terms are always measured from the invoice date and define when the payment should be received. Here are some common payment terms in accounting terminology, and then in English.

Net 30
Payment is due 30 days from the invoice date.

2/10 Net 30
Payment is due 30 days from the invoice date. If you pay the invoice in 10 days, you can take a 2% discount off the total amount of the invoice as an early pay discount incentive.

Due Upon Receipt
Payment is due immediately

If you use Net 30 or Due Upon Receipt, then you may want to change your terms to get paid faster. When people see Due Upon Receipt, sometimes they translate it into “I can take my time.” A more specific term spelled out such as Net 7 or Net 10 will actually get you your money faster than Due Upon Receipt.

Do you have issues with people paying you late? If so, you might want to set consequences. Consider adding a line on your invoice that provides interest charges if the payment is late. Utility companies do it, and so do many businesses. A common percentage to charge is 1% – 2%, however, some states have laws that limit you to 10% or another percentage.

The wording would be something like this:

“Accounts not paid within __ days of the date of the invoice are subject to a __% monthly finance charge.”

You will also need to make sure your accounting system can automatically compute these fees.

If you have questions about payment terms, your invoicing process, or your accounts receivable, please reach out.

Positive Pay

Positive Pay is a service offered by banks that is designed to reduce fraudulent check-cashing against your account. If you are writing checks on your bank account (as opposed to using ACH transactions), then the positive pay service, which usually has an extra charge, may be beneficial.

When you activate positive pay, you must send a file of checks that you have written to the bank. The bank will not cash those checks against your account unless they match by check number, dollar amount, and account number. Your file may also include the date of the check and sometimes the payee. Some banks are also able to match payee, but not all of them, so be sure to ask about this.

If there is a mismatch among checks presented for payment, the check will be treated as an exception item and your company will be notified. A representative of your company will let the bank know whether to pay or exclude the exception check.

Positive pay helps to deter a couple of types of fraud:

Checks where someone has changed the amount
Stolen blank check stock, even if you don’t know about it being stolen

Positive pay is not designed to prevent the type of fraud that occurs when checks are written to a ghost vendor and erroneously approved by management.

If you use positive pay, you should separate the file creation process from the person who actually writes and/or signs the checks. This will give you better internal control.

The main challenge with positive pay is making sure the bank receives the file of checks before they are presented for payment, including any manual checks written. Another issue is the extra cost, although some banks offer this service at no extra charge.

For companies worried about check fraud, consider looking into positive pay with your local bank.

Tax Time, Ready or Not

It’s always a huge relief to many people who get their taxes done early. That gray cloud of stress that nags at you to get it over with can be gone in a matter of weeks instead of months. April is right around the corner, and here are a few tips to cross that task off your to-do list way before spring.

1. Catch up on your books.

If your books are behind, the first step is to get everything recorded so that your tax return will be accurate. With automated bank feeds and data entry automation, this is easier than it’s ever been before. If you have cash transactions or receipts lying around that your accountant doesn’t know about, be sure and get those pulled together so nothing is left out.

2. Make year-end changes.

Some companies may need additional year-end adjustments, and now is the time to make them. These include items such as loan balances if the interest adjustment has not been booked every month, depreciation and amortization, accounts receivable write-offs, accrual vs. cash basis adjustments, and possibly clean-up work. Have you accountant help you with these items.

3. Double-check vendor documents.

If you hire contractors and sent them 1099s, make sure you have the proper onboarding documents for these individuals which includes a W-9. You may also want to have a workers compensation certificate from them in order to avoid paying it yourself.

4. Note deadlines.

Get clear on the deadlines for your corporate, franchise tax, individual and any other tax returns that are required. Even though you might hire someone to complete and file your return, you’ll want to make sure the deadline has been met.

5. Stay organized.

As you receive your 2016 tax documents, keep them all together in a special place. Download them or scan them in and keep them all in one folder. If your tax accountant has a client portal, upload them as soon as you get them.

Your tax accountant appreciates getting your information as early as possible. The sooner you get the documents to them, the sooner the whole process can be complete. Even if you owe money and want to file at the last minute, you can still be complete with the process except for the filing which can be deferred.

Try these tips to reduce tax stress this winter and spring. And, as always, if we can help you with any of this, please reach out.

The New I-9 Form

The I-9 form is used for employment eligibility when hiring new employees. It is one of many forms that need to be completed when you onboard a new employee.

Effective Tuesday, January 17, 2017, the new I-9 form, which is dated 11/14/2016, must be used. Here is a summary of the changes.

Section 1 asks for “other last names used” rather than “other names used,” and streamlines certification for certain foreign nationals.
The addition of prompts to ensure information is entered correctly.
The ability to enter multiple preparers and translators.
A dedicated area for including additional information rather than having to add it in the margins.
A supplemental page for the preparer/translator.

The instructions have been separated from the form and include specific instructions for completing each field.

The revised Form I-9 is also easier to complete on a computer. To check to see if you are using the correct I-9, check the form’s date, which should be 11/14/2016. If you are using the one dated 03/08/2013, you are using the old one and must switch to the new one.

You can get the new I-9 form here:
https://www.uscis.gov/i-9