Creating a comprehensive, realistic spending plan allows you to identify potential shortages of cash, possible constraints on your capacity to fulfill strategic objectives, and other threats. Whether you’ve already put together a 2022 budget or still need to get on that before year-end, here are four red flags to watch out for:
Too often, companies create a budget by applying an across-the-board percentage increase to the previous year’s actual results. Clearly, the pandemic showed us how an unexpected event can wreak havoc on a budget. However, even without such an event, this approach may be too simplistic in today’s complex business environment.
Historical results are a good starting point, but not all costs are fixed. Some are quite variable based on various factors, such as the supply-chain disruptions we’ve seen in 2020 and 2021. Certain assets — such as equipment and people — have capacity limitations to consider. Prepare accurate forecasts of revenue and expenses on a department-by-department basis using up-to-date technology to capture timely data.
Your finance or accounting department shouldn’t complete the budget alone. Seek input from key employees in every department and at various levels of management.
For example, your sales department may be in the best position to estimate future revenue. A production or service manager may offer insight into unanticipated expenses or necessary investments in equipment upgrades. The product development team can help forecast revenue and expenses related to new products and enhancements to existing products.
In addition, soliciting broad participation gives employees a sense of ownership in the budgeting process. This can help enhance employee engagement and improve your odds of achieving budgeted results.
Good budgets encourage hard work to grow revenue and cut costs. But the targets must be attainable, based on your company’s history as well as economic and industry trends.
Employees will likely become discouraged if they view the budget as unachievable or out of touch with what’s actually happening on the ground. If budgets repeatedly fail, employees may start ignoring them altogether. Tying annual bonuses to the achievement of specific targets can help encourage budget buy-in.
Even if expected revenue is forecast to cover expenses for the year, production and cost fluctuations, as well as slow-paying customers and uncollectible accounts, can lead to temporary cash shortages. Of course, more significant events can have an even bigger impact.
An unexpected shortfall can seriously derail your budget. So, look beyond the income statement and balance sheet. Forecast cash flow on a weekly or monthly basis. Then create a plan for managing any anticipated shortfalls.
For example, you might need to contribute extra capital from cash reserves. Or you might need to apply for a line of credit at the bank. Alternatively, you might consider buying materials on consignment, revising payment terms with customers, or delaying payments to suppliers (if a penalty won’t apply).
As you’ve no doubt experienced in 2020 and 2021, the environment in which your business operates is constantly evolving, so budgeting needs to be an ongoing process. We can help you develop a reasonable annual budget and monitor actual results throughout the year.
Creating a comprehensive, realistic budget enables businesses to identify potential cash shortages, constraints on their capacity to fulfill strategic objectives, and other threats. Here are four red flags to watch out for when creating or reviewing yours: 1) It’s based on last year’s results, historical data is a good starting point, but many costs are variable; 2) It lacks companywide consensus, seek input from managers and employees who are on the front lines; 3) It’s unrealistic, targets must be attainable, based on current economic and industry trends; 4) It ignores cash flow, an unexpected shortfall can seriously derail your budget, so be sure to forecast cash flow weekly or monthly.
If you have any questions about your budget and need professional advice be sure to contact us!
Years ago, it may have seemed like only government agencies with top-secret intel or wealthy international banks had to worry about hackers. Nowadays, even the smallest businesses could see their reputation ruined by a data breach. At the same time, larger companies could have their sensitive data taken hostage in a ransomware attack that costs millions to resolve. A cybersecurity assessment can help ensure that your business is taking the proper steps to protect itself. It can also give you a competitive edge by demonstrating to customers and prospects that you take data privacy seriously.
Many of today’s companies are taking advantage of technologies that allow them to analyze customer and financial data. This includes software for mission-critical activities such as payroll, accounts receivable and payable, supply chain management, HR and benefits, and on-site security.
These systems are often cloud-based, meaning the information is stored online so users can access it remotely at any time. The convenience and analytical power are breathtaking, but they also create a tempting target for cybercriminals and raise the stakes of exposure exponentially.
In truth, the risk of a breach goes far beyond the disclosure of confidential, personal, or financial information. It also raises serious concerns about potential personal injuries, property damage, and work stoppage. Imagine the harm a hacker could cause by tampering with a building’s security or fire systems, or remotely manipulating vehicles or equipment.
Conducting a formal cybersecurity assessment helps you:
An assessment can also enable you to develop an incident response plan to mitigate the damage of a breach.
There are several recognized cybersecurity standards and frameworks available to guide these efforts. This includes those developed by the National Institute of Standards and Technology and the International Organization for Standardization. The U.S. Small Business Administration also offers cybersecurity assessment tips and best practices on its website.
If you’re particularly concerned, you might want to shop around for a qualified IT consultant to conduct a customized risk assessment. This may make sense if you’re in an industry subject to specific risks.
Cybersecurity is essential for every size and type of company. It may be comforting to think that the bad guys only go after the big guys, but hackers don’t always go after businesses with deep pockets. Sometimes they attack the easiest target. Make sure you’re well-protected.
The convenience and analytical power of today’s cloud-based business technology are breathtaking, but it creates a tempting target for hackers. A cybersecurity assessment can help ensure that your company is protecting itself. A properly conducted assessment involves taking inventory of hardware and software, identifying potential vulnerabilities, and implementing internal controls and other protections. It can also help you develop an incident response plan to mitigate the damage in the event of a breach. There are various free frameworks for conducting a self-assessment but, if you’re particularly concerned, you could engage a qualified consultant to conduct a customized assessment.
Business owners: Cybercriminals are on the prowl right now for your sensitive data. That’s why you should seriously consider a cybersecurity assessment. Contact us to find out how we can help!
Employers offer 401(k) plans for many reasons, including attracting and retaining talent. These plans help an employee accumulate a retirement nest egg on a tax-advantaged basis. If you’re thinking about participating in a plan at work, here are some of the features.
Under a 401(k) plan, you have the option of setting aside a number of your wages in a retirement plan. By setting cash aside in a 401(k), you’ll reduce your gross income, and defer tax until you cash out. It will either be distributed from the plan or from an IRA or other plan that you roll your proceeds into after leaving your job.
Your wage will be reduced by the amount of pre-tax contributions that you make — saving you current income taxes. But the amounts will still be subject to Social Security and Medicare taxes. If your employer’s plan allows, you may instead make all, or some, contributions on an after-tax basis (these are Roth 401(k) contributions). With Roth 401(k) contributions, the amounts will be subject to current income taxation, but if you leave these funds in the plan for a required time, distributions (including earnings) will be tax-free.
Your elective contributions — either pre-tax or after-tax — are subject to annual IRS limits. For 2021, the maximum amount permitted is $19,500. When you reach age 50, if your employer’s plan allows, you can make additional “catch-up” contributions. For 2021, that additional amount is $6,500. So if you’re 50 or older, the total that you can contribute to all 401(k) plans in 2021 is $26,000. Total employer contributions, including your elective deferrals (but no catch-up contributions), can’t exceed 100% of compensation for 2021, or $58,000, whichever is less.
Typically, you’ll be permitted to invest the number of your contributions (and any employer matching or other contributions) among available investment options that your employer has selected. Periodically review your plan investment performance to determine that each investment remains appropriate for your retirement planning goals and your risk specifications.
Another important aspect of these plans is the limitation on distributions while you’re working. First, amounts in the plan attributable to elective contributions aren’t available to you before one of the following events: retirement (or other separation from service), disability, reaching age 59½, hardship, or plan termination. And eligibility rules for a hardship withdrawal are very stringent. A hardship distribution must be necessary to satisfy an immediate and heavy financial need.
As an alternative to taking a hardship or other plan withdrawal while employed, your employer’s 401(k) plan may allow you to receive a plan loan, which you pay back to your account, with interest. Any distribution that you do take can be rolled into another employer’s plan (if that plan permits) or to an IRA. This allows you to continue the deferral of tax on the amount rolled over. Taxable distributions are generally subject to 20% federal tax withholding, if not rolled over.
Employers may opt to match contributions up to a certain amount. If your employer matches contributions, you should make sure to contribute enough to receive the full match. Otherwise, you’ll miss out on free money!
These are just the basics of 401(k) plans for employees. For more information, contact your employer. Of course, we can answer any tax questions you may have.
Interested in participating in a 401(k) plan offered by your employer? Under a 401(k), you have the option of setting aside a certain amount of your wages in a retirement plan. By making this election, you’ll reduce your gross income, and defer tax on the amount until the cash (adjusted by earnings) is distributed to you. It will either be distributed from the plan or IRA that you roll your proceeds into after leaving your job. Your elective contributions are subject to annual IRS limits. For 2021, the maximum amount permitted is $19,500. If you’re age 50 or older, you can make additional “catch-up” contributions. For 2021, that extra amount is $6,500.
Everyone loves a story. It’s why movies are still big business and many of us spend hours on the couch binge-watching our favorite television shows. What’s important to keep in mind — and to remind your sales team — is that effective storytelling can also drive sales.
This doesn’t mean devising fanciful, fictional tales to entice customers and prospects into buying. Rather, it involves learning the customer or prospect’s story, putting it into words, and then demonstrating how your company’s products or services can add a happy chapter to the tale. Think of it as a three-act play:
Act I: Set the scene. Building rapport is key in sales. Find out from your sales manager(s) how much time sales staffers are spending with customers and prospects. Ensure they’re not rushing through initial contact. Salespeople should take the time to provide a concise overview of your business, telling its story and emphasizing its capabilities.
Act II: Build the plot. Salespeople should generally ask a series of prepared questions that prompt responses outlining the customer or prospect’s needs and goals. The potential buyer should do most of the talking. The more that salespeople listen, the better chance they’ll have in identifying and filling out the plot of the customer’s story and, one hopes, making the sale.
At this point, the sales staffer also wants to uncover any objections the customer or prospect might have about doing business with your company. These “subplots” can often go overlooked and ultimately ruin the ending of the story for you.
Act III: Resolve the problem. The final scene should be a climactic one. The salesperson needs to summarize the customer or prospect’s story — identifying the key needs revealed by the questions asked. Then, the sales staffer must present a viable solution to meeting those needs and emphasize your company’s ability to efficiently fulfill the products ordered or provide the necessary service(s).
When executed properly, the three acts above should increase the odds for an encore (or a sequel, as the case may be). Buyers who know that your business understands their story will be more likely to become return customers.
Although using storytelling as a sales tool may seem simplistic, it’s a tool that needs sharpening from time to time. We can help you evaluate your sales process from a financial perspective so you can implement changes as necessary.
Effective storytelling can drive sales. That doesn’t mean devising fanciful tales to entice customers. Rather, it typically involves learning the customer’s story, putting it into words, and demonstrating how your products or services can add a happy chapter to the tale. Think of it as a three-act play. First, set the scene. Sales staffers should take the time to provide a concise overview of your business. Second, build the plot. Salespeople need to ask insightful questions to learn the details of the customer’s story. Finally, resolve the problem. The salesperson needs to retell the customer’s story and present a viable solution to the needs identified.
In today’s data-driven world, business owners are constantly urged to track everything. And for good reason — having accurate, timely information displayed in an easy-to-understand format can allow you to spot trends, avoid risk and take advantage of opportunities. This includes your company’s website. Although social media drives so much of the conversation now when it comes to communicating with customers and prospects, many people still visit websites to gather knowledge, build trust, and place orders. So, how do you know whether your site is doing its job — that is, drawing visitors, holding their attention, and satisfying their curiosities and needs? A variety of metrics hold the answers. Here are a few of the most widely tracked:
This metric is a good place to start, partly because it’s among the oldest ways to track whether a website is widely viewed or largely ignored. A page view occurs when a visitor loads the HTML file that represents a given page on your website. You want to track:
You may have encountered this term before. It’s indeed an important one. The unique visitor metric identifies everyone who comes to your website, counting each visitor only once regardless of how many times someone visits.
Think of it like friendly neighbors stopping by your home. If Artie from next door stops by twice and Betty from down the street drops in three times, that’s two unique visitors and five total visits. Tracking your unique visitors over time is important because it lets you know whether your website’s viewing audience is growing, shrinking, or staying the same.
At one time or another, you may have heard someone say, “All right, I’m going to bounce.” It means the person is going to depart from their current surroundings and go elsewhere. When a visitor quickly decides to bounce from (that is, leave) your website, typically in a matter of seconds and without performing any meaningful action, your bounce rate rises.
This is not a good thing. A high bounce rate could mean your website is too similar in name or URL to another company or organization. Although this may drive up page views, it will more than likely aggravate the buying public and reflect poorly on your company. An elevated bounce rate could also mean your site’s design is confusing or aesthetically displeasing.
To quantify bounce rate, unique visitors, and page views — as well as many other useful metrics — look to your website’s analytics software. Your website provider should be able to help you set up a dashboard of which ones you want to track. Contact our firm for help using these metrics to determine whether your website is contributing to revenue gains and providing a reasonable return on investment.
Many people still visit websites to gather knowledge, build trust, and place orders. A variety of metrics can tell a business whether its website is attracting good attention and generating revenue. One is page views, which simply indicates that a visitor has loaded the HTML file that represents a given webpage. Another useful metric is unique visitors. It identifies everyone who comes to your website, counting each visitor only once regardless of how many times someone visits. Bounce rate is also critical. It indicates when a visitor quickly decides to leave your website without performing any meaningful action. Contact us for help managing your company’s technology costs.
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 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.
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:
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.
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.
As suggestions come in, use robust discussions and careful calculations to determine which ones are truly worth pursuing.
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.
Every business needs its champions! Be sure each profit-building initiative has a defined leader and team members.
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.
Contact David Mills, CPA, LLC for more information. Also, check out our Facebook page
With a difficult year almost over, and another one on the horizon, now may be a good time to assess the size of your sales force. Maybe the economic changes triggered by the COVID-19 pandemic led you to downsize earlier in the year. Or perhaps you’ve added to your sales team to seize opportunities. In either case, every business owner should know whether his or her sales team is the right size.
To determine your optimal sales staffing level, there are several steps you can take. A good place to start is with various key performance indicators (KPIs) that enable you to quantify performance in dollars and cents.
The KPIs you choose to calculate and evaluate need to be specific to your industry and appropriate to the size of your company and the state of the market in which you operate. If you’re comparing your sales numbers to those of other businesses, make sure it’s an apples-to-apples comparison.
In addition, you’ll need to pick KPIs that are appropriate to whether you’re assessing the performance of a sales manager or that of a sales representative. For a sales manager, you could look at average annual sales volume to determine whether his or her team is contributing adequately to your target revenue goals. Ideal KPIs for sales reps are generally more granular; examples include sales by rep and lead-to-sale percentage.
Rightsizing your sales staff, however, isn’t only a mathematical equation. To customize your approach, think about the specific needs of your company.
Consider, for example, how you handle staffing when sales employees take vacations or call in sick. If you frequently find yourself coming up short on revenue projections because of a lack of boots on the ground, you may want to expand your sales staff to cover territories and serve customers more consistently.
Then again, financial problems that arise from carrying too many sales employees can creep up on you. Be careful not to hire at a rate faster than your sales and gross profits are increasing. If you’re looking to make aggressive moves in your market, be sure you’ve done the due diligence to ensure that the hiring and training costs will likely pay off.
Last, but not least, think about your customers. Are they largely satisfied? If so, the size of your sales force might be just fine. However, salespeople saying that they’re overworked or customers complaining about a lack of responsiveness could mean your staff is too small. Conversely, if you have market segments that just aren’t yielding revenue or salespeople who are continually underperforming, it might be time to downsize.
By regularly monitoring the headcount of your sales staff with an eye on fulfilling reasonable revenue goals, you’ll stand a better chance of maximizing profitability during good times and maintaining it during more challenging periods. Contact David Mills, CPA, LLC, for help choosing the right KPIs and cost-effectively managing your business.
The COVID-19 pandemic and resulting economic impact have hurt many companies, especially small businesses. However, for others, the jarring challenges this year have created opportunities and accelerated changes that were probably going to occur all along.
One particular area of speedy transformation is technology. It’s never been more important for businesses to wield their internal IT effectively, enable customers and vendors to easily interact with those systems, and make the most of artificial intelligence and “big data” to spot trends.
Accomplishing all this is a tall order for even the most energetic business owner or CEO. That’s why many companies end up creating one or more technology executive positions. Assuming you don’t already employ such an individual, should you consider adding an IT exec? Perhaps so.
There are three widely used position titles for technology executives:
1. Chief Information Officer (CIO). This person is typically responsible for managing a company’s internal IT infrastructure and operations. In fact, an easy way to remember the purpose of this position is to replace the word “Information” with “Internal.” A CIO’s job is to oversee the purchase, implementation and proper use of technological systems and products that will maximize the efficiency and productivity of the business.
2. Chief Technology Officer (CTO). In contrast to a CIO, a CTO focuses on external processes — specifically, with customers and vendors. This person usually oversees the development and eventual production of technological products or services that will meet customer needs and increase revenue. The position demands the ability to live on the cutting edge by doing constant research into tech trends while also being highly collaborative with employees and vendors.
3. Chief Digital Officer (CDO). For some companies, the CIO and/or CTO are so busy with their respective job duties that they’re unable to look very far ahead. This is where a CDO typically comes into play. His or her primary objective is to spot new markets, channels or even business models that the company can target, explore and perhaps eventually profit from. So, while a CIO looks internally and a CTO looks externally, a CDO’s gaze is set on a more distant horizon.
As mentioned, these are three of the most common IT executive positions. Their specific objectives and job duties may vary depending on the business in question. And they are by no means the only examples of such positions. There are many variations, including Chief Marketing Technologist and Chief Information Security Officer.
So, getting back to our original question: is this a good time to add a technology executive to your staff? The answer very much depends on the financial strength and projected direction of your company. These positions will call for major expenditures in hiring, payroll and benefits. Our firm can help you weigh the costs vs. benefits.
For more business advice, contact the small business experts at David Mills, CPA, LLC.
Does your business receive large amounts of cash or cash equivalents? You may be required to submit forms to the IRS to report these transactions.
Each person engaged in a trade or business who, in the course of operating, receives more than $10,000 in cash in one transaction, or in two or more related transactions, must file Form 8300.
Any transactions conducted in a 24-hour period are considered related transactions. Transactions are also considered related even if they occur over a period of more than 24 hours if the recipient knows, or has reason to know, that each transaction is one of a series of connected transactions.
To complete a Form 8300, you will need personal information about the person making the cash payment, including a Social Security or taxpayer identification number.
You should keep a copy of each Form 8300 for five years from the date you file it, according to the IRS.
Although many of the transactions are legitimate, the IRS explains that “information reported on (Form 8300) can help stop those who evade taxes, profit from the drug trade, engage in terrorist financing and conduct other criminal activities. The government can often trace money from these illegal activities through the payments reported on Form 8300 and other cash reporting forms.”
For Form 8300 reporting, cash includes U.S. currency and coins, as well as foreign money. It also includes cash equivalents such as cashier’s checks (sometimes called bank checks), bank drafts, traveler’s checks and money orders.
Money orders and cashier’s checks under $10,000, when used in combination with other forms of cash for a single transaction that exceeds $10,000, are defined as cash for Form 8300 reporting purposes.
Note: Under a separate reporting requirement, banks and other financial institutions report cash purchases of cashier’s checks, treasurer’s checks and/or bank checks, bank drafts, traveler’s checks and money orders with a face value of more than $10,000 by filing currency transaction reports.
Businesses required to file reports of large cash transactions on Form 8300 should know that in addition to filing on paper, e-filing is an option.
The form is due 15 days after a transaction and there’s no charge for the e-file option. Businesses that file electronically get an automatic acknowledgment of receipt when they file.
The IRS also reminds businesses that they can “batch file” their reports, which is especially helpful to those required to file many forms.
To file Form 8300 electronically, a business must set up an account with FinCEN’s BSA E-Filing System. For more information, interested businesses can also call the BSA E-Filing Help Desk at 866-346-9478 (Monday through Friday from 8 am to 6 pm EST) or email them at BSAEFilingHelp@fincen.gov.
At David Mills, CPA, LLC, we’re small business tax experts. Contact us with any questions or for assistance.
As a result of the coronavirus (COVID-19) crisis, your business may be using independent contractors to keep costs low. But you should be careful that these workers are properly classified for federal tax purposes. If the IRS reclassifies them as employees, it can be an expensive mistake.
The question of whether a worker is an independent contractor or an employee for federal income and employment tax purposes is a complex one.
If a worker is an employee, your company must withhold federal income and payroll taxes, pay the employer’s share of FICA taxes on the wages, plus FUTA tax.
Often, a business must also provide the worker with the fringe benefits that it makes available to other employees. And there may be state tax obligations as well. These obligations don’t apply if a worker is an independent contractor.
In that case, the business simply sends the contractor a Form 1099-MISC for the year showing the amount paid (if the amount is $600 or more).
Who is an “employee?” Unfortunately, there’s no uniform definition of the term. The IRS and courts have generally ruled that individuals are employees if the organization they work for has the right to control and direct them in the jobs they’re performing.
Otherwise, the individuals are generally independent contractors. But other factors are also taken into account. Some employers that have misclassified workers as independent contractors may get some relief from employment tax liabilities under Section 530.
In general, this protection applies only if an employer:
Note: Section 530 doesn’t apply to certain types of technical services workers. And some categories of individuals are subject to special rules because of their occupations or identities.
Under certain circumstances, you may want to ask the IRS (on Form SS-8) to rule on whether a worker is an independent contractor or employee.
However, be aware that the IRS has a history of classifying workers as employees rather than independent contractors.
Businesses should consult with the staff at David Mills, CPA, LLC before filing Form SS-8 because it may alert the IRS that your business has worker classification issues — and inadvertently trigger an employment tax audit.
It may be better to properly treat a worker as an independent contractor so that the relationship complies with the tax rules. Be aware that workers who want an official determination of their status can also file Form SS-8.
Disgruntled independent contractors may do so because they feel entitled to employee benefits and want to eliminate self-employment tax liabilities. If a worker files Form SS-8, the IRS will send a letter to the business. It identifies the worker and includes a blank Form SS-8.
The business is asked to complete and return the form to the IRS, which will render a classification decision.
Contact the small business experts at David Mills, CPA, LLC if you’d like to discuss how these complex rules apply to your business.