Some might say the end of one calendar year and the beginning of another is a formality. The linear nature of time doesn’t change, merely the numbers we use to mark it.
Others, however, would say that a fresh 12 months — particularly after the arduous, anxiety-inducing nature of 2020 — creates the perfect opportunity for business owners to gather their strength and push ahead with greater vigor. One way to do so is to ring in the new year with a systematic approach to renewing everyone’s focus on profitability.
Create an idea-generating system Without a system to discover ideas that originate from the day-in, day-out activities of your business, you’ll likely miss opportunities to truly maximize the bottom line. What you want to do is act in ways that inspire and allow you to gather profit-generating concepts. Then you can pick out the most actionable ones and turn them into bottom-line-boosting results. Here are some ways to create such a system:
Share responsibility for profitability with your management team. All too often, managers become trapped in their own information silos and areas of focus. Consider asking everyone in a leadership position to submit ideas for growing the bottom line.
Instruct supervisors to challenge their employees to come up with profit-building ideas. Leaving your employees out of the conversation is a mistake. Ask workers on the front lines how they think your business could make more money.
Target the proposed ideas that will most likely increase sales, cut costs or expand profit margins. As suggestions come in, use robust discussions and careful calculations to determine which ones are truly worth pursuing.
Tie each chosen idea to measurable financial goals. When you’ve picked one or more concepts to pursue in real life, identify which metrics will accurately inform you that you’re on the right track. Track these metrics regularly from start to finish.
Name those accountable for executing each idea. Every business needs its champions! Be sure each profit-building initiative has a defined leader and team members.
Follow a clear, patient and well-monitored implementation process. Ideas that ultimately do build the bottom line in a meaningful way generally take time to identify, implement and execute. Don’t look for quick-fix measures; seek out business transformations that will lead to long-term success.
A carefully constructed and strong-performing profitability idea system can not only grow the bottom line, but also upskill employees and improve morale as strategies come to fruition. Our firm can help you identify profit-building opportunities, choose the right metrics to evaluate and measure them, and track the pertinent data over time.
It’s been estimated that there are roughly 5 million family-owned businesses in the United States. Annually, these companies make substantial contributions to both employment figures and the gross domestic product. If you own a family business, one important issue to address is how to best weave together your succession plan with your estate plan.
Transferring ownership of a family business is often difficult because of the distinction between ownership and management succession. From an estate planning perspective, transferring assets to the younger generation as early as possible allows you to remove future appreciation from your estate, minimizing any estate taxes. However, you may not be ready to hand over control of your business or you may feel that your children aren’t yet ready to run the company.
There are various ways to address this quandary. You could set up a family limited partnership, transfer nonvoting stock to heirs or establish an employee stock ownership plan.
Another reason to separate ownership and management succession is to deal with family members who aren’t involved in the business. Providing such heirs with nonvoting stock or other equity interests that don’t confer control can be an effective way to share the wealth with them while allowing those who work in the business to take over management.
An additional challenge to family businesses is that older and younger generations may have conflicting financial needs. Fortunately, strategies are available to generate cash flow for the owner while minimizing the burden on the next generation.
For example, consider an installment sale. These transactions provide liquidity for the owner while improving the chances that the younger generation’s purchase can be funded by cash flows from the business. Plus, so long as the price and terms are comparable to arm’s-length transactions between unrelated parties, the sale shouldn’t trigger gift or estate taxes.
Or, you might want to create a trust. By transferring business interests to a grantor retained annuity trust (GRAT), for instance, the owner obtains a variety of gift and estate tax benefits (provided he or she survives the trust term) while enjoying a fixed income stream for a period of years. At the end of the term, the business is transferred to the owner’s children or other beneficiaries. GRATs are typically designed to be gift-tax-free.
There are other options as well, such as an installment sale to an intentionally defective grantor trust (IDGT). Essentially a properly structured IDGT allows an owner to sell the business on a tax-advantaged basis while enjoying an income stream and retaining control during the trust term. Once the installment payments are complete, the business passes to the owner’s beneficiaries free of gift taxes.
Family-owned businesses play an important role in the U.S. economy. We can help you integrate your succession plan with your estate plan to protect both the company itself and your financial legacy. For more information, contact David Mills, CPA, LLC today.
Starting a new business is an exciting venture, but with so many business structures, deciding the legal structure of your company can seem overwhelming. Will it be a sole proprietorship? A corporation? Is it an LLC?
The five most common business legal structures are:
In a sole proprietorship, the individual who owns the business is an unincorporated business by themselves.
This type of business structure is sometimes known as the sole trader, individual entrepreneurship or proprietorship. There is no legal distinction between the owner and the business entity.
According to the U.S. Small Business Administration, a sole proprietorship is “the simplest and most common structure chosen to start a business.”
A partnership is when two or more individuals join together to create a business. According to the IRS, in a partnership “each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.”
Within a partnership, there are two common types: limited partnerships (LP) and limited liability partnerships (LLP).
The U.S. Small Business Administration notes a limited partnership has one partner with unlimited liability and all others with limited liability.
In a limited partnership, the partners with limited liability tend to have limited control over the company. Profits are passed through to personal tax returns, and the general partner — the partner without limited liability — must also pay self-employment taxes.
A limited liability partnership (LLP) gives limited liability to every owner. This structure protects each partner from debts against the partnership.
When a corporation is formed, prospective shareholders exchange money, property or both, for the corporation’s capital stock.
Sometimes called a “C-corp” a corporation is a legal entity separate from its owners.
The Small Business Administration notes corporations offer “the strongest protection to its owners from personal liability” but “the cost to form a corporation is higher than other structures.”
Operating a corporation requires more extensive record-keeping and reporting.
The IRS says S Corporations “are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.”
Becoming an S Corporation requires a business to meet certain qualifications including being a domestic corporation and having no more than 100 shareholders.
Businesses must file with the IRS to earn S Corporation status.
A limited liability company, more commonly referred to as an “LLC” combines the advantages of both the corporation and partnership business structures.
An LLC can protect an individual from personal liability in most instances.
Owners of an LLC are known as “members” and the members can be individuals, corporations, other LLCs or foreign entities. Most states, including Illinois, permit “single-member” LLCs, in which there is only one owner.
The professionals at David Mills, CPA, LLC, have offices in both Morton and East Peoria. They work with business clients in the Tri-County (Peoria, Woodford and Tazewell) area as well as beyond.
When establishing a business, contact David Mills, CPA, LLC to ensure the legal entity you select best matches your professional goals.
Small businesses need budgets, but too often, they don’t have one. The staff at David Mills CPA, LLC can assist with your budgeting needs.
Creating a business budget can seem overwhelming. One survey found as many as two-thirds of all small businesses don’t have a budget.
Without a budget, though, your company’s financial health is at risk. Small businesses face challenges every day. A budget helps mitigate those difficulties.
The experts at David Mills CPA will show you how budgeting can grow your profits. Interpreting the numbers is key, but we understand making sense of those figures can feel overwhelming.
We can help you answer the critical questions:
A smartly planned budget will include flexibility to help you navigate any troubled waters your business may face.
A budget should be more than just a yearly chore. It’s a tool to help you tackle short-term obstacles while planning for the long-term future.
We will teach you the questions to ask when looking at your budget versus actual numbers. In this way, your budget becomes a valuable tool to manage cash flow and build your business.
Budgets help make your business more efficient. They can help keep your company out of debt while developing a roadmap for future growth or expansion.
Planning your business budget will make it more efficient to operate your company.
Let the staff at David Mills CPA assist you with all your business budgeting needs. Contact us today for more information.
Exciting news! David Mills CPA has officially opened our East Peoria location. We can provide your business with accounting and financial services. Our office is open Monday-Friday from 8:00 AM until 5:00 PM.
In order to best serve our customers, we offer a wide variety of services. We can assist your business with the financial aspects so you can focus on what is most important to you. A list of our services include:
Our East Peoria location is now booking appointments. For all of your financial needs, contact David Mills CPA today. We look forward to working with you and serving our customers in East Peoria.