New requirements for Small Business under The Employer Mandate of the Affordable Care Act

The Employer Mandate of the Affordable Care Act was extended to 2015 this past July.  However, the Department of Labor requires that a new form be sent to all employees by October 1, 2013. 

If your company has revenue greater than $500,000 and has one or more employees, a required form titled “Notice to Employees of Health Insurance Marketplace Coverage Options” must be sent to each employee which must include an analysis of whether the employer's health plan meets the "Minimum Value" and is "affordable" as defined in the IRS code. 

If you have any questions, please call our office

RESPONSABILITIES OF RUNNING A BUSINESS

As a small business owner, you can have the ability of creating something for yourself rather than for someone else.  You also have a unique lifestyle; more freedom and flexibility than that of an employee. However, you also have greater responsibilities. As a business owner you might retain the services of professionals such as accountants, attorneys and human resources professionals.  However at the end of the day, you are the one responsible to understand the basics.  For example giving your bookkeeper full range of responsibility of overseeing your financial records without accountability or taking their representations at face value without asking questions is not being a responsible business owner.  You should question and challenge the advice provided by attorneys, CPAs and other professionals.  This is one way to evaluate the effectiveness of your professional.  If they have problems with being questioned, then get a new professional.  This might cost you in higher fees, but at the end of the day, you will be rewarded in being assured in having top notch professionals on your team.

Another mistake some business owners make is giving total administrative control over the other partner.  It is good to have one partner to be given the task of a CEO, also known as a tax partner.  However that person should give monthly reports to the other partners, including financial statements.  This might be tough if the other partner(s) are friends or family, but you are involved in a business which is your livelihood.  Business MUST be separate from personal relationships.  This might be easier said than done, but doing so will not only protect your business but also your personal relationships. In some cases it is best to never do business with friends and family

If you are intimidated in tax and accounting concepts you might want to take some good seminars provided by Small Business Development Centers, sponsored by U.S. Small Business Administration [SBA].  These seminars are a great way to get grounded without trying to be an accountant.  They can be found on the web at

http://www.sba.gov/content/small-business-development-centers-sbdcs

Another resource might be the local city college.  But in any event, remember it is your business and at the end of the day you are the only person responsible for its success.

Year-End Tax Planning Moves for Businesses

As the end of the year approaches, many are looking for ways to reduce their business profits before year's end. Here are some possible moves that might apply to your situation.

Self-employed Retirement Plans - If you are self-employed and haven't done so yet, you may wish to establish a self-employed retirement plan. Certain types of plans must be established before the end of the year to make you eligible to deduct contributions made to the plan for 2012, even if the contributions aren't made until 2013. You may also qualify for the pension start-up credit.

Increase Basis - If you own an interest in a partnership or S corporation that is going to show a loss in 2012, you may need to increase your basis in the entity so you can deduct the loss, which is limited to your basis in the entity.

Hire Veterans - If you are considering hiring some new employees between now and the end of the year, you might consider hiring a qualifying veteran so that you can qualify for the work opportunity tax credit (WOTC). The WOTC for hiring veterans in 2012 ranges from $2,400 to $9,600, depending on a variety of factors (such as the veteran's period of unemployment and whether he or she has a service-connected disability).

Purchase Equipment - If you are in the market for new business equipment and machinery and you place them in service before year-end, you will qualify for the 50% bonus first-year depreciation allowance. Or, you can elect to expense up to $139,000 of the newly acquired items using the Sec 179 expensing allowance. The $139,000 expense limit is reduced by one dollar for every dollar in excess of the $560,000 annual investment limit.

Purchase an SUV for Business - If you are in the market for a business car, and your taste runs to large, heavy SUVs (those built on a truck chassis and rated at more than 6,000 pounds gross [loaded] vehicle weight), consider buying in 2012. Due to a combination of favorable depreciation and expensing rules, and depending on the percentage of business use, you may be able to write off most of the cost of the heavy SUV this year.

These are just some of the year-end steps that can be taken to save taxes. Please contact this office so we can tailor a plan to your particular needs.

ENSURING FINANCIAL SUCCESS FOR YOUR BUSINESS

Can you point your company in the direction of financial success, step on the gas, and then sit back and wait to arrive at your destination?

Not quite. You can't let your business run on autopilot and expect good results. Any business owner knows you need to make numerous adjustments along the way - decisions about pricing, hiring, investments, and so on.

So, how do you handle the array of questions facing you? One way is through cost accounting.

Cost Accounting Helps You Make Informed DecisionsCost accounting reports and determines the various costs associated with running your business. With cost accounting, you track the cost of all your business functions - raw materials, labor, inventory, and overhead, among others.

Note: Cost accounting differs from financial accounting because it's only used internally, for decision making. Because financial accounting is employed to produce financial statements for external stakeholders, such as stockholders and the media, it must comply with generally accepted accounting principles (GAAP). Cost accounting does not.

Cost accounting allows you to understand the following:
1. Cost behavior. For example, will the costs increase or stay the same if production of your product goes up?
2. Appropriate prices for your goods or services. Once you understand cost behavior, you can tweak your pricing based on the current market.
3. Budgeting. You can't create an effective budget if you don't know the real costs of the line items.

Is It Hard?
To monitor your company's costs with this method, you need to pay attention to the two types of costs in any business: fixed and variable.

Fixed costs don't fluctuate with changes in production or sales. They include:
• rent
• insurance
• dues and subscriptions
• equipment leases
• payments on loans
• management salaries
• advertising

Variable costs DO change with variations in production and sales. Variable costs include:
• raw materials
• hourly wages and commissions
• utilities
• inventory
• office supplies
• packaging, mailing, and shipping costs

Tip: Cost accounting is easier for smaller, less complicated businesses. The more complex your business model, the harder it becomes to assign proper values to all the facets of your company's functioning.

We Can Help
If you'd like to better understand the ins and outs of your business and create sound guidance for internal decision making, you might consider cost accounting. Allow us to evaluate your business from top to bottom and determine the real cost of each component. With that as a foundation, we can help you draft budgets, adjust pricing, keep an appropriate level of inventory, and much more. Give us a call today at 562-912-4334.

Please note, to comply with IRS regulations, we need to advise that any discussion of federal tax issues in this blog is not intended or written to be used, and cannot be used by you, (i) to avoid any penalties imposed under the Internal Revenue Code or (ii) to promote, market or recommend to another party any transaction or matter addressed herein. For more information please go to http://www.lw.com/docs/irs.pdf

CASH FLOW – THE PULSE OF YOUR BUSINESS

Unfortunately, many small business owners do not fully understand their cash flow statement. This is shocking, given that all businesses essentially run on cash, and cash flow is the lifeblood of your business.

Some business experts even say that a healthy cash flow is more important than your business's ability to deliver its goods and services! That is hard to swallow, but consider this: if you fail to satisfy a customer and lose that customer's business, you can always work harder to please the next customer. However, if you fail to have enough cash to pay your suppliers, creditors, or employees, you are out of business!

What Is Cash Flow?
Cash flow, simply defined, is the movement of money in and out of your business; these movements are called inflow and outflow. Inflows for your business primarily come from the sale of goods or services to your customers. The inflow only occurs when you make a cash sale or collect on receivables, however. Remember, it is the cash that counts! Other examples of cash inflows are borrowed funds, income derived from sales of assets, and investment income from interest.

Outflows for your business are generally the result of paying expenses. Examples of cash outflows include paying employee wages, purchasing inventory or raw materials, purchasing fixed assets, operating costs, paying back loans, and paying taxes.

Note: An accountant is the best person to help you learn how your cash flow statement works. Please contact us and we can prepare your cash flow statement and explain where the numbers come from.

Cash Flow Versus Profit
Profit and cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat broad and only looks at income and expenses over a certain period, say a fiscal quarter. Profit is a useful figure for calculating your taxes and reporting to the IRS.

Cash flow, on the other hand, is a more dynamic tool focusing on the day-to-day operations of a business owner. It is concerned with the movement of money in and out of a business. However, more important, it is concerned with the times at which the movement of the money takes place.

Theoretically, even profitable companies can go bankrupt. It would take a lot of negligence and total disregard for cash flow, but it is possible. Consider how the difference between profit and cash flow relate to your business.

Example: If your retail business bought a $1,000 item and turned around to sell it for $2,000, then you have made a $1,000 profit. However, what if the buyer of the item is slow to pay his or her bill, and six months pass before you collect on the account? Your retail business may still show a profit, but what about the bills it has to pay during that six-month period? You may not have the cash to pay the bills despite the profits you earned on the sale. Furthermore, this cash flow gap may cause you to miss other profit opportunities, damage your credit rating, and force you to take out loans and create debt. If this mistake is repeated enough times, you may go bankrupt.

Analyzing Your Cash Flow
The sooner you learn how to manage your cash flow, the better your chances for survival. Furthermore, you will be able to protect your company's short-term reputation as well as position it for long-term success.
The first step toward taking control of your company's cash flow is to analyze the components that affect the timing of your cash inflows and outflows. A thorough analysis of these components will reveal problem areas that lead to cash flow gaps in your business. Narrowing, or even closing, these gaps are the key to cash flow management.

Some of the more important components to examine are:

• Accounts receivable. Accounts receivable represent sales that have not yet been collected in the form of cash. An accounts receivable is created when you sell something to a customer in return for his or her promise to pay later. The longer it takes your customers to pay on their accounts, the more negative the effect on your cash flow.
• Credit terms. Credit terms are the time limits you set for your customers' promise to pay for their purchases. Credit terms affect the timing of your cash inflows. A simple way to improve cash flow is to get customers to pay their bills more quickly.
• Credit policy. A credit policy is the blueprint you use when deciding to extend credit to a customer. The correct credit policy - neither too strict nor too generous - is crucial for a healthy cash flow.
• Inventory. Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. An excessive amount of inventory hurts your cash flow by using up money that could be used for other cash outflows. Too many business owners buy inventory based on hopes and dreams instead of what they can realistically sell. Keep your inventory as low as possible.
• Accounts payable and cash flow. Accounts payable are amounts you owe to your suppliers that are payable sometime in the near future - "near" meaning 30 to 90 days. Without payables and trade credit, you would have to pay for all goods and services at the time you purchase them. For optimum cash flow management, examine your payables schedule.

Some cash flow gaps are created intentionally. For example, a business may purchase extra inventory to take advantage of quantity discounts, accelerate cash outflows to take advantage of significant trade discounts, or spend extra cash to expand its line of business.

For other businesses, cash flow gaps are unavoidable. Take, for example, a company that experiences seasonal fluctuations in its line of business. This business may normally have cash flow gaps during its slow season and then later fill the gaps with cash surpluses from the peak part of its season. Cash flow gaps are often filled by external financing sources. Revolving lines of credit, bank loans, and trade credit are just a few of the external financing options available that you may want to discuss with us.

Monitoring and managing your cash flow is important for the vitality of your business. The first signs of financial woe appear in your cash flow statement, giving you time to recognize a forthcoming problem and plan a strategy to deal with it. Furthermore, with periodic cash flow analysis, you can head off those unpleasant financial glitches by recognizing which aspects of your business have the potential to cause cash flow gaps.

Please call us at 562-912-4334 to discuss cash flow management and analysis. We are happy to help you handle your cash surplus effectively and maintain adequate funds to cover day-to-day expenses.