Graphic detailing SWOT (Strength, Weakness, Opportunities & Threats)

Does Your Business Need a SWOT Analysis?

Using a strengths, weaknesses, opportunities and threats (SWOT) analysis to frame an important business decision is a long-standing recommended practice. But don’t overlook other, broader uses that could serve your company well.

Performance factors

A SWOT analysis starts by spotlighting internal strengths and weaknesses that affect business performance. Strengths are competitive advantages or core competencies that generate value (and revenue), such as a strong sales force or exceptional quality.

Conversely, weaknesses are factors that limit a company’s performance. These are often revealed in a comparison with competitors. Examples might include a negative brand image because of a recent controversy or an inferior reputation for customer service.

Generally, the strengths and weaknesses of a business relate directly to customers’ needs and expectations. Each identified characteristic affects cash flow — and, therefore, business success — if customers perceive it as either a strength or weakness. A characteristic doesn’t really affect the company if customers don’t care about it.

External conditions

The next SWOT step is identifying opportunities and threats. Opportunities are favorable external conditions that could generate a worthwhile return if the business acts on them. Threats are external factors that could inhibit business performance.

When differentiating strengths from opportunities, or weaknesses from threats, the question is whether the issue would exist without the business. If the answer is yes, the issue is external to the company and, therefore, an opportunity or a threat. Examples include changes in demographics or government regulations.

Various applications

As mentioned, business owners can use SWOT to do more than just make an important decision. Other applications include:

Valuation. A SWOT analysis is a logical way to frame a discussion of business operations in a written valuation report. The analysis can serve as a powerful appendix to the report or a courtroom exhibit, providing tangible support for seemingly ambiguous, subjective assessments regarding risk and return.

In a valuation context, strengths and opportunities generate returns, which translate into increased cash flow projections. Strengths and opportunities can lower risk via higher pricing multiples or reduced cost of capital. Threats and weaknesses have the opposite effect.

Strategic planning. Businesses can repurpose the SWOT analysis section of a valuation report to spearhead strategic planning. They can build value by identifying ways to capitalize on opportunities with strengths or brainstorming ways to convert weaknesses into strengths or threats into opportunities. You can also conduct a SWOT analysis outside of a valuation context to accomplish these objectives.

Legal defense. Should you find yourself embroiled in a legal dispute, an attorney may want to frame trial or deposition questions in terms of a SWOT analysis. Attorneys sometimes use this approach to demonstrate that an expert witness truly understands the business — or, conversely, that the opposing expert doesn’t understand the subject company.

Tried and true

A SWOT analysis remains a useful way to break down and organize the many complexities surrounding a business. At David Mills, CPA, LLC, we can help you with the tax, accounting, and financial aspects of this approach. Contact us today.

hand writing 2021 on a chalkboard

Ring In The New Year With A Renewed Focus On Profitability

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.

Many benefits

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.

sales force team members standing on blue lines grid

Rightsizing Your Sales Force

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.

Various KPIs

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.

More than math

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.

Reasonable objectives

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.

IT Tech staff member at computer looking out window at city landscape

Should You Add A Technology Executive To Your Staff?

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 tech-specific executive positions. Assuming you don’t already employ such an individual, should you consider adding an IT exec? Perhaps so.

3 common positions

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.

Costs vs. benefits

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 one or more of these execs 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.

Q4 Tax Calendar for 2020

2020 Q4 Tax Calendar: Key Deadlines for Businesses

Here are some of the key Q4 tax-related deadlines affecting businesses and other employers during the fourth quarter of 2020.

Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you.

Contact the experts at David Mills, CPA, LLC to ensure you’re meeting all applicable Q4 tax deadlines and to learn more about the filing requirements.

Thursday, October 15

If a calendar-year C corporation that filed an automatic six-month extension: File a 2019 income tax return (Form 1120) and pay any tax, interest and penalties due. Make contributions for 2019 to certain employer-sponsored retirement plans.

Monday, November 2

Report income tax withholding and FICA taxes for third quarter 2020 (Form 941) and pay any tax due. (See exception below under “November 10.”)

Tuesday, November 10

Report income tax withholding and FICA taxes for third quarter 2020 (Form 941), if you deposited on time (and in full) all of the associated taxes due.

Tuesday, December 15

If a calendar-year C corporation, pay the fourth installment of 2020 estimated income taxes.

Thursday, December 31

Establish a retirement plan for 2020 (generally other than a SIMPLE, a Safe-Harbor 401(k) or a SEP).

Piles of cash represented by $100 US bills

File Cash Transaction Reports For Your Business

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.

Cash Filing Requirements

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.

Reasons For The Reporting

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.”

What’s Considered “Cash?”

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.

E-filing And Batch Filing

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.

Setting Up An Account

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.

Independent Contractor wearing mask

Make Sure Independent Contractors Are Properly Classified

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).

No Uniform Employee Definition

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:

  • Filed all federal returns consistent with its treatment of a worker as a contractor
  • Treated all similarly situated workers as contractors
  • Had a “reasonable basis” for not treating the worker as an employee. For example, a “reasonable basis” exists if a significant segment of the employer’s industry traditionally treats similar workers as contractors.

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.

Asking For A Determination

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.

9 Tax Rules to Consider If You’re Your Own Boss

Does the idea of being your own boss and being in business for yourself appeal to you? 

Many people who launch small businesses start out as sole proprietors. However, there are tax rules and considerations to consider if you’re a sole proprietor.

Here are nine things to consider if you are your own boss

1 – You may qualify for the pass-through deduction

To the extent your business generates qualified business income, you are eligible to claim the 20% pass-through deduction, subject to limitations. 

There are tax rules to consider if you're your own boss

The deduction is taken “below the line,” meaning it reduces taxable income, rather than being taken “above the line” against your gross income.

However, you can take the deduction even if you don’t itemize deductions and instead claim the standard deduction.

2 – Report income and expenses on Schedule C of Form 1040 

The net income will be taxable to you regardless of whether you withdraw cash from the business. 

Your business expenses are deductible against gross income and not as itemized deductions. 

If you have losses, they will generally be deductible against your other income, subject to special rules related to hobby losses, passive activity losses, and losses in activities in which you weren’t “at risk.”

3 – Pay self-employment taxes

For 2020, you pay self-employment tax (Social Security and Medicare) at a 15.3% rate on your net earnings from self-employment of up to $137,700, and Medicare tax only at a 2.9% rate on the excess. 

An additional 0.9% Medicare tax (for a total of 3.8%) is imposed on self-employment income in excess of $250,000 for joint returns; $125,000 for married taxpayers filing separate returns; and $200,000 in all other cases. 

Self-employment tax is imposed in addition to income tax, but you can deduct half of your self-employment tax as an adjustment to income. 

4 – Make quarterly estimated tax payments 

For 2019, these are due April 15, June 15, September 15 and January 15, 2021. 

5 – You may be able to deduct home office expenses 

If you work from a home office, perform management or administrative tasks there, or store product samples or inventory at home, you may be entitled to deduct an allocable portion of some costs of maintaining your home. 

And if you have a home office, you may be able to deduct expenses of traveling from there to another work location.

6 – You can deduct 100% of your health insurance costs as a business expense 

This means your deduction for medical care insurance won’t be subject to the rule that limits medical expense deductions.

7 – Keep complete records of your income and expenses

Specifically, you should carefully record your expenses in order to claim all the tax breaks to which you’re entitled. 

Certain expenses, such as automobile, travel, meals, and office-at-home expenses, require special attention because they’re subject to special recordkeeping rules or deductibility limits. 

8 – Requirements change if you hire employees

When you hire employees, you need to get a taxpayer identification number and withhold and pay employment taxes. 

9 – Consider establishing a qualified retirement plan 

The advantage is that amounts contributed to the plan are deductible at the time of the contribution and aren’t taken into income until they’re are withdrawn. 

Because many qualified plans can be complex, you might consider a SEP plan, which requires less paperwork. 

A SIMPLE plan is also available to sole proprietors that offers tax advantages with fewer restrictions and administrative requirements. 

If you don’t establish a retirement plan, you may still be able to contribute to an IRA. 

David Mills CPA, LLC has the expertise to assist small businesses

At David Mills CPA, LLC, we work with small businesses throughout the Central Illinois.

We have offices in Morton and East Peoria and can assist business owners with advice, bookkeeping, payroll, income tax planning and preparations, and business valuations

We can also help business owners understand the various business structures to ensure their business is structured to best meet their needs.

For more information, contact David Mills CPA, LLC today.

Business Cents-Per-Mile Rate Decreases for 2020

In 2020, the optional standard mileage rate used to calculate the deductible costs of operating an automobile for business decreased by one-half cent, to 57.5 cents per mile.

As a result, you might claim a lower deduction for vehicle-related expenses for 2020 than you can for 2019.

Calculating your deduction

Businesses can generally deduct the actual expenses attributable to the business use of vehicles. This includes gas, oil, tires, insurance, repairs, licenses and vehicle registration fees.

In addition, you can claim a depreciation allowance for the vehicle. However, in many cases, depreciation write-offs on vehicles are subject to certain limits that don’t apply to other types of business assets.

The cents-per-mile rate comes into play if you don’t want to keep track of actual vehicle-related expenses.

With this approach, you don’t have to account for all your actual expenses, although you still must record certain information, such as the mileage for each business trip, the date, and the destination.

Using the mileage rate is also popular with businesses that reimburse employees for business use of their personal vehicles.

Such reimbursements can help attract and retain employees who drive their personal vehicles extensively for business purposes.

Why? Under the Tax Cuts and Jobs Act, employees can no longer deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.

Rules apply for cents-per-mile rate

If you do use the cents-per-mile rate, be aware that you must comply with various rules. If you don’t, the reimbursements could be considered taxable wages to the employees.

How is the rate determined?

The rate for 2020 Beginning on January 1, 2020, the standard mileage rate for the business use of a car (van, pickup or panel truck) is 57.5 cents per mile.

It was 58 cents for 2019 and 54.5 cents for 2018. The business cents-per-mile rate is adjusted annually.

It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, such as gas, maintenance, repair and depreciation.

Occasionally, if there’s a substantial change in average gas prices, the IRS will change the mileage rate midyear.

Factors to consider

There are some situations when you can’t use the cents-per-mile rate. In some cases, it partly depends on how you’ve claimed deductions for the same vehicle in the past.

In other cases, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.

As you can see, there are many factors to consider in deciding whether to use the mileage rate to deduct vehicle expenses.

At David Mills CPA, LLC, our expert can help if you have questions about tracking and claiming such expenses in 2020 — or claiming them on your 2019 income tax return.

David Mills CPA, LLC has offices in Morton and East Peoria.

Doing Business Across State Lines? Reexamine Your Sales Tax Obligations

Does your company do business across state lines? If so, it’s a good idea to reexamine your sales tax obligations.

In its 2018 decision in South Dakota v. Wayfair, the U.S. Supreme Court upheld South Dakota’s “economic nexus” statute, expanding the power of states to collect sales tax from remote sellers.

Today, nearly every state with a sales tax has enacted a similar law, which makes it prudent for companies doing business across state lines to review their tax obligations.

What Does Nexus Mean?

South Dakota’s economic nexus statute was upheld, but what’s nexus? A state is constitutionally prohibited from taxing business activities unless those activities have a substantial “nexus,” or connection, with the state.

Even without a physical presence in a state, businesses could still be required to pay tax.

Before Wayfair, simply selling to customers in a state wasn’t enough to establish nexus. The business also had to have a physical presence in the state, such as offices, retail stores, manufacturing or distribution facilities, or sales reps.

In Wayfair, the Supreme Court ruled that a business could establish nexus through economic or virtual contacts with a state, even if it didn’t have a physical presence.

The Court didn’t create a bright-line test for determining whether contacts are “substantial,” but found that the thresholds established by South Dakota’s law are sufficient.

Out-of-state businesses must collect and remit South Dakota sales taxes if, in the current or previous calendar year, they have

  1. more than $100,000 in gross sales of products or services delivered into the state, or
  2. 200 or more separate transactions for the delivery of goods or services into the state.

What Are the Next Steps?

The vast majority of states now have economic nexus laws, although the specifics vary. Many states adopted the same sales and transaction thresholds accepted in Wayfair, but a number of states apply different thresholds.

And some chose not to impose transaction thresholds, which many view as unfair to smaller sellers (an example of a threshold might be 200 sales of $5 each would create nexus).

How are Illinois Businesses Affected?

In Illinois, Public Acts 101-0009 and 101-0604 “expanded nexus to include marketplace facilitators that meet certain thresholds effective Jan. 1, 2020.”

map of the United States
The nexus tax laws can vary by state.

According to state officials, marketplace facilitators who meet state nexus thresholds are required to register to collect and remit Illinois Use Tax for sales made through their marketplace.

Marketplace sellers selling through the marketplace are not responsible for collecting and remitting Illinois Use Tax on these sales.

What Business Owners Should Know

If your business makes online, telephone or mail-order sales in states where it lacks a physical presence, it’s critical to find out whether those states have economic nexus laws and determine whether your activities are sufficient to trigger them.

If you have nexus with a state, you’ll need to register with the state and collect state and applicable local taxes on your taxable sales there. Even if some or all of your sales are tax-exempt, you’ll need to secure exemption certifications for each jurisdiction where you do business.

Alternatively, you might decide to reduce or eliminate your activities in a state if the benefits don’t justify the compliance costs.

What if You Sell on Amazon or Ebay?

If you make sales through a “marketplace facilitator,” such as Amazon or Ebay, be aware that an increasing number of states have passed laws that require such providers to collect taxes on sales they facilitate for vendors using their platforms.

David Mills, CPA, LLC Can Help Small Businesses

If you need assistance in setting up processes to collect sales tax or you have questions about your responsibilities, call David Mills, CPA, LLC. Our experts can help answer all your small business tax questions.

Contact David Mills, CPA LLC’s Morton or East Peoria offices today.