Lester Bahr CPA, LLC
Allentown, Pennsylvania
Enlightened solutions within your grasp
There are no certainties when it comes to business cycles, and no amount of guesswork will protect the small business owner from the ups and downs of a changing economy. There are, however, fundamental steps you can take to minimize disruptions from increasing prices, changing consumer habits, growing operating risks, competition and fraud.
10 Critical Areas to Achieve Business Success
These ten critical area are important for the growth and continuity of your business and apply to most phases of the business cycle. Although ten issues are identified, the list is not all inclusive, nor is it in priority order
1. Business Planning
A business begins with a clear definition of statement of a mission. The following are some important considerations when developing your plan.
- Gauge your market's potential size.
- Recognize customer needs
- Analyze industry statistics and competitive market data
- Identify potential promotional and advertising strategies
- Define your offerings
- Determine the economic climate with your market such as rising interest rates, increasing unemployment, etc.
- Confer with professional advisors, such as a CPA, attorney, insurance broker or lender
2. Financial Planning
Not only do you need to have funds available to grow the business, you must also efficiently manage those funds. Your business proposal should clearly outline your plans for growth or expansion. It's important to be prepared to articulate your objectives in running your business and be able to answer these questions.
- What type of loan should I get?
- What is the repayment plan best suited to my situation?
- What is the cash flow necessary for me to repay the loan?
- How will I use the loan proceeds?
- What type of collateral might I need to qualify for the loan?
- At the same time, you must consider cash flow management. This involves:
Forecasting, budgeting, receiving, controlling, disbursing and investing funds generated by your business's operations
Improving liquidity and increasing profits by increasing cash inflow; reducing cash outflow; and investing idle funds in higher yielding vehicles.
3. Marketing Your Business
Here are some ideas for promotional efforts to raise the visibility of your business.
- Look for new niche markets you can serve and customize your advertising to appeal to the special needs of prospects in each niche.
- Identify and respond to emerging trends.
- Raise your visibility in the geographic market in which your business operates by giving speeches at local business associations like the Chamber of Commerce or the Rotary Club and of couse, the internet local search.
- Create brochures or flyers to distribute in the town or city in which your business operates.
4. Selecting the Best Business Entity Structure
The proper structure for your business will impact its operating efficiency as well as determine the tax treatment.
Sole Proprietorship - A one-person business. All business income and losses are reported on your personal income tax return, and you are personally liable for any business obligations.
Partnership - A business owned by two or more people, each personally liable for any business debts or legal claims. In a partnership, you as a partner pay tax on your share of the business income on your personal income tax return.
Limited Partnerships - A partnership where the general partner is responsible for running the business and is liable for its debts. The limited partner has minimal business control and no exposure to business debts. This type of structure is taxed similar to a partnership if meeting certain criteria.
Limited Liability Companies - A business similar to corporations in that they provide limited personal liability for business debts and claims. But, the owners of an LLC pay taxes on their share of the business income on their personal tax returns, like partnerships.
C Corporations - A corporation where taxes on business profits are paid by the corporation. You and the other owners pay individual income tax on money that is withdrawn from the corporation as salary, bonus or dividends.
S Corporations - A corporation where all business profits "pass through" to the owners who report them on their personal tax returns.
5. Managing Business Risk
Risk management involves protecting yourself against potential loss through insurance for:
- Group life
- Group health
- Casualty and theft
- Disability
- Workman's compensation
- Key man
- Automobile
- Other special coverages as applicable.
It is important to have periodic risk assessments and coverages reviewed by your insurance agent.
6. Managing Your Workforce
As a business owner, it is important to have all the proper human resource functions in place. If you are a small business that does not have this capability in-house, then again this is one of the business functions that will best be outsourced to a HR provider.
7. Leveraging Technology
Moore' Law states that the processing speed of computers will double every 18 months, so it pays to make sure technology serves the needs of your business. As an added incentive to leverage new technologies, the federal government currently allows businesses to write off significant costs for new equipment purchases under section 179 and/or bonus depreciation methods. This applies even if the equipment is financed by debt.
8. Succession Planning
Many family-owned businesses do not survive the transition from founder to second generation. So, this is where the importance of a good business succession plan comes into play which can address issues associated with:
- Transferring management to one person whether your child or a non-family member.
- Transferring equal shares of business ownership to family and non-familty members.
- Planning ahead well in advance in continuing the business on the part of family members.
- Developing strategies for minimizing potential adverse tax effects in the transfer of the business.
9. Protecting Against Fraud
As a result of the increasing use of technology and online services, businesses now more than ever need to protect themselves against fraudulent activity ranging from identity theft - such as stolen bank account numbers - to the illegal generation of documents as a sales invoices, purchase orders and bank statements. It's a good idea to conduct periodic audits of operations, processes and accounting procedures to ensure the proper functioning of all controls and to uncover any irregularities. Therefore, make sure to:
Check your credit report on a periodic basis to see if there are any warning signs.
Install proper firewalls, virus protection and encryption for your business computer system, and regularly consult with your IT company for areas of vulnerability.
Shred all unnecessary financial documents.
10. Using Professional Advisors
Choosing the right professional advisors is critical in reaching business goals. CPA's are widely used because of their broad financial expertise and knowledge of how businesses can be managed profitably and positioned for growth. Equally important is your attorney's recommendations in matters concerning the legal structure of your business, contractual arrangements with suppliers and distributors, leases and litigation protection, and so on.
Whether you are looking for a CPA or an attorney, here are some screening questions to ask:
- How long have they been practicing?
- Can they provide references?
- What is their expertise level with your type of business?
- How are their fees determined?
- How much time will they need to handle the service and when can they begin?
- You should also establish a strong working relationship with your lender so that you can get the financing you need to establish or expand your business.
