Some Tax Laws Are Still the Same

As part of the current tax law changes congress moved to leave in effect certain tax provisions. Here is a brief list of some of these.

·      The optional deduction for state and local sales taxes in lieu of deducting state income taxes.

·       The above the line deduction for up to $4,000 in qualified tuition and related expenses.

·       The deduction of home mortgage insurance premiums.

·       The exclusion in income of up to $2 million dollars in the cancellation of mortgage debt for a primary residence.

·         15 Year depreciation for leasehold improvements.

·         50% Bonus Depreciation on purchase of new assets.

·      An increase to $500K in Section 179 first year expensing option for the purchase of new or used business equipment, with an investment limit of $2 million.

It’s important to plan ahead but these could prove to be useful for some taxpayers.

Pick Your Startup Managers Like Wine or Whiskey

Without a doubt corporate America is being shaped by many smaller companies that take advantage of trending technology, globalization or shifts in the local or global economy. I like to refer to this in general as market disrupters but, that’s another story. By and large newer and smaller companies are headed by young talent who come to battle in the business community with great innovation and talent but often lack a few critical ingredients. 

In managing a company there is a lot to say for a balanced approach. Personally, I am a big promoter of this in my own business and in my personal life. You need to have a good mix of innovation, bravado, intellect, wisdom and even temperedness to create a good work environment and to carry out the strategic model in such a way that it carves out a positive corporate culture. Unfortunately, when it comes to management, wisdom and even temperedness do not typically come from young managers. It comes from seasoned professionals who have been around a while and know how to adjust their egos and make business decisions that are well measured.

Yes a good dose of ego is good so I will have to say this: “I have always known I have gotten better with age” –LMAO   All kidding aside, this article in Mashable, The Best Entrepreneurs are Older, Have Less Ego is a good read. Essentially, up to the age of 40 you develop good entrepreneurial skills and guess what?, they don’t go away after that. This makes people in their midlife potentially great entrepreneurs. 

So, as I have titled this piece great entrepreneurs are best when aged like a fine wine or whiskey. As for me, I drink both…..but only in moderation.

Stay thirsty my friends. - LOL

A Few Good Apps

Increasingly, I have used my IPad for general business use instead of carrying around a heavy laptop that is bulky and takes time to boot up. But for the most part an IPad is simply not a great productivity device. However there are a few apps that can help you get things done when you simply want to stay productive. So here is a brief list of a few Apps that help me get the job done.

QuickOffice: This is a simple office App that handles Word documents, Excel spreadsheets, Power Point presentations and can also handle PDF documents. You can save documents on your IPad or store them on the cloud using Google Docs. It’s a great little App and it has come in handy for doing work, writing a letter, or for meetings where I can share a document, or power point on screen rather than bring in a stack of papers. Works great with a projector, just remember to bring the cable.

LogmeIn Ignition: This is a remote desktop App that allows you to work on your computer just as if you were sitting in front of your computer at the office. Although the IPad is not a productivity device, I have used it to go through my Outlook folders, retrieve files or simply look something up on my office computer. Very handy in a pinch.

CamScanner:  Ever been at a meeting and need to make a quick copy of something. But you don’t know where the copier is, don’t want to miss anything in a meeting, can’t figure out how to work the copier. Use CamScanner to take a picture of it with your IPad, print it later or simply get the information from the document via a screen view. You can do the same with the basic camera on your IPad, although this is a bit more organized. Take pictures of receipts, for travel as well, print them later and attach to your expense report

Stay Connected and Mobile!

Branding and Infrastructure

       A question that often comes from business owners as we discuss other matters is: What is my business worth? With any luck most business owners derive a regular paycheck. However, many entrepreneurs want their efforts and their dreams to be realized in some measure of monetary value. After all, we do read the business journals of fortunate business owners who ultimately sell their  businesses for profit and go on to drink Coronas on some distant beach with the ocean waves lapping at their feet. Truth be told, there is no simple answer to what a business is worth, that I could cover in this snippet. And there are also many ways in which to value a business.

       Many, perhaps the majority of small businesses are leveraged from operating revenue. This is to say that the value of the company is based on its ability to continue operations and earn a profit from revenues. Which also suggests that if you stop generating revenues, or if you remove the revenues from the business, it is potentially worth little more, if not less than, the actual book value of a company. Of course there are many exceptions beyond what I can write here. However, for illustrative purposes we will stick to that theory.

      So what if you want to sell that business in the next few years. How can you sweeten the deal, make it more attractive to a potential buyer? So much so that they would be willing to pay a premium to buy your business. Two thoughts come to mind. (a) Branding and (b) Infrastructure. Not surprising that every medium and large business in this country, if not the world, spend collectively billions of dollars a year improving these two areas.

     Branding, generally increases sales. This potentially creates a higher value by itself as many operating leveraged companies sell for multiples of revenues. Secondly, because branding essentially is a label that inherently stands for "value". Like, if you want to buy my business, I will require a premium price.  In simple terms branding is, stand for something, be recognized, or an offer of value.

      Infrastructure allows you to operate at higher efficiency. Again, potentially  higher profits and a higher value. It could also mean that you are geared for higher business volume which you have not achieved but your potential buyer knows he can. Infrastructure, gives you a competitive advantage to other competitors because it is an investment that can at times be a barrier to similar businesses who have not made the required investments. Hence, they are less able to compete in a given market, less able to increase revenues and be able to support those revenues by means of performance. Less able to deal with management and growth issues than competitors. This means your potential for additional revenues and profit is a matter of marketing. Infrastructure comes from, management information and accounting systems. Customer relations and order taking systems. Investments in machinery, equipment and perhaps vehicles. It can be hiring the right professionals. It can also come from integration of functional areas of your business model. Perhaps the development of distribution channels. In this area there are indeed countless possibilities. Simply put infrastructure refers to the business machinery required to operate.

So what have you and your accountant talked about lately?

The Art of Analytics and Listening for Leadership

          One look at any book store shelf and you can find endless books on leadership. Thinking back on my profession, I have read and studied numerous cases and books that discuss leadership, decision making and on how to be a good manager. I have to say that collectively, the reading list has helped. But truth be told, in the practical world how one goes about making business decisions is very different than how one would do a case study of business problems. Why? There are many reasons but, perhaps the most apparent explanation is that in a case study or in reading a book you have 20/20 vision.  You can do Monday morning quarterbacking. You also have time to think and analyze, and you are already primed for the fact that there is a problem in the first place. Secondly, we all have to deal with office politics. You have to pick your battles, you have to be politically correct. In some cases there literally is no way to win. No practical means to solve the problem. Your choices may be limited to simply surviving.

            Perhaps the most important thing one can take away from reading business cases and in reading leadership books is to develop your sense of analytics. It is one of the weakest areas many business managers have. I should add even great managers have trouble in this area. Developing an analytical skill set is key to being a great manager, a great leader. Understanding cause and effects, relationships in business processes, financial and logistical variables. In the end it is about how well you can connect the dots that lead you to better decisions. It's also about the ability to put yourself in someone else's shoes.

            This brings me to perhaps the most important thing I use in any leadership role: "Listening". Years ago I learned a key lesson. It really does not matter what you know or how smart you think you are in business or what you think. Sometimes, it's not even important that you know how to gauge the big problems from the small ones. If you want to solve the most problems in the shortest amount of time; "listen". In particular listen to your employees, as well as your customers. A testament to this is how often I have worked with dysfunctional companies where there was little to no system at all and yet the employees got the job done. Simply because the owner or bosses listened to the employees and the employees listened to their bosses and most importantly the employees listened to one another. Despite poor accounting, poor management systems, poor internal control, poor documentation and even poor profits the company had a large client base and there were few complaints from customers. Listening and addressing the issues together with doing "whatever it takes" compensated for everything else that was wrong in the company. Perhaps Jeff Haden in this article published in Inc. magazine on Sept 4th, 2012 demonstrates one way of listening for leadership. "Do-you-pass-this-key-leadership-test"

         To end this piece I would like to repeat something a very good boss once told me; "Don't listen to the words he is saying, listen to what he is trying to tell you". Just goes to show how much psychology there is in business, this is the very same exact line I have heard marriage counselors use in trying to get spouses to understand one another. I guess this is a case of art imitating life!

Can't wait to hear your side of the story.

Earning The Carrot

A development for many companies in a rather challenging economy is how to keep your operating expenses low yet, still provide compensation to employees that both keep them motivated and compensated for their efforts.

            The "Carrot" in front of performing employees has been a staple of many business models. But, in a bad economy it has become even more important. Many companies need to hit their profit numbers even during hard economic times. All the while, management needs to be kept motivated and focused on managing the company. Companies also need to provide for a reward system that compensates good managers for creative efforts that trickle down to bottom line profitability. We all know business profits flow from the top of the "profit and loss" statement in terms of sales revenues but, in hard times when sales are flat, profit can also flow down from trimming operating costs and by creating greater efficiency.

            One effective measure of performance I have had the opportunity to work with is  the concept of EBITDA. EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization.  In theory it is a profit and loss statement that is the representation of everything management can be held responsible for. Typically, in many companies middle management does not have any control over interest, taxes, depreciation and amortization. But in theory everything else they do control. Once EBITDA is determined, then a percentage profit sharing plan can be calculated and distributed to eligible management if, they achieve target percentages.

            Depending on the company, the calculation of EBITDA can be adjusted for various factors that would negatively impact the comparability of EBITDA from period to period.  Thereby, making profit share calculations more stable. For example a company that is forced to make significant investments in repairs and maintenance to operating equipment could exclude those expenses as  part of their EBITDA in order to truly show management efforts.  At one client I had the EBITDA calculation changed from quarter to quarter depending on circumstances.  Both management and the owners handled the calculation with fairness and bonuses were routinely paid.

            One very important factor to note is each company that contemplates using EBITDA needs to have a good base line financial reporting system. You need to determine that point of reference from which to begin tracking management efforts and you need to establish clear cut and obtainable goals.

Accountant or Bookkeeper?

By definition bookkeeping is the recording of transactions into books and records held by some entity. Typically a business but, it could be any activity that involves tracking of money, quantities etc. Bookkeeping is actually a component of accounting. Accounting is a much broader term that may include financial reporting, analyzing financial information, verification of financial information, tax reporting just to name a few of the areas under accounting. To some degree a bookkeeper is to an accountant what a law clerk is to an attorney. Or perhaps what a nurse would be to a doctor.

            Unaware of this huge difference many people, even successful business people, unknowingly insult their accountants by referring to them as bookkeepers. Of course this could also go the other way where business people think their bookkeepers are accountants.  All of this is rather intriguing because when someone faints and drops to the floor like cold salami , rarely does one say; is there a nurse in the house? You don't here people say, I am going to have my law clerk sue you!  So why is it that when people have financial and accounting problems they think they need to get a better bookkeeper?

            A look at the financial statements of any publicly traded company will show the name of the Certified Public Accountants who prepared the reports and are attesting that management has carried out their responsibility in a fair presentation of the financial statements to the public.  Accountants employ rules that are commonly called "Generally Accepted Accounting Principles" or GAAP as the guidelines of how transactions should be accounted for and reported. In addition accountants employ " Generally Accepted Auditing Standards", or GAAS to make sure that audits are performed according to professional standards.

            Accountants play a very important role in giving financial statement users more reliable financial information from which to make business decisions. Decisions on how to invest, whether to make a loan or simply how well management does what is says it will do. In our capital markets money is allocated to businesses were management performs. It allows banks to make loans to companies that can repay their loans. In small businesses accountants also play a very important role. They help management make better business decisions based on information provided by their accountants.  Accountants, help in the compliance of loan covenants, tax laws, the payment of taxes just to name a few areas of importance.  Another perhaps, more widely known role accountants play is the role of trusted advisor.  A position earned after years of training, experience and demonstrated honesty and integrity.