Factoring Blog - For Small Businesses

The recent tax stimulus package passed in the United States includes two significant tax benefits for small and midsize businesses in a position to take advantage of them. 

If you are considering big capital expenditures, 2008 would be a good the year to make those purchases so you can take advantage of the added tax breaks.

And no, I’m not talking about those piddly rebate checks.  They’ll put a little extra spending money in your pocket.  But the REAL benefits for business come from two significant depreciation and deduction provisions designed to encourage and reward you for spending in your business:

• The first-year depreciation for equipment, software and other assets you can take depreciation on (except real estate) has been almost doubled for 2008.  If you ”place in service” in 2008 assets that qualify, you can depreciate the entire cost up to $250,000 in the first year, instead of spreading it out over multiple years.  It’s called the Section 179 depreciation deduction and it’s a valuable break that can help you afford to invest in new equipment.

• The second tax break that was passed is a 50% first-year bonus depreciation for new assets, including vehicles. According to an article at AllBusiness.com, your business can immediately ‘immediately deduct half of the cost of a new asset if it’s purchased and placed in service during 2008. Then you can write off the remaining cost via the Section 179 deduction (if available) and/or regular depreciation deductions over the asset’s designated “recovery period.” ‘

For more details, including examples that illustrate how these tax benefits work, see the Allbusiness.com’s New Tax Breaks for Small Businesses.

The Bootstrapper blog at BusinessCreditCards.com rounded up 100 financial calculators.  There are calculators for:

• Working Capital Needs

• Debt to Assets

• Pay Per Click ROI (to determine where you pay-per-click online advertising campaigns are paying off)

• Wage Conversion (converting wages from hourly to weekly, weekly to monthly, etc.)

• Gas Guzzling Calculator (to determine what various vehicles’ mile-per-gallon differences cost you in a year)

And there are a lot more, including some fun ones, such as how your business’s revenues compare with what movie stars make).

Check out the entire list of calculators.  Bookmark the entire list or just some of them, for future reference.

I am fascinated by online tools that help you value your business. 

You know the ones I am talking about.  They’re interactive tools where you plug in a few bits of information into some text boxes on a website.  Then you instantly get back a valuation range for a business in your industry.  Or you might get back comparable sale data on businesses that have sold recently.

These tools fall somewhere between mere fun and giving you a quick ballpark idea of recent sales amounts:

• CNNMoney.com has a very general business valuation calculator. It calculates multiples of earnings for six broad industry categories.

• BizBuySell.com offers free business valuation comparables. These are much more detailed than the CNNMoney tool. You can break down your inquiry into narrower industry categories and get much more granular. Also, they generate cash-flow multipliers and revenue multipliers. However, they only cover the BizBuySell listings.

Naturally,  I would not recommend relying on these tools in setting or negotiating a sales price, unless you are talking about a very small business (perhaps an ad-based website) where your expectation of a purchase price is $10,000 or something like that. In those situations sellers typically do not get valuations done anyway (because the low price does not justify the expense of a valuation), so I guess a free online calulator is better than nothing.

Most businesses, however, require a true valuation done by a trained professional.  He or she can help get the most for a business should your company go up for sale. 

But that doesn’t mean you can’t have a little fun with one of these online tools. 

AllBusiness.com has a quick checklist for developing a business credit rating.  There’s nothing earth-shatteringly surprising on the checklist. 

But you really should pay attention to this aspect of your business. 

For instance, do you check your Dun & Bradstreet profile?  Do you even have a Dun & Bradstreet profile? 

Not that I’m pushing it or anything – but over at the D&B website they have a variety of services to help you establish a Duns number.  Some business partners, trade creditors and insurers may look at it.

Here’s a radical idea.  If you are looking for some funding you never have to repay, consider a business contest. 

Contests and competitions designed for entrepreneurs seem to be in vogue these days.  At any given time there are dozens of high-profile contests going on.

And the cash prizes in some of them are enough to make you sit up and pay attention - $5,000 is routine.  $10,000 a month at Ideablob ups the stakes.  And some contests offer more than that for the grand prize winner.  For instance, Intuit’s Just Start contest is offering a $50,000 grand prize ($40K in cash and $10K in services).

But as you might imagine, the more money at stake, and what with drawing on large numbers of entrants from the Web, the competition can be pretty stiff.  For instance, in the Just Start campaign some of the video entries were clearly the result of many hours, if not days, of work. 

For that reason, I suspect many contests are best suited for startup entrepreneurs   It’s as if you have to work as hard at the contest entry as you do for your business.

But still, for a business in the right circumstances, it is an interesting alternative source of funding.

Michelle at Small Business Buzz has a good, easy-to-skim checklist for how to find a good accountant.  If you don’t have an accountant or just are not satisfied with the one you have, it’s time to take action.  Tax season is upon us. 

I have found that having a good accountant can help you grow your business.  Having a close relationship with an accountant does several things, beyond the obvious of helping you with your books and your taxes:

(1) A good accountant imposes fiscal accountability.  I don’t know about you, but when my accountant sends reminders about estimated tax filing deadlines and 1099 filing deadlines, for instance, it makes me pay attention and not let dates slide.  For some reason I am more inclined to pay attention than if I set reminders for myself in QuickBooks or in my calendar.

(2) Your accountant is a fabulous source of advice on a variety of topics.  Sometimes it helps to discuss an issue with your accountant.  For instance, discussing whether you should draw salary or take distributions.  Or discussing how to structure your business entities.  No matter how much you think you know, a good accountant often provides a new perspective that you haven’t thought of. 

(3)  A good accountant is an excellent source of important contacts in your local area, for important life and business transactions.  Good accountants often know who the “go to” people are in your town.  If you need to sell your business, start with your accountant for recommendations of a good local business broker.  If you need an attorney and don’t have one, your accountant often can recommend a good one.  Need some better health insurance options?  A good accountant can often make suggestions for a good insurance agent.

At this time of year, during their peak season, some accountants may not even be taking on new clients until after this tax season.  If you find that the accountant you want to hire tells you that, then make a reminder to yourself to find one AFTER tax season is over.  Don’t wait until tax season next year, when it will be too late.

I just found a wonderful spreadsheet template that you can use for advanced financial planning for your business. 

It’s called the FastTrac Financial Template and it’s by the Kauffman Foundation.

Among other things, it can help you calculate “days receivable” for your business, to see how long it is really taking you to get your money. 

Traditionally the week between Christmas and New Years is slow for many businesses. 

Some people use the days during this week for vacations or going out of town to visit family.  But if you’re like me you’ve stayed in town.  After a few family get togethers and some festivities, pretty soon you’re restless.  Work begins to beckon.  

That when I hit the books.  Not academic books, but rather my financial books.

During this last week of the year I have more time to think about my business, because I am not working on my business. 

I find it’s a great time to take stock of how the year went.  That puts you in a frame of mind to think about the big picture for the upcoming year.

 Here are some good activities to do during the last week of the year:

• Assemble and organize tax documentation that you will need for taxes in another month or so. No matter how organized you are, there are always some loose ends to organize or pull together — for personal taxes, business taxes or both. Not only will you be a step ahead when you start preparing your information for your tax preparer, but the act of organizing does something else: it gets you closer to your financial situation.

• Review (and I mean really review) your P&L and balance sheet. You will understand you business better the more familiar you are with them.

• Run sales projections for 2008. If you’ve already go those and a strategic plan — good for you. Just don’t go “naked” into the new year, without having a good handle on where your money is coming from next year.

I’m sure you can think of some other items to review and evaluate. Just do it!

As an entrepreneurs and business owners we can get so focused on the day-to-day aspects of running a business (or sometimes just surviving!) that we forget the long term picture.  It pays to raise your head up from time to time.

For instance, do you have an exit strategy?

OK, don’t laugh.  I know for some of you the exit strategy you’re thinking of may be nothing more sophisticated than a gurney on the way to the funeral home. 

But if you have plans to retire before that day occurs, or if you want to ensure you leave a legacy for your kids or involve employees in ownership, then you’ll want to find time to think about that exit strategy.  Here’s why:

” … [I]f you wish to share equity with your employees or with your heirs, it is important that you start early, when the company valuation (and share price) is low. U.S. tax laws severely limit gifts to heirs; hence, it will take many years to pass the business on to children. Assuming the company experiences consistent growth, sharing equity with employees can be rewarding at any stage in the business cycle. However, transferring total ownership to the employees, including the sale of your shares, is more easily accomplished by starting early, when the company valuation is low. * * *

The proceeds from the sale of a private company are usually for cash, for shares of a public company, for shares of a private company, or for a combination of the above. This is generally a move toward greater liquidity in your personal estate. You are selling illiquid shares of your private company for cash and/or shares of a public company that will eventually become liquid.
This allows the successful entrepreneur, who often has nearly 100 percent of his or her assets tied up in the business, the option of diversifying his or her portfolio of investments. Some entrepreneurs sell to other private companies and achieve asset diversification by becoming
part of the larger, merged business. While immediate liquidation may not be their primary driver, entrepreneurs who take this course usually move closer to a liquidation opportunity.”

The above quote gets at the major downside of small businesses: they eat cash. Some lucky percentage of small businesses throw off good cash flow, but I’d say the majority do just the opposite and scarf up cash like the Cookie Monster gobbling cookies. And of course we’re always scratching around for money, because it’s all tied up in the business.

Mind you, I’m not complaining about owning a small business and neither should you (never complain, just do something about it). But if you can plan to eventually draw out the cash that you’ve put in, wouldn’t that be a wonderful end goal?

For more about exit strategies, read: Choosing Your Exit Strategy at the Biz Info Library.

One of the best tools to stay on top of your finances and also manage cash flow and profit and loss, are dashboards.  Let me give a rundown of a few of these dashboards:

MyBizHomepage — MyBizHomepage is a free Web-based service that gives you financial analytics to run your business more profitably.  It works along with QuickBooks.  So if you use QuickBooks, it will extract data from your QuickBooks account and display it in a dashboard.  It’s password-protected, so only you see your data — it’s your private dashboard. 

ExcelWithMonarch — Organizations of all sizes can easily and quickly implement their own custom dashboard systems with software most every business already has: Microsoft Office Excel.

Using Datawatch’s Monarch software you can feed current data into Excel. Think of Monarch as a universal data translator. According to a Web comment by the owner of the ExcelwithMonarch site, by using Monarch and Excel, you “can extract data from report files, databases, PDFs and many other sources, and output to a number of formats, including Excel files. This really is a knockout combination as an organization can define exactly what content they need to see in their dashboard, how they want to visualize it (charts, tables, etc.), and (this is the best part) they can make the most of the software tools (accounting, ERP, etc.) they already use.”

Salesforce.com — If you are a user of Salesforce.com and you want to measure more than just your finances, the dashboards available with Salesforce.com are useful. You can have a dashboard to show critical metrics for sales and marketing, for instance.

Roll Your Own — This article at TechSoup outlines how you can create a customized dashboard using a portal software such as Microsoft’s Sharepoint.