Business Performance

One of the responsibilities that business owners have is to ensure compliance with tax laws. Thankfully, your CPA helps with this complex task, but there are some aspects of being a business owner that must be decided as an owner. One of those is compensation. While your CPA can help to guide you, you must determine how much to pay yourself and your employees. More importantly, determining reasonable compensation isn’t only an internal decision; it’s a crucial component of legal compliance. And it has ramifications as far as ensuring your company has the financial stability to be economically viable far into the future. Missteps in setting compensation can lead to audits, penalties, or even conflicts within the company. Here are X ways to help ensure your business compensation is reasonable:

1. Know What Reasonable Compensation Means

Reasonable compensation isn’t just a random term. It’s an important term that the IRS uses when it scrutinizes compensation for S corporation shareholders and other business owners, especially in cases where salaries may appear artificially low to avoid payroll taxes. It’s defined as the compensation that would be typically paid to anyone else who possesses similar skills, education, background and other qualifications, and who holds a comparable job title in the same industry or region or both. 

Just as an example, if you pay yourself as the owner and chief structural engineer of a structural engineering company only $20,000, that’s not reasonable compensation. Most others in that industry and with that title would get at least twice that and probably three times that amount. The IRS would be suspicious of this, with the suspicion being that you’re trying to pay less in payroll taxes and personal income tax with this strategy. 

2. Research the Industry Standards

Spend some time online researching data on salary ranges. A good source to start with is the Bureau of Labor Statistics. You can also look at industry reports, which often reveal key personnel salaries. There are also 3rd party companies that offer this service, where you can enter details about your industry, company size, location and levels of expertise and get back a report about reasonable compensation ranges that you can use to make informed decisions about your own compensation decisions.

3. Record the Role’s Responsibilities

Outline the specific duties and responsibilities of the position that you’re researching. A clear job description can help justify the compensation level by aligning it with the workload and expertise required. Documenting these details can also serve as evidence in case you do end up with an audit on your hands. One easy way to do this is to write up a job listing. Detail all the responsibilities that a new hire would be expected to fulfill. This process—even if you aren’t actually hiring at the moment—can help you to clarify your thoughts around the role of that position.

4. Weigh the Qualifications

Carefully evaluate the qualifications of the individual. Include job-specific experience that uniquely qualifies that person for the role. Advanced degrees, certifications, or a proven track record of success in similar positions can justify higher compensation, while a lack thereof can justify a lower compensation. Note your process of evaluation in writing so you don’t have to rely on memory should it be questioned at a later date.

5. Balance Salary and Distributions

For S corporations, balancing salary and shareholder distributions is particularly important. While distributions are not subject to payroll taxes, underpaying yourself in salary to maximize distributions can trigger IRS scrutiny. A reasonable salary should reflect the value of the work performed for the business.

6. Factor in Business Performance

Your business’s profitability can influence compensation levels. During high-profit years, it may be reasonable to offer bonuses or raises. Conversely, in lean years, adjustments to salary may be necessary to maintain financial stability.

7. Separate Personal Expenses from Compensation

It’s essential to distinguish between business compensation and personal benefits. Using company funds for personal expenses can lead to accusations of unreported income. Clearly define and document any perks or benefits provided.

8. Periodically Review Compensation Levels

Markets and business conditions change over time, so regularly reviewing and adjusting compensation is important. Conduct annual or biannual reviews to ensure pay remains competitive and reasonable according to market rates.

9. Avoid Excessive Compensation

While underpaying can be problematic, so can overpaying. Excessive compensation might raise red flags with tax authorities, particularly if it’s perceived as a way to divert profits for tax benefits. Keep salaries within justifiable limits based on the role and business performance.

10. Consider Non-Cash Compensation

In some cases, offering non-cash benefits such as stock options, profit sharing, or additional vacation time can complement cash salaries. These perks can enhance overall compensation while aligning with long-term business goals.

11. Conduct Peer Comparisons

Comparing your compensation to peers in similar businesses can provide a reality check. If your pay significantly deviates from the norm, it’s worth revisiting your structure to ensure it’s justified and reasonable.

12. Align with Shareholder Expectations

If your business has multiple owners, shareholders or other stakeholders, ensure that compensation aligns with agreed-upon expectations. Transparency in pay structures can help avoid conflicts and maintain trust among stakeholders.

13. Prepare for Audits

If the IRS or other authorities question your compensation, being prepared with documentation and justification can make all the difference. Having clear, well-documented reasoning behind your pay decisions demonstrates your commitment to compliance.

Ensuring reasonable business compensation is an ongoing process that requires diligence, research, and a clear understanding of legal and market standards. By following these steps, you can protect your business from financial and legal risks while maintaining fair and justifiable pay structures. If you’re uncertain about any aspect of compensation, consulting with experts can provide the clarity and support needed to navigate this critical area effectively.

by Kate Supino

Running a business involves a delicate balance of ambition, strategy, and financial management. While success stories often take center stage, the reality is that many businesses face financial challenges that can spiral into bankruptcy if left unchecked. By understanding the most common causes of business bankruptcy, business owners can recognize the warning signs early and take steps to safeguard their company’s future.

Insufficient Cash Flow

One of the most common reasons businesses face bankruptcy is poor cash flow management. A company might appear profitable on paper but struggle to pay bills, salaries, and other obligations due to insufficient liquidity. This issue often arises from delayed payments from customers, overinvestment in inventory, or failing to budget for seasonal fluctuations.

A CPA can play a critical role here, helping businesses analyze cash flow patterns, create realistic budgets, and develop strategies to maintain liquidity during challenging times.

Excessive Debt

Debt can be a double-edged sword. While it enables businesses to grow and invest, excessive borrowing without a clear repayment plan can lead to financial disaster. Interest payments on loans can quickly accumulate, reducing available funds for daily operations.

This issue is particularly problematic for startups or businesses experiencing slow growth. Taking on too much debt early in the lifecycle of a business, without understanding repayment schedules or potential risks, often leads to an unsustainable financial position.

Poor Financial Planning

A lack of strategic financial planning is another significant factor behind business bankruptcies. Many entrepreneurs fail to account for long-term expenses or unexpected costs, leaving their business vulnerable to sudden changes in market conditions or operational hiccups.

For instance, inadequate planning for tax obligations can lead to hefty penalties, which could push an already struggling business into insolvency. Consulting with a CPA can help businesses create comprehensive financial plans, ensuring taxes, payroll, and other critical expenses are accounted for well in advance.

Economic Downturns

Economic fluctuations can have a profound impact on businesses. During recessions or periods of economic instability, consumer spending typically declines, and businesses may find it harder to maintain revenue levels.

While some companies can pivot or downsize to weather economic storms, others with fixed overhead costs or limited adaptability may find themselves unable to sustain operations. Even well-managed businesses can struggle in the face of prolonged downturns or industry-specific challenges, such as reduced demand or increased competition.

Market Misjudgment

Misreading the market is another common cause of bankruptcy. This often stems from overestimating demand for a product or service or failing to adapt to shifting consumer preferences.

For instance, a business that invests heavily in manufacturing a product without thoroughly researching its potential market could find itself with surplus inventory and no buyers. Similarly, ignoring trends like digital transformation or sustainability can leave businesses lagging behind competitors.

Ineffective Leadership

Leadership plays a crucial role in the success or failure of any business. Poor decision-making, lack of experience, or failure to delegate can lead to significant missteps that jeopardize a company’s financial health.

For example, leaders who make impulsive financial decisions, neglect team input, or fail to prioritize key performance indicators (KPIs) often steer their businesses into trouble. Strong leadership requires a balance of vision, adaptability, and fiscal discipline to navigate challenges effectively.

Legal Issues

Legal disputes can quickly drain a business’s resources, especially if settlements or penalties are substantial. Whether it’s a lawsuit from a disgruntled employee, a customer dispute, or a breach of regulatory compliance, legal costs can add up and disrupt cash flow.

Small and medium-sized enterprises (SMEs) are particularly vulnerable, as they often lack the financial cushion or legal expertise to handle such challenges. Proactive measures, including consulting legal and financial professionals, can help mitigate these risks.

Overexpansion

Growth is often seen as the ultimate goal for businesses, but expanding too quickly can backfire. Opening new locations, hiring additional staff, or investing heavily in new markets without sufficient capital or market research can lead to overextension.

Businesses that overexpand often find themselves grappling with higher operational costs and insufficient revenue to cover those expenses. A steady, calculated approach to growth is essential to avoid spreading resources too thin.

Dependence on a Single Revenue Stream

Relying too heavily on one customer or revenue stream is a precarious strategy. If that customer leaves or the demand for that product declines, the business may face an immediate financial crisis.

Diversifying income sources can provide a safety net, ensuring that no single failure significantly impacts the company’s overall stability.

Ignoring Technological Advancements

In today’s fast-paced business environment, failing to embrace technology can render a business obsolete. Companies that stick to outdated methods or refuse to invest in digital tools often lose their competitive edge.

Whether it’s leveraging e-commerce platforms, adopting customer relationship management (CRM) systems, or using data analytics for decision-making, embracing technology is essential to remain relevant and efficient in a competitive market.

Rising Costs and Inflation

Cost increases in areas like labor, raw materials, and utilities can erode profit margins, making it harder for businesses to stay afloat. Inflation exacerbates this issue, particularly for companies unable to pass higher costs onto customers without losing their competitive edge.

Businesses need to continuously monitor expenses and renegotiate contracts with suppliers where possible. Creating a lean operational model can also help reduce vulnerabilities to rising costs.

Lack of Crisis Preparedness

Unexpected crises, such as natural disasters, pandemics, or cyberattacks, can disrupt business operations and lead to bankruptcy if companies are unprepared. The COVID-19 pandemic, for instance, highlighted the importance of having contingency plans to address unforeseen disruptions.

Businesses should have emergency funds, insurance coverage, and contingency plans to ensure resilience during crises.

Consequences of Bankruptcy

Bankruptcy is not just a financial event; it carries far-reaching consequences for the business owner, employees, and stakeholders.

Reputational Damage: Filing for bankruptcy can harm a company’s reputation, making it difficult to secure future funding or rebuild trust with customers and partners.

Loss of Assets: In many cases, assets may need to be liquidated to pay off creditors, leaving the business owner with little to restart.

Emotional Stress: The process of bankruptcy can be emotionally taxing, particularly for small business owners who have invested significant personal resources and time.

How to Avoid Bankruptcy

While some causes of bankruptcy are beyond control, many can be mitigated with proactive measures. Regular financial reviews, strategic planning, and seeking expert advice are critical.

A CPA can be instrumental in helping businesses avoid financial pitfalls. By providing insights into cash flow management, tax planning, and budgeting, CPAs can guide businesses toward sustainable financial practices.

Additionally, fostering a culture of adaptability and innovation can help businesses respond to market changes and crises more effectively. Leaders should prioritize continuous learning, invest in their teams, and remain vigilant for early signs of trouble.

Business bankruptcy often stems from a combination of factors rather than a single issue. Whether it’s poor cash flow management, overexpansion, or an inability to adapt to changing market conditions, the risks can often be mitigated through careful planning and professional guidance.

By recognizing the common causes of bankruptcy and taking steps to address vulnerabilities, businesses can position themselves for long-term success. And remember, whether you’re managing your cash flow or navigating complex tax laws, a trusted CPA can be an invaluable ally in keeping your business financially healthy and resilient.

by Kate Supino

One of the most common problems of small businesses is cash flow. A business can have all kinds of money coming in each month, but if it doesn’t come in at the right time, financial chaos can happen. Bills go unpaid, paychecks bounce, and business credit is ruined. Maintaining healthy cash flow is a combination of skill, experience and business savvy. Luckily, your CPA is a master of helping to ensure a good cash flow. But you need to know what practices to implement in your business so you, too, can become adept at ensuring there is always cash available to continue operations. 

Closely Monitor Cash Flow 

When it comes to cash flow, it’s good to be a micromanager. Keeping an eye on your cash flow accomplishes two things; you’ll sleep better knowing exactly what position you’re in, and you’ll be able to more quickly identify potential problems before they turn into a financial crisis. Your CPA and bookkeeper will also be keeping an eye on things, but a second or third set of eyes never hurts, either.

Invoice Immediately

Invoices should go out immediately after services have been rendered or products have been ordered. Remember, the payment terms time clock starts as soon as the invoice goes out, so you want to take advantage of that. Just a one-day delay could put you in a financial bind when the time comes for payment.

Reduce Payment Terms

If you continue to have cash flow problems, one of the issues may be your payment terms timeline. For many businesses, 30 days is the standard. But many small businesses are now moving to 14 days or even 10 days, so if this could benefit you, then your clients will likely find it perfectly acceptable. 

Offer More Payment Options

When you give your clients more ways to pay, you are simultaneously taking away more of their excuses not to pay. Don’t be shy about offering every single possible payment option, even if they overlap each other in terms of method of payment. For example, you can offer your client the option of paying you directly with a credit card, or with PayPal, both of which allow your client to use their credit card for payment. Other payment options include:

• Cash App

• Venmo

• Payoneer

• ACH

• Stripe

• and more

Get a Line of Credit

Approach your bank or another financial institution about giving you a line of credit. If you do get into a cash flow snafu, you can dip into the line of credit to cover necessary expenses. Just be sure to pay it back when the money starts flowing again so you always have that lifeline available to you.

Stash Away Savings

Financial experts always recommend having a savings account with at least three months of expenses put by. Do this for your business, and you’ll never have to worry if the company’s cash flow dries up for a few weeks. Again, replenish the savings once the cash flow returns to normal.

Change Fee Structures

Take a hard look at the fee structures you have in place. For clients who already pay a lump sum each month, or per large project, consider having them pay ahead in weekly installments. You can put it to them that this is for their benefit, so they can avoid having a big payout due all at once. For clients who pay smaller fees for multiple, smaller projects, change their fee structure into a retainer. This will eliminate the need to track multiple invoices, and give your business larger payments that you can rely on each month.

Require Up-front Deposits

For long-term projects, require up-front deposits that must be paid before work commences. This ensures that you have the cash to pay for what you need to do the work, and it invests the client in the project. 

Avoid Payment on Approval Terms

Never allow payment terms to be in the hands of the client. This is a common mistake that new business owners make. You’ll always get a client that stonewalls or delays on approval for this or that reason. Meanwhile, you’re not getting your final payment. Always insist on payment before final delivery, and then build in revision requests for free or fee-per-revision terms. This motivates the client to pay that last invoice, so they can receive their product or service. 

Practice Collections Weekly

Don’t let receivables go overdue more than a week without making collection calls. The longer you wait to reach out regarding an overdue bill, the less likely it will ever be paid. Let your clients know you’re serious about due dates by staying on top of collections.

Ask For Payment Terms From Suppliers

Depending upon what kind of business you’re operating, you might be able to get payment terms from your suppliers. As long as you have a good history of paying on time, your suppliers may be able to offer you 30, 60 or 90-days payment terms. This will also help your cash flow situation by enabling you to hold onto cash a while longer.

Avoid Cash Dumping

As a tax strategy, many companies spend as much as possible, and pay all their bills. This reduces their yearly profit and subsequent tax bill. But this is only a good strategy if you do it judiciously. You shouldn’t leave your business with no cash in January, especially since this is when many business products go on sale, and you could save money by purchasing supplies and equipment in the first quarter. Your CPA can help you to determine how much cash you can safely “dump” at year’s end without leaving yourself in the hole in January. 

Maintaining a healthy business cash flow requires a proactive approach. By understanding your cash flow, managing receivables, controlling expenses, and maintaining a cash reserve, you can ensure that your business remains financially stable. Regular monitoring and strategic planning will keep your cash flow strong, enabling you to focus on growing your business and achieving long-term success. Contact your CPA for more helpful ideas.

by Kate Supino

Creating a financial forecast for your small business is an essential step in ensuring long-term success and sustainability. A well-crafted financial forecast allows you to predict future revenue, manage cash flow, and make informed decisions. Yes, this important task is often ignored by business owners because they aren’t sure how to do it. Your CPA can help you to create a financial forecast. But in the meantime, here’s a guide to help you both understand its importance and what steps are needed.

Understanding Financial Forecasting

What is meant by financial forecasting? Financial forecasting involves predicting your business’s future financial performance based on historical data, market trends and economic conditions. There are two main types of financial forecasts: short-term and long-term. Short-term forecasts typically cover a period of one year, while long-term forecasts can extend up to five years or more. Note that financial goals are not a part of accurate financial forecasting. This is all about facts, not hopes.

Gathering Historical Data

The first step in creating a financial forecast is to gather historical financial data. This includes your income statements, balance sheets, and cash flow statements from previous years. Many business owners go back from the date of founding, but five years is sufficient. If your business is brand new and lacks historical data, you can use industry benchmarks and market research to estimate your starting figures.

Identifying Key Assumptions

Financial forecasts rely on a set of key assumptions about your business and the market. Your CPA can help you come up with these, but they typically include:

• Expected sales growth rates

• Pricing strategies

• Cost of goods sold (COGS)

• Operating expenses

• Market trends and economic conditions

As with everything else, document these assumptions clearly, as they will form the foundation of your forecast.

Projecting Revenue

Revenue projection is another critical component of your financial forecast. Start by estimating your sales volume for the forecast period. Consider factors such as market demand, competitive landscape and your marketing strategies. Multiply the estimated sales volume by your average selling price to calculate your projected revenue.

For instance, if you expect to sell 10,000 units of your product at an average price of $50 per unit, the calculation of your projected revenue would be:

Projected Revenue=10,000 units×$50/unit=$500,000

Estimating Costs

Next, calculate the various costs of doing business.

Cost of Goods Sold (COGS)

COGS includes all direct costs associated with producing your product or service. This may include raw materials, labor, and manufacturing overhead. Use historical data or industry benchmarks to estimate your COGS.

Operating Expenses

Operating expenses encompass all other costs required to run your business, such as rent, utilities, salaries, marketing, and administrative expenses. Categorize these expenses and estimate their values based on past data or market research.

Variable and Fixed Costs

Differentiate between variable costs (which fluctuate with production volume) and fixed costs (which remain constant regardless of production levels). This distinction will help you understand how changes in sales volume affect your profitability.

Creating Financial Statements

With your revenue and cost estimates in place, you can now create pro forma financial statements. Of course, this is something that your CPA will provide for you. These statements include:

Income Statement

The income statement summarizes your projected revenue, COGS, operating expenses, and net income. It provides an overview of your business’s profitability over the forecast period.

Net Income = Revenue − COGS − Operating Expenses

Balance Sheet

The balance sheet projects your business’s financial position at the end of the forecast period. It includes assets, liabilities, and equity. Use historical data and your financial assumptions to estimate these figures.

Assets = Liabilities + Equity

Cash Flow Statement

The cash flow statement projects your cash inflows and outflows, helping you manage liquidity. It includes cash from operations, investing activities, and financing activities.

Net Cash Flow

Net cash flow represents the difference between a company's cash inflows and outflows over a specific period. It reflects the amount of cash generated or lost from operating activities, investing activities, and financing activities. Positive net cash flow indicates more cash coming in than going out, suggesting good liquidity, while negative net cash flow signals the opposite, potentially indicating financial challenges.

Net Cash Flow = Cash Inflows − Cash Outflows

Analyzing Financial Ratios

Financial ratios provide insights into your business’s performance and financial health. Key ratios to consider include:

Profit Margin

The profit margin measures your profitability as a percentage of revenue.

Profit Margin = (RevenueNet Income) ×100

Current Ratio

The current ratio assesses your ability to meet short-term obligations.

Current Ratio = Current Liabilities/Current Assets

Debt-to-Equity Ratio

The debt-to-equity ratio evaluates your business’s leverage.

Debt-to-Equity Ratio = Equity/Total Liabilities

Adjusting for Uncertainty

Financial forecasts are inherently uncertain, so it’s essential to consider different scenarios. Your CPA can create multiple forecasts based on best-case, worst-case, and most likely scenarios. This approach allows you and your financial team to prepare for various outcomes and develop contingency plans.

Reviewing and Updating Your Forecast

A financial forecast is not a one-time exercise. Regularly review and update your forecast to reflect changes in your business and the market. This ensures that your financial plan remains relevant and accurate.

Creating a financial forecast for your small business is a crucial step in planning for growth and sustainability. By gathering historical data, identifying key assumptions, projecting revenue and costs, and creating financial statements, you can develop a comprehensive forecast. Regularly review and update your forecast to stay on track and make informed decisions. With a solid financial forecast, you’ll be better equipped to navigate the challenges and opportunities that lie ahead. Contact your CPA today to learn more.

by Kate Supino

Starting and running a business is both an exhilarating and demanding endeavor. It involves not only your professional aspirations but also your financial investments. For many small business owners, the business itself becomes an integral part of their lives. Many entrepreneurs initially start by themselves, with no special plan to take on a business partner in the future. But as time passes, it often becomes preferable or even necessary to consider bringing in another professional to help run or grow the business. There comes a point when the prospect of bringing in a business partner sometimes becomes an enticing option. However, this strategic decision can have far-reaching consequences, impacting not only the trajectory of the business but also your personal and financial well-being. For this reason, the pros and cons of bringing on a business partner must be carefully weighed.

The Pros of Taking on a Business Partner

There are a lot of good reasons to take on a business partner, including:

Greater Depth and Expertise

Every business owner wears multiple hats, but there are limits to any one individual’s expertise. A business partnership can provide a much needed infusion of complementary skills and knowledge that extend beyond your strengths. A partner who excels in areas where you may lack proficiency can be a valuable asset. Also, their willingness to handle tasks that you'd prefer to delegate can significantly enhance operational efficiency and take pressure off of you.

A Different Perspective on Business Decisions

The decision-making process in business is multifaceted, often involving complex decisions. Having a partner can mean having someone who can bring fresh perspectives to the table. Should you expand your product offerings, open new locations, or allocate resources to marketing versus hiring more personnel? A partner can offer insights and alternative viewpoints, potentially revealing unexplored opportunities and innovative strategies. This collaborative decision-making approach can provide a competitive advantage and position your business for success.

Having a Cohort and Support System

Entrepreneurship is often a solitary endeavor, burdened with immense responsibilities and tough choices. The presence of a like-minded partner offers more than just shared responsibilities; it provides emotional support. As business challenges arise, having someone with whom to share the weight can alleviate stress and prevent burnout. Your business partner might be equally invested in the success of the business, fostering a sense of camaraderie and shared determination.

The Pros of Taking on a Business Partner

Of course, it’s not always sunny when taking on a business partner. Potential drawbacks include:

Giving Up Ownership and Power

By definition, a business partnership necessitates sharing ownership and decision-making authority. At the highest level, this change can ripple throughout the organization, impacting every employee and aspect of the business. Before entering into such a partnership, it's crucial to establish clear guidelines for ownership, responsibilities, and financial arrangements. Questions about equity distribution and profit-sharing must be addressed. Additionally, conflict resolution mechanisms should be in place to handle disputes that may arise. Your CPA can help to plan and set up a business partnership to help minimize misunderstandings or financial complications.

Differing Views on the Fundamentals

Your business may have begun as a deeply personal endeavor, marked by sacrifices, risks and a unique vision. When considering a partner, it's vital to assess whether they share the same passion and commitment to the business's success. Will your partner hold the business in the same regard as you do? Misalignment in core values and dedication can lead to significant challenges down the road.

More Complex Decision-Making

While diverse perspectives can be an asset, they can also introduce complexity into the decision-making process. In a partnership, every major decision requires collaboration and consensus. Establishing a systematic approach to discuss and agree on business matters becomes essential to avoid bottlenecks and disagreements that could hinder the company's operations and growth.

Best Practices For Forming a Partnership

The decision to bring a partner into your business is not one to be taken lightly. It’s a pivotal moment that requires careful consideration and thorough planning. Here are some key steps to navigate the partnership waters effectively:

Clearly Define Roles and Responsibilities

Before formalizing the partnership, create a detailed agreement that outlines each partner's roles, responsibilities, and areas of expertise. Be specific about ownership percentages, profit-sharing, and decision-making authority. A well-structured partnership agreement can prevent misunderstandings and conflicts.

Assess Compatibility

Evaluate the compatibility of potential partners beyond their professional skills. Discuss your long-term goals, values, work ethics, and commitment to the business. Ensure that you share a common vision for the company's future.

Communication and Conflict Resolution

Establish open lines of communication from the outset. Develop a framework for addressing conflicts and disagreements, emphasizing compromise and collaboration. Having a dispute resolution process in place can prevent disputes from escalating.

Legal and Financial Guidance

Seek guidance from your CPA and attorney to guide you through the partnership process. An attorney can help draft a robust partnership agreement that safeguards your interests, while a CPA can provide insights into the financial implications of the partnership.

Regular Evaluation and Adjustment

Periodically review the partnership's effectiveness and make necessary adjustments. As the business evolves, roles and responsibilities may need to be recalibrated to align with changing circumstances and goals.

A Pathway to Mutual Success
Partnering in business is a significant decision with the potential to propel your company to new heights or introduce complexities that can be challenging to navigate. While the pros of greater expertise, diverse perspectives, and shared burdens can enhance your business's resilience and growth, the cons of relinquishing control, potential disagreements, and decision-making complexities should not be underestimated.

Ultimately, the success of a business partnership hinges on meticulous planning, open communication and a shared commitment to the business's mission. When approached with care and a thorough understanding of its implications, partnering can be a strategic move that leads to mutual success, enriching both your professional journey and the life of your business. Before embarking on this collaborative path, ensure that you have thoroughly explored the pros and cons with your CPA, weighed your options, and made an informed decision that aligns with your entrepreneurial vision.

by Kate Supino

In years past, small business owners found themselves entering facts and figures into ledgers by hand, which took hours and hours to complete. Fortunately, financial software for accounting and bookkeeping has changed things dramatically. Now, what once took hours can take mere minutes, making it easier for you to focus your attention on other important areas of your business. If you're looking to choose the right financial software for your business that will allow you to easily upload files to your CPA when needed, here are some tips to ensure you get the perfect software for your business.

Does It Have All the Features You Need?

First, make sure the software you have under consideration has all the features you will need for your business. With most types of financial software for small businesses, the top features should include billing and invoicing, budgeting and forecasting, inventory management, and payroll management. If the software has these features, it will be much easier for you and your staff to track expenses, record payments made to your business, and generate customer invoices.

Cheap or Expensive?

Next, you should determine how much you want to spend on your financial software. If you are on a tight budget, which may be the case if you have just started your small business, you may want to choose software that is no-frills and gives you the most basic features needed to run your business. If your business is well-established or very complex, you may want to consider buying accounting software that costs a bit more, but also has more features that will let you do more things with the software as your business grows. If you have questions about various types of accounting software for small businesses, don't be afraid to ask your CPA for advice on what they think would be your best bet.

Is It Easy to Use?

If there is one thing you don't want to discover after purchasing financial software for your business, it's that you and your staff quickly realize the software itself is a nightmare to use. Thus, before you make your final decision, find out all you can about how easy the software is to use. This is vital, since it is likely people of varying skill levels, knowledge, and experience may be using the software at various points along the way. The easier your software is to use, the less likely mistakes will be made, which as you and your CPA know can be quite a headache when it comes to payroll, taxes, and other areas of your business.

Easy Integration?

Since you are using other types of software for your business, always try to verify that whatever financial software you choose will easily integrate with other software you rely on each day. Whether it's sales software, shipping software, or other applications, having accounting software that will not easily integrate with your existing technology can lead to one problem after another, not to mention decreased productivity.

Cloud-Based System?

In today's business world, more and more businesses are opting for cloud-based systems when it comes to their accounting software. This can offer you a variety of advantages, the most important of which may be data security. If you use cloud-based software, all of your sensitive financial data is kept off-site at a secure facility, where it is monitored 24/7 for cyber threats. Cloud-based software also allows your business to have greater flexibility in terms of IT infrastructure. For example, if your business needs extra bandwidth, it's much easier to get this from a cloud-based system, so keep this in mind.

Tech Support?

No matter what type of financial software you have for your business, the time will inevitably come when you'll experience some type of problem. When you do, having excellent tech support you can contact day or night can make all the difference in the world. Whether it's a system glitch or simply a question you need to ask about how to use a particular feature, being able to get answers right away and problems solved quickly will ensure your business continues to function as needed.

Multi-User Access?

Most of today's top financial software allows for multi-user access, so you should try to make sure yours does as well. If it does, this will let you allow others to use the system for various tasks and to have access to certain data. For example, you can set up your software so that your CPA has full access to the system. This can be important should you upload files to your CPA and they have additional questions or need additional data from your business during tax season. However, remember that not everyone needs to have complete access to the system, so you can give your employees access only to features that let them track their time or perhaps generate invoices to customers.

Mobile Apps?

If your financial software comes with mobile apps, this is definitely a good thing that you will come to love more and more. By being able to install an app on your smartphone, this will give you access to the system no matter your location. Should you be meeting with your CPA and need to gain access to certain data, having the app on your phone can let you do this in an instant. Should you have sales teams that may be working in the field, having apps on their phones can help them track time, submit expense receipts, and even accept payments from customers.

If you take your time and keep these tips in mind as you search for the best financial software for your business, you'll find exactly what you need. Before you know it, you'll be meeting with your CPA and thanking them for the advice they gave you about that great accounting software you just purchased.

Whether you have owned your small business for many years or are an entrepreneur who has just gotten started in the business world, you know today's business environment is more competitive than at any point in history. Because of this, it is vital that you make ongoing financial education for yourself a top priority. This can include reading books, taking a class or two, and of course relying on the advice of a CPA you know and trust. As to why it is so important that you learn as much as you can about the financial side of business, here are some key reasons to keep in mind.

Make the Best Choices for Your Business

The most important reason why you need to make ongoing financial education part of your life as a small business owner is that doing so will allow you to make the best choices for your business now and in the years ahead. Whether it's trying to decide about hiring more employees, buying new pieces of equipment, or which type of advertising campaign you should pursue, knowing how each of these will impact your bottom line can be the difference between your business making money or losing money.

Understanding Your Taxes

As you keep yourself up-to-date on all things financial for your business, this will help you gain a much better understanding of the taxes you as a business owner deal with on a regular basis. However, don't assume you need to become a tax expert. After all, that's why you have a CPA with whom you can consult and ask advice when needed. Yet by staying abreast of the latest changes and developments regarding today's economy, you can learn how income taxes, self-employment taxes, payroll taxes, sales taxes, and others may impact your business. When you combine self-knowledge with the years of experience and training possessed by your CPA, you can often learn how to save money on your taxes, which is always something you should strive for as a business owner.

Creating and Modifying Your Business Plan

When you continually educate yourself about finances as a small business owner, this helps you have the knowledge needed to create and modify your business plan. Since change is inevitable within today's business world, knowing how to make short and long-term plans for your business can have a huge impact on whether or not your business will become profitable and sustainable. If you are a new small business owner, understanding more about finances can make it more likely you will create a business plan that will be realistic and manageable.

Helps You Feel Empowered

Remember, knowledge is power. Thus, as you educate yourself more and more on business finances, this helps you feel empowered in terms of understanding your company's finances. When you meet with your CPA, you'll quickly see how much more comfortable you are when discussing such things as cash flow, taxes, profit and loss statements, and other key components of business finance. The more educated you are about business finance, the easier it will be for you to ask key questions when meeting with your CPA and to have a better understanding of what you are being told.

Helps You Learn How to Use Debt

One of the biggest mistakes many beginning entrepreneurs make is assuming that debt is a four-letter word they should try to avoid as much as possible. While that is true to some extent, it is also important for you to remember that when used properly, debt can actually help you grow your business. Because of this, you should educate yourself on how to use your newfound knowledge to consolidate high-interest debts, develop a plan to pay off debt in a timely manner, and work with your CPA to understand how leveraging debt to your advantage can give your business a competitive advantage.

Makes You a Better Negotiator

As you become better educated regarding business finance, this can help you become a much better negotiator when meeting with your banker and others from whom you are trying to secure loans and other financing for your business. For example, as you educate yourself about the financial aspects of today's business world, you can learn more about the importance of credit scores in helping you get approved for loans. Once you have a better understanding of both personal and business credit scores, this will let you negotiate higher loan amounts and lower interest rates, both of which are important for the success of your business.

Become a Better Budgeter

Ongoing financial education as a small business owner will over time make you much better at not only creating budgets for your business, but also help you stick to the budgets you create. Of all the skills you will need to be successful as a business owner, budgeting is arguably the most important. By learning everything you can about how to budget for your business, you can track your company's expenses, see what areas are taking most of your money, and learn how you can cut various expenses without sacrificing your company's quality and profits.

Learn About Technology

When you as a small business owner prioritize financial education, you can then learn about how various types of technology may or may not be beneficial to your business. For example, you may come to realize that a new type of accounting software can help streamline some of your company's operations, while it may also help you decide that a certain piece of equipment you were thinking about buying won't maximize your profits as much as you originally thought.

Small business owners like yourself need every advantage they can get, especially if they want to stay ahead of the competition. Once you begin to combine your own ongoing financial education with regular consultations with your CPA, you can make decisions about your business that are well-informed and will help you achieve your goals. As a result, you lay the groundwork for long-range success and profitability.

When you own a small business, every dollar counts. Unfortunately, many business owners don't take this philosophy to heart, leading them to make various budgeting mistakes. While some mistakes are relatively small and can be easily corrected, others can have a devastating impact on a business. If you want to make sure you don't make budgeting mistakes with your business, listen to your CPA and work hard to not make the following budgeting mistakes that could hurt your bottom line.

Not Having a Budget at All

Believe it or not, some surveys have shown that nearly 50 percent of small businesses never create a budget. If you want to send your CPA into a tailspin and almost guarantee that your business will fail, don’t bother creating a budget. When you don't create a budget for your business, you will be juggling expenses as they come, meaning that, at any given time, you will have little grasp of how much you're spending versus how much you are earning. This mistake will also prevent you from developing a long-term financial plan for your business, giving you little chance of success over the long-term..

Budget and Business Strategy Not Aligned

When you create a budget, you need to make sure it is properly aligned with your business strategy. If it's not, you won't be able to keep track of your business goals, know if you are meeting your financial expectations, and where you should be spending your money, such as developing a website, buying new equipment or hiring more employees.

Not Managing Expenses

One of the biggest and potentially most devastating budgeting mistakes small business owners make regularly is not properly managing their expenses. When you talk to your CPA about this, you will find this is one of the primary reasons why many small businesses fail each year. When you don't properly manage your expenses, you may find yourself purchasing more inventory than you need, spending more than you need on marketing campaigns, or discovering that you don't have the money needed to meet your next payroll.

Not Budgeting for Taxes

Despite what many business owners wish for, Uncle Sam continues to come along each year with his hand out, requiring that taxes be paid. Unfortunately, if you have made the same mistake other small business owners have made and failed to budget the money needed to pay your taxes, you and your CPA will have quite a problematic situation to address and resolve. Therefore, always remember to budget appropriately for sales tax, employment tax, income tax, sales tax, property tax, and any other taxes you know will need to be paid. If you are unsure about this area of your budget, always ask your CPA for assistance.

Not Giving Yourself Any Wiggle Room

Even if you are meticulous about creating a budget for your small business, always remember that sudden and unexpected events can occur that could throw your budget into turmoil. After all, no one anticipated the COVID-19 pandemic to come along and wreak the havoc it did on small businesses. Whether it is something as serious as a pandemic or perhaps a piece of equipment that breaks down when you least expect it, always create a budget for your small business that gives you a certain amount of wiggle room with your money. If you don't, you may find yourself making drastic budget cuts in many areas, which could include laying off employees, reducing the hours you are open, or other things that could make operating your business much harder.

Not Keeping Up With Receivables

One of your budget categories will be sales income. You likely calculated this number based on sales from the same month in a prior year. However, if your current year’s receivables are not paid in a timely manner, your budget calculations will be very far off. You need to have a plan in place to keep up with receivables so that your income doesn’t fall behind. Experts recommend allowing no more than 30 days for clients to pay accounts in receivables.

Not Maintaining Margins

Prices have risen globally on nearly all kinds of merchandise and materials. If you have kept your selling prices the same, it’s likely that your margins are shrinking. You should focus on keeping profit margins the same, which may mean raising your price points, in order to keep up with the rising costs you’re incurring. Otherwise, your budget will ultimately fail because your expenses are overrunning your income.

Not Having a Backup Plan

When things do go awry, it’s essential to have a backup plan in place. This may be keeping a list of angel investors, growing a business savings account or keeping a look out for lower retail rents in other neighborhoods. Don’t wait until things go south to start trying to figure out how to dig your business out of the hole.

Not Updating Your Budget

Finally, once you do create the budget for your business, don't assume your work is finished. In fact, your CPA will tell you the work has only begun. A budget, while in some ways a blueprint or roadmap for your business, is also something that will need to be constantly updated and revised. Remember, your business budget will need to reflect where your business is at that particular moment. By meeting with your CPA regularly to review your budget, you can keep it updated so that you will have a much better idea of where your business is going financially.

While many small businesses close their doors each year, just as many, if not more, thrive and prosper. By relying on the advice of a CPA you know and trust, you will have few budget worries for your business.

As prices on various products and services have risen to levels not been in nearly 40 years, consumers and business owners alike are starting to wonder if inflation will be here to stay. While you can get a different answer to this question from almost any economist, the fact is the current business environment is one that will be difficult for small business owners in many ways.

Purchasing Supplies

With supply chain issues likely to remain a problem for much of 2022, small business owners are caught in the middle of the supply and demand game. Though in reality there is no actual shortage of products per se, having them stuck in the supply chain bottleneck essentially creates an artificial shortage, making it harder to buy computers and other supplies. When combined with other factors such as workers demanding higher wages, this results in an increase for everything across the board for business owners.

Renting Retail Space

Since the onset of the COVID-19 pandemic, consumers have been demanding and purchasing supplies of products at an unprecedented rate. As a result, some businesses have looked at this time as one where expansion could still be possible. Unfortunately, inflation has also impacted the real estate market, making commercial retail space even more expensive. When combined with smaller profits from higher expenses, it has become far more difficult for business owners to find new locations that are affordable. In fact, while some business owners have hoped for expansion, others have chosen to move locations to cheaper retail space, although inflation has made this harder to do over the past year.

Rising Energy Costs

To put the current inflation situation into perspective, 92% of small business owners have reported the cost of supplies and services required to run their businesses has increased since the pandemic. For almost 20% of those owners, the cost increases have exceeded 50%. While some have taken cost-cutting measures such as reducing their workforce, reducing marketing costs, and reducing inventory, others have chosen to stay the course and believe the current inflation problems will only be temporary.

Pent-Up Consumer Demand

If there is one thing that is continuing to drive the inflation train down the tracks, it is consumer spending brought about by a pent-up demand for products during the pandemic. As more people have been forced to stay home, online shopping has skyrocketed. While good in one way, it has put increased pressure on small businesses to keep up with the demand. Unable to do so in many cases due to supply chain issues, the result has been increases in shipping costs, lack of sufficient inventory for the holiday shopping season, and problems having the money needed to repair or maintain business property or equipment.

Why There May be Hope

Though inflation is making it harder on small businesses everywhere, many owners do have hope for 2022. For starters, surveys have shown that 85% of small business owners believe the pandemic has resulted in a stronger desire for many consumers to shop locally and support their community's small business owners. These same surveys show that consumer spending is also staying strong, with 71% of business owners reporting increased consumer spending in 2021. Finally, over 75% of small business owners state they believe holiday sales will help to offset many losses and additional expenses they have incurred over the past year.

The Fed Outlook

To keep inflation from creating permanent economic damage to small businesses and consumers, the Federal Reserve does insist current inflation issues are resulting almost exclusively due to supply chain bottlenecks and other pandemic-related issues. Though many people are concerned about the possibility of long-term inflation, Fed Chairman Jerome Powell not only believes today's inflation will be transitory, but that the term "transitory" itself will be able to be retired in the near future. Though prices have risen more than six percent over the past year, the Fed has an annual inflation rate target of two percent. By combining the tools at its disposal and letting supply chain issues resolve themselves over 2022, small business owners have every right to be hopeful for the upcoming year.

Rebalanced Spending Patterns

As mentioned earlier, the pandemic created an entirely new pattern of consumer spending. Between the increase in online shopping and supply chain problems that had many brick-and-mortar stores with empty shelves, the result has been what is known as "goods inflation," which points to a lagging supply and a demand surge from consumers. But as vaccination rates increase throughout the U.S. and some sense of normalcy returns, consumer spending is expected to shift from almost exclusively goods to more services, which is an area where spending during the pandemic has been unusually low.

A Self-Fulfilling Prophecy?

If there is one big risk regarding inflation, it is that it becomes a self-fulfilling prophecy for the U.S. economy. The longer higher inflation rates persist, the greater the temptation for companies to continue raising prices on their goods. Likewise, workers may continue seeking higher wages, leading companies to focus on cost control and productivity concerns. However, any worries small business owners have about inflation turning into stagflation should be put aside. As many economists have noted, global growth, particularly for small businesses, continues to be strong. At the same time, government spending on infrastructure and other related programs is seen as something that enhances local business communities, meaning business owners who can successfully navigate the current higher inflation rates should be rewarded in 2022.

Despite many small businesses having trouble attracting new workers or enticing current employees to return to their jobs, there is much to be optimistic about in 2022 in terms of inflation. With the U.S. now being in a much stronger position to fight the pandemic, supply chains will eventually begin to open up. When they do, supplies will once again be available, inventories will return to normal levels, and the current sky-high inflation rates will likely be nothing but a distant memory as business owners move forward.

As you know by now, the COVID-19 pandemic has resulted in the world's supply chain going haywire. Along with this, it has altered the ability of manufacturers to produce the all-important computer chips that are used in so many things in today's world. While most of the focus regarding the chip shortage has been primarily on automakers and other large corporations, small business owners have felt the impact in many ways. If you're curious about the impacts to small businesses and what lies ahead, here are some important facts to keep in mind.

Lack of Modern Office Essentials

Before the pandemic, a small business owner usually had no trouble whatsoever locating new office equipment to purchase, such as computers, printers, servers, and monitors. However, that has changed. As vendors are having an increasingly difficult time maintaining their usual inventory levels, the result is a shortage of computer hardware for small business owners. Since the problem likely won't be corrected until late 2022 at best, many small businesses are having to turn to eBay or other third-party vendors to get what they need. Unfortunately, this means they pay much higher prices on items that have been excessively marked-up in price, increasing their expenses while lessening their profits.

Harder to Purchase Company Vehicles

Since today's motor vehicles are essentially computers with wheels, the chip shortage has led to a marked decline in the number of vehicles available at dealerships. For small businesses that rely on company vehicles to provide services and make deliveries, finding new vehicles to purchase has become more like a scavenger hunt. Just as it is with office equipment, many new and used vehicles are not only in short supply, but are also being sold at much higher prices. Since many businesses rely on trucks and vans as their company vehicles, the higher prices and lack of dealer inventory are forcing them to either spend much more money than they anticipated, or to instead continue to rely on their current older vehicles indefinitely.

Lost Customers

For many small businesses, the chip shortage is also resulting in them losing customers. For example, businesses that sell various types of electronics have already exhausted their inventories, and are now forced into a waiting game for new equipment and products that could take months to arrive. As a result, customers are starting to look elsewhere to get what they need. With an economy that is already struggling to rebound to pre-pandemic levels, losing customers could ultimately mean a business owner shuts their doors for good.

The Big Companies First

While computer chips are in short supply, this does not mean they are not still being manufactured. However, small businesses are afraid that as chips are produced, the bulk of them will be distributed to larger corporations that are more profitable to chip manufacturers, leaving small businesses to fend for themselves. Since electronics giant Apple recently announced the chip shortage could result in a loss of at least $4 billion in its U.S. sales in 2021, small business owners are right to worry that larger companies will be first in line for chips as the supply increases.

Laying Off Workers

In the case of small manufacturing businesses that use computer chips in the products they make, a lack of chips eventually means a lack of work for employees. Since a company can't meet payroll if there is no business being conducted, the result is workers being laid off from their jobs. While this obviously puts the small business itself in jeopardy of closing, it also has a ripple effect throughout the economy, since out-of-work employees spend less at stores, cannot buy new homes or cars, and may also strain the healthcare system if they lose access to health insurance. As an example of this, auto manufacturer GM recently laid off more than 1,500 workers from one of its plants.

Creation of Artificial Shortages

Small business owners are not only being impacted by the current chip shortage, but also expect to be impacted once the supply starts to ramp up, thanks to what are known as artificial shortages. In past years when chips became scarce but did not begin to approach the problems of today, larger companies would take no chances and thus order a larger than normal inventory of computer chips. When this is done, an artificial shortage becomes reality for small business owners. Since most small businesses lack the cash and reputation needed to get what they need when they need it most in these situations, they are put on the backburner. Currently, many small businesses are being told the wait time for delivery of an adequate supply of computer chips will likely be 26 weeks at a minimum, with some being told it could be at least 52 weeks before they get what they need.

Price Increases

Even though most consumers like supporting their local small businesses, that is getting harder to do thanks to the chip shortage. While some businesses have vowed not to increase their prices, circumstances often dictate that eventually the additional expenses incurred by business owners must ultimately be passed on to their customers in the form of higher prices for products and services. Whether it's a restaurant that is having trouble getting new state-of-the-art food preparation equipment, a business that is forced to pay higher prices for new vehicles, or a small company that has to pay three times as much as they normally would for new computers and other equipment, higher prices only make a bad situation worse for everyone.

Though there will eventually be light at the end of the chip shortage tunnel, many small business owners are wondering if they, their employees, and their businesses will still be around to welcome a return to normalcy. From the price hikes to workers being laid off and the continuing uncertainty about how the ongoing pandemic may come up and alter things yet again, there are still many questions out there that do not have definitive answers.