Accounting & Finance

Business Owner's Guide to Profit Planning

Owner's Guide to Profit Planning

International BancardReal people with the right solutions that build relationships for life.

Whether your business serves 50 customers or 100,000 fans, International Bancard can help you grow by providing payment acceptance solutions, including credit and debit card processing, ACH, check, and gift cards. As a nationally recognized industry leader, businesses rely on International Bancard’s market insight, data security knowledge and client care to deliver exceptional service to more customers in more locations.

Uncertainty about Tax Law for 2011 Means Use Common Sense Approach to Planning

By Paul Hense, CPA

This may be the most difficult year-end planning tax advisors have ever experienced. It is fall and we still don’t know what the tax law will look like in 2011. The political parties are in a struggle over a fundamental concept of who best knows how to spend your money – you or them. It is fairly certain that taxes will rise for those making over $250,000 per year.

Predicting a political outcome is risky; Here are a two examples where last minute tax law decisions may affect your actions:

Due to the uncertainty of the tax rates for 2011, we may do a reversal of the normal process of delaying income and accelerating expenses. In a normal year, in order to defer taxes, it often makes sense to delay income and move expenses to an earlier year. If in the next few months it becomes apparent that taxes will be higher in 2011, you may want to reverse that process. There is nothing in the tax law that requires you maximize your taxes. The use of accelerated depreciation is an example of an option that moves expenses from one year to the next or vice versa. It is generally considered prudent to use expensing equipment to reduce current year tax liability. If small business loses the political battle and tax rates increase, it may be wise to take normal depreciation and use the remainder depreciation in future years offsetting the higher tax rate. Keep in touch with your accountant for developing strategies.

We have enjoyed a favorable treatment for capital gains over the past several years. We may continue to have a favorable treatment; but possibly not quite as favorable. Again we have to wait until politicians hash out their differences to see what the end result will yield. The most likely scenario is that the capital gains rate will increase – by how much, we do not know. You and your accountant need to be on top of the situation because you may want to accelerate the sale of a capital asset or a business to take advantage of the lower 2010 capital gains rate. This is not a sure thing. We cannot say for sure that capital gains rates will increase. However, if they do, you need to be prepared to make the proper moves to take advantage of the situation.

Even though this is an unusual year due to tax uncertainties in 2011 you still must do some basic year-end tax planning.

If you have a pension plan, you should review your documents and make sure that everyone who is eligible is included and make sure you do not include ineligible people. The tax benefits of a pension plan are obvious, but the cash flow issues can be a problem. You must remember when committing funds to pay a pension plan that those funds must be deposited by the mandated date. Different plans have different funding arrangements, but in all cases remember to have the funds available at the time they are due.

Consider your equipment needs for the coming year. Don’t buy assets you don’t need in order to take advantage of a tax deduction. If you’re going to need new equipment in the near future, sit down with your accountant and decide the best time to buy the equipment considering cash flow and section 179 write offs – also referred to as expensing. If cash and credit are tight, you may decide to lease as opposed to buy equipment. The tax advantages are not as good, but cash flow dictates decision-making as opposed to taxes. Make good business decisions, be profitable, and then figure out the tax consequences. Do remember however, that a reduction in your taxes can be part of providing the cash flow for the purchase of equipment. Do the math with your accountant.

We are in a difficult economy with an unstable tax system. With these two issues in mind, cash flow and tax planning can be in conflict. I have only touched on a couple issues as examples. It is advised that every small business owner do a complete checklist of year-end is

No Money

By Nathan Peck | MiBiz WEST MICHIGAN

SBA loans, small business lending rise on improving economic news  Today’s level of small business loan activity over a year ago is another tentative sign that business owners’ confidence in the recovery is growing.

For the first six months of its fiscal year, Small Business Administration 7(a) loans are up 84 percent over a year ago to $234 million, up $76.5 million over the same period in 2009. Lenders are freeing up capital, albeit cautiously, and using continued government subsidies to help offset risk, said Allen Cook, assistant district director for lender relations at the SBA’s office in Detroit.

“We are seeing all different forms of financing here — from an increase in startups, businesses still in the process of overcoming some problems that they have, to businesses needing growth capital. It is all across the board and across all industries,” Cook said. “This is a sign of lenders’ willingness to providing more lending. They are looking to increase their commercial loan activity and looking harder at using SBA loans because of the (uncertain) financial times.”

The increased lending activity adds positive momentum to what is a somewhat mixed economic picture in terms of consumer activity. Economic indicators of consumers’ confidence in the recovery were split in April: the University of Michigan’s index of consumer confidence fell from March, while the Consumer Board’s index showed an increase.
Adding further murkiness to the picture, the U.S. Commerce Department released statistics showing that consumer spending rose in the first quarter of 2010 by the largest amount in three years.

As lenders have gotten more cautious about commercial lending, borrowers are finding it difficult at times to find banks willing to lend. Cook said that banks have historically differed relatively little in their commercial lending practices. Not so today. As banks work to lessen their risk, some are not looking at any business less than two years old while others are talking to any eligible candidates who meet their coverage, credit and collateral requirements.

“Those that are lending to startups are still looking at startups very hard, but willing to look,” Cook said. “It is hard to decipher where the lender is — it takes some perseverance on the part of borrowers.”

The Michigan Certified Development Corp., a nonprofit corporation, has seen 504 activity pick up over the last six months as businesses look to take advantage of drops in real estate prices. The size of loans has decreased slightly, dropping to an average of $1.1 million in 2010 from $1.3 million a year ago. The MCDC completed 56 transactions in 2009, and has more than doubled that in the last six months, having completed 126 transactions through April, Kelly Hutchings, senior loan officer, told MiBiz.

“We’ve seen a significant increase in activity. The value of transactions have come down some because businesses are looking to preserve more of their working capital,” Hutchings said. “We are seeing businesses that are taking advantage of the real estate market and are buying a building rather than leasing. There is not a lot of interest in purchasing equipment at this point.”

Huntington Bank is using SBA loans to garner market share in the small business market. The Columbus, Ohio-based bank was the fifth most active lender for SBA 504 loans, completing loans in Michigan totaling $105 million over the last six months. That’s part of its larger strategy in pledging $4 billion for small business loans in the Midwest. Participating in SBA lending gives Huntington the ability to provide business loans at the margins of the traditional underwriting standards, said Craig Street, national director of SBA lending for Huntington.

“SBA extends your ability to take

MCDC Sees Opportunities Increasing for Small Business

By Nathan Peck | MiBiz MICHIGAN — What a difference a year makes.

While uncertainty exists among bankers over whether or not Congress will approve another extension of the 90-percent guarantee and waived fees for Section 504 loans, Jane Sherzer, president of Michigan Certified Development Corp., said the credit situation has improved markedly over a year ago.

The subsidies that were part of the American Recovery and Reinvestment Act of 2009 were able to kick-start small business lending, giving the organization an opportunity to gain market share, Sherzer said. The nonprofit corporation is certified by the U.S. Small Business Administration (SBA) to partner with banks to provide SBA 504 financing throughout the state. Through May 2010, the MCDC has completed $34.7 million in loans, compared to just $18 million for the same period a year ago.

Sherzer has worked in commercial banking in Michigan since the 1980s, and joined the MCDC in 2004. While the Michigan economy suffered a significant shock in 2008, the state has survived past recessions and will rebound, said Sherzer. Sherzer recently spoke with MiBiz about the growth in MCDC’s business and how investing in staffing late in 2008 is paying off today.

MiBiz: How did the MCDC respond to the recession?

Sherzer: We certainly benefited from the recovery act, and it subsidized most of the programs we administered. In the last year, we gained market share relative to our competition. The first half of 2009 was very slow, but looking at the second half of the year, we were on record pace. That pace has continued through the first five months of 2010. Overall, I am very happy with how our business has performed the last year and a half.

MiBiz: How did you gain market share?

Sherzer: We added two new loan officers to our staff late in 2008, at the peak of the cliff. We had nearly six months (of slow performance) after we added staff, and we were not seeing the results we wanted. Strategically, we felt we were doing the right thing. In our business it is really important to be present with our bankers. A lot of things are on their mind, and we felt it was very important to be with the bankers, in front of them. Putting people on the ground has been a successful strategy for us. We have many new opportunities for expanding. For us it was sticking our necks out with staffing at a difficult time, but we knew (the economy) would come back.

MiBiz: If the 90-percent guarantees and fee waivers are allowed to expire, what will be the impact on small business lending? Sherzer: Our loan officers are still really busy. All of them have three or four loans in our 30-day pipeline. Even without the fee subsidies, it is still a great loan program. Credit has eased somewhat in Michigan. There are still challenges that banks have to deal with. They are requiring higher equity injections into property transactions of 70 percent rather than 80 percent before. While I am concerned that as these loan queues start and stop there are some borrowers that are sensitive to this, the advantages are so great that even if the fees are not subsidized, it outweighs the increased fees.

Credit has eased. (Lending) is not where it was three years ago. It is not where it was a year ago either. We see banks are willing to lend to smaller businesses. Even though credit is still tight, banks still like the idea of the risk mitigation that the SBA brings.

MiBiz: What has you concerned for the rest of the year?

Sherzer: I am watching other legislation in Congress regarding the increased loan limits and allowing the refinancing of existing debt. Our national association has been lobbying to get that passed. It is something we’re hopeful will come to fruition. A lot of businesses that are facing renewals of existing loans are struggling

Retaining Clients: It Takes More Than You Think

By Kirk Squiers, owner of Central Michigan Graphics in Lansing. From SBAM’s member-only Focus on Small Business magazine.

With the proliferation of the Internet, the bad economy has made customers more price conscious. As a result, relationships and service have become the most important aspect of client retention. As the owner of a printing and sign company, I see the World Wide Web cutting into my business weekly. Just last week a customer said,” I can buy 500 business cards on the Internet for $10!” That’s great, but how does that help the Michigan economy?

Staying close to customers should be a number one priority in these rough times. Regular visits to your top ten clients and constant contact through e-mail, Facebook, Twitter, etc. is crucial to maintain top of mind awareness. One of the many ways that my small company stays close to our clients is through our Facebook page. Every time we do a new project, we take photos of it and put it on our home page. The comments we get are amazing; not to mention that it’s like the old adage of tell two people and they will tell two people and so on. A great aspect of social media for small businesses is that it allows you to reach a large group of people with minimal time and resources.

Another great vehicle for communicating with customers is through YouTube. My company has a full video presentation of a time lapse installation on a vehicle wrap on YouTube. And the best part is – YouTube is free!

As a small business owner, your day is filled wearing multiple hats. Social media helps you reduce time spent on marketing, sales and client retention. Facebook, Twitter and blogs are great ways to keep in contact throughout the year. Start using all the free services available on the Internet and you will see client retention surge. Customer loyalty cannot be bought, it must be earned!

Here’s some strategies that have worked for us:
  • Customer communication – be sure to keep in communication with your client base. Send them small thank you notes, birthday e-mails and company newsletters. Make sure you focus on the customer over your company and foremost, do what you say you will do! The recession presents some unique challenges to customer retention management. But the current climate also provides opportunity for small businesses that know how and when to act.
  • Listen for needs and wants. Figure out how can you make the customers life easier. Diversify your product line. We were once just a printer. Now we offer signs, banners and vehicle graphics. Find a niche that you can easily piggyback onto your current offerings.
  • As a current board member of SBAM, you will hear us talk about economic gardening in terms of nurturing relationships with successful businesses already here in Michigan. As a small business owner I am constantly cultivating and gardening my current client base. It is like taking care of a garden. Water and feed the customer with things you provide to help their business flourish. Weed out your competition consistently by paying attention to details and following through.
  • And here is the kicker. If you can’t do something, admit it! Your customers will respect your honesty. 

As we move into the next few years, Michigan-based small businesses will continue to face tough times economically. Continue to seek new business and spend even more time and energy with your top ten accounts. Make it a personal goal to speak in person or on the phone directly with the decision maker of each of those top ten clients at least once a month. You can surely make enough time to call or stop by three places a week. This will lock out your competition and reaffirm your concern for the business relationship. If you do the little things that create the “Wow” factor and y

Businesses are Not Launched Overnight, Nor Are They Sold Overnight

By Eric Seifert, a Senior Business Consultant with the Michigan Small Business & Technology Development Center. From SBAM’s member-only Focus on Small Business magazine.

A successful business is not created overnight or in a conference room some rainy afternoon. It takes years of strategic planning, long hours and usually the owner’s personal financial investment to launch and grow a new business. The whole process of launching a business could take years. As the economy recovers, and it is recovering, more business owners who spent that time developing and growing their businesses will consider selling their business.

Establish an Exit Plan
Similar to planning the start of a business, a well thought out exit plan will increase the possibility of a positive outcome. Ideally, a seller should begin preparing two to three years prior to putting the company on the market. According to Kevin Hirdes, Managing Partner of NuVescor Group, “With solid planning for a transition in place, the enterprise value of the entity being sold can increase substantially.” It’s much more expensive, disruptive and time-consuming to rush and prepare all the necessary information in a short period of time than it is to consistently compile the necessary records over a period of several years.

Timing Can be Crucial
Many business owners wait until their business is stagnating, or they are exhausted with running the business to decide to sell. They wait until the last minute to try and sell their business-which will not provide the results they want. The optimal time to sell is when a business is doing well. Business valuations are driven by cash flow, so stronger cash flow creates higher value. At times, some business owners have a tendency to disengage from the business prior to selling it. As a result, these businesses many times are sold at compressed values as the business owners passion has decreased for leading the business, and the performance of the business often times follows suit. In sports, the adage is to leave at the top of your game. It is the same with selling your business.

Position the Business for a Sale
Staging or positioning the business for sale can result in a higher price. This can include grooming a level of management and leadership that reduces the reliance of the business on the owner. Unless the buyer is already familiar with the industry, he may need to turn to someone for help running the business after the seller exits. From the buyer’s perspective, it’s better if the current owner is not important to the day-to-day operations and ultimate success of the business. A great management team enhances a firm’s value. Steven Tjapkes, attorney with Clark Hill, Grand Rapids, commented that key employees should be under contract prior to placing the business on the market. “The type of contract is critical – a personal services contract cannot be sold,” according to Tjapkes.

Not only is a succession plan important for the business owner, so too is the management of the customer concentration risks and other key concentrated relationships within the entity. Critical vendor, employee, and customer concentrations are common risks associated with a business. These concentrations should be mitigated well in advance of a sale.

Pricing is Critical
Without professional assistance, many business owners price their businesses based on emotion or hearsay rather than a solid valuation. Unrealistic seller expectations torpedo many transactions. Paul Jackson, a business attorney with Warner Norcross and Judd, believes that sellers lacking a clear understanding of their business’s value can be at the mercy of buyers. Professional valuation experts, accountants and experienced intermediaries [business brokers and merger & acquisition advisors] can
RSS
First56575859606162636465