How to Keep your Business a Success |
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Starting or running a company — which is challenging in the most favorable of business climates — can get really difficult during tough economic times. With sales slumping and customers tightening their belts, this is a good time for businesses to rethink their strategies for navigating the financial storm.
While it may seem obvious that in a bad economy you need to curb spending, the key is cutting back in the right places. Start by enlisting employees to help cut any expenses that don’t make sense in terms of the long-term success of your business. Because they have a vested interest in your company’s survival and profitability, employees can be valuable allies in the cost-cutting war. Communicate regularly with staff about the need to curb spending, and honor frugal employees by mentioning in a companywide e-mail or newsletter specific measures they’ve taken to control costs in their area.
Also, now isn’t the time to stop marketing or investing in new technologies, especially if those activities are the lifeblood of your business. When your markets are shrinking, you need to do more, not less, to stay competitive. Moreover, don’t forget that federal and local governments are there to help. Taking advantage of tax incentives, deductions and credits is one of the quickest ways to positively impact your company’s bottom line. Check with your tax advisor to ensure you don’t miss any valuable money-saving opportunities.
Fraud reduction efforts are another important money-saving measure. According to the Association of Certified Fraud Examiners, the average business loses 5% of its revenue to occupational fraud. Asset misappropriation and theft are two of the most prevalent types of fraud. You can reduce these threats by implementing sound hiring practices (including background checks on new employees) and a solid system of internal accounting controls (such as segregating duties and requiring a second signature on checks over a certain amount).
If you suspect that major fraud or theft is being perpetrated against your company, now is the time to engage a forensic accountant. These investigators specialize in uncovering financial misconduct and preparing evidence that will stand up in a court of law. By demonstrating that employees who perpetrate fraud will be caught, the presence of an investigator alone may act as a deterrent and stop future fraud in its tracks.
In tough economic times, it’s important to work with suppliers, subcontractors and other business partners that are financially strong. Keep an eye on the stability of your closest business partners, and avoid prepaying contracts (especially if solvency is in question).
Networking to improve your customer and supplier relationships continues to be important as well. Now is the time to be proactive, rather than reactive. Maintaining good relationships with suppliers is vital, so keep the conversation open and flowing with customers and vendors alike. A good supplier may even help you through some tough times by extending credit or setting up a workable payment plan, if you’re up front with them about your situation.
Being proactive during the collection process can go a long way toward ensuring that your company’s cash flow remains positive and problem accounts are spotted quickly. One way to be proactive is to call a customer before an invoice becomes due. This will help ensure that:
It may not be practical to follow up proactively on all your invoices, so consider establishing a threshold relative to the size of your company’s average transaction so that the customers or clients that account for 80% of the total dollars coming due in the coming week get called.
If a cash influx is needed to run or grow your business and money seems hard to come by, consider an asset- or equity-based loan. An asset-based loan is secured by the value of your company’s inventory, accounts receivable, equipment or real estate. An equity-based loan is secured by an ownership interest in your company. Although most entrepreneurs would prefer unsecured loans, don’t let your reluctance about secured loans cripple your business.
Sticking close to home with local lenders, such as smaller regional banks, credit unions and private investors, is generally the best way to procure a loan during an economic downturn. Developing a strong loan package that includes a business plan, a competitive analysis and a complete set of financial statements can also do much to advance your cause. Your package should also include an analysis of the strengths, weaknesses, opportunities and threats related to your business.
In a time when costs are increasing and competition continues to tighten, it’s important to keep a watchful eye on your bottom line and everything that goes into it. By making smart moves now, you may actually be able to turn a bad economy into a business opportunity.
Implementing income-boosting measures in tough economic times is also important. Start by strengthening bonds with your existing customers. By working to serve them in additional areas, you may be able to increase revenue within your current customer base. Build business by rewarding referrals, and try to create new business alliances wherever you can.
Find ways to pass along costs to your customers, without pricing yourself out of the market. Cutting margins so low that even the slightest mistake can result in financial disaster isn’t a good idea, so avoid the urge to lower prices as a sales-boosting strategy. Because price cutting often leads to reduced profitability, stay away from the “price war” arena.
5 Strategies for Preserving Your Nest Egg |
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Financial events of the past six to 12 months have put many retirement-minded individuals on edge. After saving diligently for a number of years, they thought they had accumulated enough of a nest egg to see them comfortably through retirement. Then the financial landscape suddenly shifted.
Meanwhile, the risks faced by future retirees have increased, as shrinking investments and reductions in home values have joined health issues and the possibility of outliving one’s assets on the list of retirement concerns.
Fortunately, there are a number of time-honored strategies that can help protect your future. Here are five you can put into action now:
Volatile markets aren’t the only danger your retirement nest egg faces. In fact, you could prevent one of the biggest dangers — if you make early withdrawals from your IRA or take a 401(k) plan loan. Except in the case of certain Roth IRA distributions, in addition to being subject to income tax, withdrawals before age 59½ will likely be subject to a 10% early withdrawal penalty.
Perhaps more importantly, the amount that can continue to grow tax-deferred (tax-free in the case of a Roth IRA) will be reduced, which can significantly shrink what you have at retirement.
Although the optimal amount you should have in your retirement savings will vary depending on your age, health, available credit and job situation, you should have enough cash on hand to cover three to six months of living expenses. This cash reserve can help tide you over in case of a layoff, short-term disability or any large, unexpected expenses.
While market volatility may make you leery of putting more into your retirement plan, for most people it’s advantageous to do so. First, the power of a retirement plan is tax-deferred (or, in the case of Roth accounts, tax-free) growth, and the more time funds have to grow, the larger your nest egg can become. So the consequences of reducing contributions today will be magnified at retirement.
Second, when the value of stocks is low, you can buy more shares for the same amount of money. Assuming retirement is still at least several years away (so there’s ample time for the market to recover), a down market can be a great time to buy. If your employer offers a match, at minimum you should contribute enough to get the maximum match — otherwise you’re missing out on free money.
Examine your investments, both inside and outside your retirement accounts, to see if the allocation percentages are in harmony with your risk tolerance and financial objectives. Diversification, which offers not only some protection during market declines, but also higher potential returns over the long run, continues to be a critical investment strategy. This includes investing a portion of your portfolio in vehicles that offer a hedge against market volatility, such as CDs, hedge funds, Treasury notes or rental real estate.
Don’t forget about income taxes. Consider the tax consequences of investments that create annual capital gains or dividend distributions, because they’ll affect your return on investment. And remember that timing can have a dramatic impact. The 15% long-term capital gains rate is 20 percentage points lower than the highest regular income tax rate of 35% — and it generally applies to the sale of investments held for more than 12 months. Keep in mind, though, that the long-term gains rates may be going up, at least for those in the top two regular income tax brackets. Check with your tax advisor for the latest information on tax law changes.
Also research tax-advantaged investments, such as municipal bonds, to determine what place, if any, they should have in your investment portfolio.
If you’re like most Americans, your biggest asset is your ability to earn income. So you need to protect that asset. Disability insurance can help do just that, and it’s especially critical if your current assets won’t support you until your projected age of retirement. Although many employers offer short-term disability policies that cover 100% of salary for three to six months, you may wish to obtain additional, long-term coverage. In computing the level of coverage to carry, plan so that monthly income, based on disability benefits and your current resources, equals at least 60% of your pretax salary.
It’s also important to evaluate whether you have adequate life insurance coverage to protect your family in the event of your death. The amount needed will depend on your current net worth, the lifestyle you want to provide for your family, and your personal circumstances and desires.
Long-term care insurance is another important consideration. Such insurance should be purchased before you reach retirement age. If you wait until you’re older or have developed a serious health issue, the insurance may no longer be available to you.
There are a number of retirement-related hazards you should avoid. For example, in this era of falling home values, treating your house as a primary investment vehicle isn’t the best idea. Rather than being highly leveraged in your home, strive to own it debt-free. Then, regardless of its value, you may continue to live in the home as long as possible.
If you and your spouse are considering divorce, think about the retirement planning implications of that move. Having to split the nest egg in two is one of the most common causes of retirement planning failure.
Other pitfalls may include overreacting to stock market swings by shifting assets in an attempt to outguess the markets and relying on unrealistic schedules for retirement savings withdrawal.
You can avoid these mistakes — and the unhappy outcome of a serious crimp in your “golden years” budget — by taking steps now to safeguard your retirement income. As always, the best approach is to work with your CPA to create a sensible long-term plan, and then follow it.
Kiddie Tax Strategies for Adults |
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In the past, a popular tax-saving strategy for funding higher education was for parents to transfer income-producing assets — or appreciated assets that the family wanted to sell — to their children age 14 or older, effectively lowering the family’s tax bill by shifting income into the child’s lower bracket. The strategy didn’t work for children under age 14, because their unearned income in excess of a nominal amount (annually adjusted for inflation) was subject to the parents’ tax rate. This is commonly referred to as the “kiddie tax.”
In an effort to close this loophole, Congress has been increasing the age of offspring subject to this kiddie tax. In the latest adjustment, which began with the 2008 tax year, the kiddie tax was expanded to include dependents under age 19 and full-time students under age 24. This year, unearned income in excess of $1,900 may be subject to the kiddie tax. The net effect is that many more families could be affected by this tax. If you’ve previously transferred considerable wealth to your children under the old kiddie tax rules, you need to re-evaluate those investments and how they fit into your overall tax and education planning strategy.
Shifting income to an adult child who isn’t subject to the kiddie tax but is in a lower tax bracket can still save your family tax dollars — especially if the child qualifies for the 0% long-term capital gains tax rate that went into effect in 2008. Moreover, you may find that shifting income to children through a family-owned business remains a viable strategy for reducing kiddie tax liability. Reasonable compensation for work performed provides a double benefit — earned income for the child and a business tax deduction. Because Uncle Sam taxes the child’s earned income at the child’s lower tax rate, that income effectively avoids the kiddie tax. Depending on the structure of the business, FICA and FUTA tax exemptions may also apply to the child’s wages.
Another benefit of paying your child is that the child will almost assuredly be eligible to make an IRA contribution. Opting for a traditional IRA will provide a current tax deduction, thereby sheltering the income. With a Roth IRA, there won’t be a current deduction on the child’s tax return, but the future tax-free distributions may make the Roth IRA the preferred choice.
Although the kiddie tax rules have changed, there are still plenty of opportunities for you to get adult-sized benefits for you, your family and your business.
Loss of MomentumBy Jeff Mowery |
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The changes in the nation’s economy have had an effect on the life of every American. Whether it is the decline in value of their financial and retirement assets or the loss of their employment or impairment of their company, very few people have been able to escape this situation.
In response to the current situation, we decided to produce a new electronic newsletter for our clients and friends. This will allow us to provide information about how the many people and organizations that we interact with on a daily basis are coping with and reacting to these developments.
The nation’s economy has been on a huge upswing since the end of the 1982 recession. There have been some tough times like the 1987 market crash, the burst of the dot.com bubble and September 11, but the consistent pattern had been one of economic growth and prosperity. There were several factors working in concert that produced these results.
The Federal Reserve has consistently adopted an anti-inflationary monetary policy. Thus, economic growth of the past 25 years was real in the sense that it was the result of productivity increases as opposed to printing money. A key aspect of the monetary policy was keeping interest rates low. Among other factors, this was a contributor in the accessibility of credit. In comparison to historical norms, it has been very easy to obtain credit over the past few years especially when it comes to financing real estate.
The tax cuts enacted under the Reagan Administration reduced individual and business tax rates. Although there have been numerous changes to the tax law through the years, the essential rate structure has remained stable.
The technology boom created tremendous opportunities for product development and advances. This expertise was then exported overseas. This helped offset the transfer of the manufacturing base to less developed countries.
Finally, the baby boomers increased consumer spending as they grew older. They wanted it all now, and this resulted in a further expansion of the economy.
It now appears that all four of these factors are fading at the same time. All four engines of the economic jet engine have gone silent at once, and the economic boom that has lasted 25 years has come to an end.
The question is where we go from here. It is likely that the economic growth will flatten out in a manner similar to the 1970’s when the post-World War II boom finally ran out of steam. It is going to stay somewhat static until the next big thing (technology, product development, etc.) comes along.
The country has many positive factors going for it including economic and personal freedom, natural resources and transportation. It is just going to take some time to restart the economic engine.
Reader’s Corner |
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The 21 Irrefutable Laws of Leadership by John Maxwell is a classic study of the elements of modern leadership. Mr. Maxwell is the founder and chairman of The INJOY and a world renowned author of more than 30 books, with more than seven million copies sold. Mr. Maxwell has developed an entire series of books on leadership, mentoring, and adapting to change. The 21 Irrefutable Laws of Leadership has sold over one million copies:
The book has a separate chapter on each of the 21 Irrefutable Laws. Each chapter describes the particular aspect of leadership and may contain personal or historical anecdotes as to how it applies.
1. The Law of the Lid - Leadership ability determines a person’s level of effectiveness. Leadership ability always places the limit on personal and organizational effectiveness.
2. The Law of Influence - The true measure of leadership is influence - nothing more, nothing less. If you don’t have influence you will never lead others. Leadership is not based upon holding a particular position. Instead, leadership is about one’s ability to influence.
3. The Law of Process - Leadership develops daily through constant efforts. It is the capability to develop and improve their skills that distinguishes leaders from their followers. Successful leaders are learners.
4. The Law of Navigation - Anyone can steer the ship, but it takes a leader to chart the course. Leaders have a vision for their destination, and they understand what it will take to get there. Leaders anticipate the obstacles long before they appear on the horizon.
5. The Law of E.F. Hutton - When the real leader speaks, people listen. The proof of leadership is found in the followers. “Being in power is like being a lady - if you have to tell people you are, you aren’t.” - Margaret Thatcher
6. The Law of Solid Ground - Trust is the foundation of leadership. To build trust, a leader must exemplify these qualities: competence, connection, and character. Character makes trust possible. Trust makes leadership possible.
7. The Law of Respect - People naturally follow leaders stronger than themselves.. People follow individuals whose leadership they respect. Followers are attracted to people who are better leaders than themselves.
8. The Law of Intuition - Leaders evaluate everything with a leadership bias. Leadership depends on more than just the facts. Leaders see trends, resources and problems, and can read people. The law of intuition is based on facts plus instinct and other intangible factors.
9. The Law of Magnetism - Who you are is who you attract. Leaders are always on the look out for good people. In most situations you draw people to you who possess the same qualities you do. The better leader you are, the better leaders you will attract.
10. The Law of Connection - Leaders touch a heart before they ask for a hand. Effective leaders know that you first have to touch people’s hearts before you ask them for a hand. In order to connect with people in a group, one must relate to them as individuals. It is the leader’s job to initiate connection with the people.
11. The Law of the Inner Circle - A leader’s potential is determined by those closest to him. All great leaders have surrounded themselves with a strong inner circle.
12. The Law of Empowerment - Only secure leaders actually give power to others. The capacity of others to achieve is determined by their leader’s ability to empower. “The best executive is the one who has the sense to pick good men to do what he wants done, and the self-restraint enough to keep from meddling with them while they do it” - Theodore Roosevelt.
13. The Law of Reproduction - It takes a leader to develop a leader. More than four out of every five of all leaders that you ever meet will have emerged as leaders because of the impact made on them by established leaders who mentored them. People cannot give to others what they themselves do not possess. The future of an organization depends on the growth of its leadership.
14. The Law of Buy-In - People buy into the leader personally, then accept the vision. The leader finds the dream and then the people. The people find the leader, and then the dream. People follow worthy leaders who promote worthwhile causes.
15. The Law of Victory - Leaders find a way for the team to win. Leaders believe that anything less than success is unacceptable. And they have no Plan B. That keeps them fighting.
16. The Law of the Big Mo - Momentum is a leader’s best friend. You can’t steer a ship that isn’t moving forward. The creation of momentum requires someone who can motivate others, not who needs to be motivated. Getting started is a struggle, but once you’re moving forward, you can really start to do some amazing things.
17. The Law of Priorities - Leaders understand that activity is not necessarily accomplishment. If you focus your attention on the activities that rank in the top 20 percent in terms of importance, you will have an 80 percent return on your effort. As a leader, you should spend most of your time working in your areas of greatest strength.
18. The Law of Sacrifice - A leader must give to go up. Sacrifice is a constant in leadership. “When you become a leader, you lose the right to think about yourself.” - Gerald Brooks
19. The Law of Timing - When to lead is as important as what to do and where to go. Only the right action at the right time will bring success. If a leader repeatedly shows poor judgment, people start to think that having him as the leader is the real mistake.
20. The Law of Explosive Growth - To add growth, lead followers - to multiply, lead leaders. The key to growth is leadership. “It is my job to build the people who are going to build the company.” - John Schnatter. To go to the highest level, you have to develop leaders of leaders.
21. The Law of Legacy - A leader’s lasting value is measured by succession. Just as in sports a coach needs a team of good players to win, an organization needs a team of good leaders to succeed. A legacy is created only when a person puts his organization into the position to do great things without him.
We highly recommend this book. In today’s challenging world, the most critical factor in organizational success is the right leadership. This book has many practical examples of leadership in action and positive result of effective leadership. There is also a test where one can self-assess how they apply the 21 Irrefutable Laws in their particular situation.
New Faces at Mowery & Schoenfeld |
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As a result of our successful recruiting efforts led by our Recruiting CEO Chad Swigert, we are proud of the new faces that have recently joined Mowery & Schoenfeld.
Jed Ang joined the Firm in September 2008. Jed is a graduate of the University of Illinois at Urbana and holds a Bachelor of Science in Accounting. Jed likes reading and cooking, but baking may be beyond his abilities.
Josh Weir also joined the Firm in September 2008. Josh is a graduate of Northern Illinois University and holds a Bachelor of Science in Accounting. He has successfully completed the CPA examination. Josh likes listening to music, watching movies and, depending on the season, either riding roller coasters or skiing.
Michelle Ternstrom also joined the Firm in September 2008. Michelle is a graduate of Northern Illinois University and holds a Bachelor of Science in Accounting. When she is not working at the Firm, Michelle likes spending time with her friends and family.
Jessica Decker joined the Firm in January 2009. Jessica holds a Bachelor of Arts in Business Administration and Spanish from Illinois Wesleyan University. She also holds a Master of Science in Accounting from Northern Illinois University. Jessica likes to read, plan her upcoming wedding, run, go to the lake and spend time with friends and family.
Jeffrey Ziebell joined the Firm in January 2009. Jeff holds a Bachelor of Science in Accounting from Roosevelt University. He also holds a Master of Business Administration from Northern Illinois University. Jeff is veteran of the United States Marine Corps. He likes traveling, sailing, scuba diving, and sports.
We also have four recruits joining the Firm in September 2009. Danielle Gambini from Northern Illinois University will be joining the audit staff. Steven Zuniga from the University of Illinois – Urbana will also be joining the audit staff. Kristen Jacobson from Northern Illinois will be joining the tax department as will Matthew Zaba from Illinois State University.