Every small business owner should do a risk profile of the business.
Does the business deal in...
Necessities?
Nice but not necessary?
Luxuries?
Is the sales/service in an area....
sensitive to economic downturns?
neutral to economic downturns?
immune from economic downturns?
Is the sales/service....
Sensitive to supply chain disruptions?
Neutral to supply chain disruptions?
Immune to supply chain disruptions?
More to follow on the next post.
The national political environment is really crazy, and April 2nd has been announced for President Trump to highlight and impose his full tariff plan.
Economic projections are difficult, but there will be some sort of large economic impact, for better or worse.
Then, after the initial impacts, there will be international pluses and minuses with the probability of retaliation.
The last recession was the economic disaster of 2009. Many small business owners may have never been through a recession.
Follow the blog for advice on preparing for a possible recession.
Update: In 48 hours, on April 2nd, the Trump tariff war goes full tilt. We have no idea how this will work out. Trump promises "pain" in the short run.
The Trump administration has changed the composition of the National Labor Relations Board, and the Interim General Counsel has been busy rescinding previous operational standards, giving workers less rights and employers more power. This trend will continue when the board is fully staffed.
Workers will have a harder time prevailing.
REMEMBER:
Having the right to abuse and mistreat workers does not make it smart of abuse and mistreat workers.
Especially during the build up of a labor shortage.
Why are tax professionals; CPAs, Enrolled Agents and return preparers, so expensive?
For starters, a lot of education and experience are required.
Qualified employees are expensive to hire and retain.
Technology, the "tech stack" is very expensive to obtain and maintain.
Malpractice insurance is expense.
Continuing education is expensive.
Overhead is expensive.
And there is a shortage of high caliber talent, which raises the cost of employment.
There are cheaper alternatives, but cheap can be very expensive.
Notice and Disclaimer: This blog is designed to provide accurate and authoritative information for education purposes only. This blog is not an attempt to provide legal, accounting or financial planning advice, such advice should always be obtained from licensed, certified and/or qualified professionals.
Readers should be aware this is a dynamic area; professional advisors and reference sources should be consulted regularly for updates. Sources for state and local laws should be consulted when necessary.
A lot of advice, much of it bad advice, is circulating about putting your children on your payroll, paying them $X, and then putting the funds in a retirement account.
Much of this advice is bad advice.
IRS standards: REAL WORK FOR REAL WAGES
The work has to be legitimate and age appropriate, and the wages have to be market rate.
Can this be legit? Yes. Is there a lot of hot air and blue sky here? Yes.
Notice and Disclaimer: This blog is designed to provide accurate and authoritative information for education purposes only. This blog is not an attempt to provide legal, accounting or financial planning advice, such advice should always be obtained from licensed, certified and/or qualified professionals.
Readers should be aware this is a dynamic area; professional advisors and reference sources should be consulted regularly for updates. Sources for state and local laws should be consulted when necessary.
Proprietorship, Partnership, Limited Liability Company, C Corporation
What to do?
The answer is "It Depends."
Depends on the:
type of business
size of business you imagine
number of owners and capital structure
location of business
risk factors (liability protection)
tax consequences
middle and long-range plan
...and more
You should consult your 1) accountant and then 2) your lawyer before diving headfirst into a business entity.
I have heard business owners bragging that their accountant is "creative" with deductions.
That is of course, usually illegal. Subject to reversal at audit. Subject to criminal actions if large or frequent.
Nobody likes to pay taxes, but cheating on your taxes puts you in jeopardy.
"But I have been in business 25 years and never been audited."
Regular cheating for that reason is known as "audit roulette." Not legal.
PS: If you are going to cheat on your taxes do not brag about it on social media.
What is deductible?
Speaking of deductible expenses and bad advice, there is a lot of bad advice floating around about what is a business expense and how you can convert personal expenses into business expenses.
The IRS, as directed by Congress, has a lot of rules about what is a deductible business expense and under what circumstances the expenses are deductible. Also there are rules about how and what constitutes itemized deductions.
Your family vacation is probably not deductible, and you cannot hire your 6 year old as your Chief Financial Officer.
Listen to your tax professional - please.
Notice and Disclaimer: This blog is designed to provide accurate and authoritative information for education purposes only. This blog is not an attempt to provide legal, accounting or financial planning advice, such advice should always be obtained from licensed, certified and/or qualified professionals.
Readers should be aware this is a dynamic area; professional advisors and reference sources should be consulted regularly for updates. Sources for state and local laws should be consulted when necessary.
First steps.....
If your business is more than a hobby business or side gig, you need a professional team.
At a minimum you will need:
a lawyer with a lot of small business experience
an accountant (CPA or Enrolled Agent probably)
an insurance agent for liability coverage
How do you find these advisors?
Best way is to talk to small business owners. Also, if you connect with an accountant they can likely connect you to possible attorneys and insurers.
DIY - do it yourself, is usually not a good option.
Expanding the team will be in Part 3.
About once a month in our metro area, somebody drives an auto or truck into a building, often through the front door or a front window.
Usually this is an accident, but sometimes on purpose, like the kids who drove through the front door of an outdoor shop and loaded up on guns and ammo and were going to go all gangster (cannot happen now, large concrete barriers).
There are reasonable architectural barriers; curb bumpers, steel posts, and concrete flower pots that will stop or slow down misguided autos.
On a related manner, if you have a drive-under canopy be certain the height is noted with large signs.
Where to start?
Sit down and write a 50 - 75 word description of the business you want to start.
It may not be as easy as you think.
Then set it aside, and the next day read it. Is it ..... a coherent description of a small business that you 1) want to operate, 2) that will work for customers/clients, and 3) that is viable in your proposed market?
If you have writer's block start this way.
Who
What
When
Where
How
Notice and Disclaimer: This blog is designed to provide accurate and authoritative information for education purposes only. This blog is not an attempt to provide legal, accounting or financial planning advice, such advice should always be obtained from licensed, certified and/or qualified professionals.
Readers should be aware this is a dynamic area; professional advisors and reference sources should be consulted regularly for updates. Sources for state and local laws should be consulted when necessary.
Questions arise about starting a small business.
How? What do I need? What about timing? Start up budget? Marketing? Staffing? Staff timing? Lawyer? Accountant?
The First posts will look at developing a business plan.
Stay tuned.
We are obsessed with checklists, for lots of purposes, and we like to use Excel to prepare our various checklists.
Checklists can be useful in disaster recovery, and are best prepared before the disaster and backed up in the cloud and/or offsite.
Checklists should focus on your biggest concerns and work down the list to your smaller concerns. The lists should be backed up by your data backups, such as an electronic "rolodex" of suppliers, contractors, and employees.
An ounce of prevention is worth 100 pounds of cure.
If, and it is a big IF, Congress passes a tax bill that exempts tips and/or overtime from income taxation, there will be new burdens on payroll accounting.
Payroll accounting is already complicated, and depends on political location, number of locations, and the size and complexity of the workforce.
This may be the year to reevaluate the payroll function from start to finish, and to reevaluate decisions about inhouse versus contracted payroll.
Work with your public accountants, who can offer advice and who sometimes offer payroll services.
Notice and Disclaimer: This blog is designed to provide accurate and authoritative information for education purposes only. This blog is not an attempt to provide legal, accounting or financial planning advice, such advice should always be obtained from licensed, certified and/or qualified professionals.
Readers should be aware this is a dynamic area; professional advisors and reference sources should be consulted regularly for updates. Sources for state and local laws should be consulted when necessary.
Bookkeeping is boring and critical to your business.
In the good old days you took your "books" to an accountant once a month or once a quarter and the accountant prepared a financial statement.
With the advent of in-house computing (dominated by Quickbooks (TM)) a small business could do their own bookkeeping all the way to a financial statement.
That did not insure accuracy or completeness. Big problem.
Accurate bookkeeping increases the odds of accurate financial statement and useful analytics. And that requires work, and review, and more work.
Sloppy or incomplete bookkeeping causes problems.
In a future post we will discuss analytics.
In the future we will also discuss the impact of bookkeeping on tax returns.
Bookkeeping is boring - and critical.
Without good bookkeeping, you will be vulnerable to major problems:
faulty financial statements
faulty analytics
faulty tax returns (or pay your tax pro to clean up the mess)
potential lost cash collections
potential lost billings
facilitate embezzlement and other forms of theft
inadequate expense controls
payroll hassles
So there will be a series on bookkeeping issues and excellence.
Following up on Part 1, it is important to keep some information offsite so you can get back in business quickly.
A full list of equipment, with brand name, equipment model, serial number, and related warranty information is important. Also the name and phone numbers of which ever company sold the equipment.
That list, by the way, should have been a part of the file of your insurance agent, as another backup and to facilitate an insurance claim.
Photos of the equipment
Same for automobiles and trucks, including a copy or scan of the title work on each vehicle.
The time and energy necessary to keep these files is small compared to a reconstruction after a disaster.
The terrible tragedy in California reminds us that small businesses must be prepared for disasters.
The most precious asset? The hardest to replace? Records and documents.
Some suggestions:
Keep an extra laptop, loaded with all licensed software, offsite.
Cloud software offers some security, but you may be offline for a long while.
Backup hard drive files on a portable hard drive, place in a safety deposit box or at home or both (remember the bank is only open 40 hours a week).
Certain key records, like an employee roster with phone numbers, should be kept offsite in old fashioned paper.
Electricity and the Internet may be down for extended period of time. Buy and charge some small power packs designed to charge smart phones.
Keep a log book with important passwords and combinations. Keep it secured offsite. This is not just for disaster prep.
Keep a list of key phone numbers, including customer service numbers, helplines and banking phone numbers offsite in paper or a spreadsheet.
Documents not requiring high security can be emailed to yourself as attachments. Even if access is not immediate you will have access to them on-line.
Have extra building keys secured offsite.
If you home is in the same danger zone as your business you may need a third party to keep some of your backups. In sealed envelopes of course.
If your home is in the same danger zone as your business you may need a different place for storing backup material.
Also, your lawyer, insurance agent and accountants serve as a backup for some but not all documents.
