Wyoming Entrepreneur Blog

Averting the "Fiscal Cliff"?

Congress Approved Eleventh-Hour Agreement with the American Taxpayer Relief Act 2012! 

Yesterday, January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, averting the "Fiscal Cliff."  The Act allows the Bush-era tax rates to sunset after 2012 for individuals with income over $400,000 and families with incomes over $450,000; permanently "patches" the alternative minimum tax (AMT); revives many now-expired tax extenders, including the research tax credit and the American Opportunity Tax Credit; and provides for a maximum estate tax of 40 percent with a $5 million exclusion.  In addition to an extension for most taxpayers of the lower individual income and capital gains tax rates, marriage penalty relief, and more than 50 other tax benefits popularly referred to as the "Bush Tax Cuts," the legislation makes over 100 changes to the Internal Revenue Code.

Highlights of The American Taxpayer Relief Act of 2012 include:

• 39.6% tax rate for incomes above $400,000 ($450,000 families)
• All other Bush-Era Tax Rates extended
• 20% Maximum Capital Gains/Dividend Tax Rate
• Permanent AMT Patch
• Five-Year Extension of American Opportunity Tax Credit
• One-Year Extension of Business Tax Extenders
• And more!

According to Commerce Clearing House (CCH, a Wolters Kluwer business)

The next battle will be over the debt ceiling: Lawmakers will have to turn to discussing how to deal with the nation's $16.4 trillion debt ceiling next, which will need to be raised as early as mid-February to prevent a default.  And, according to House Speaker John Boehner, R-Ohio,"Without meaningful reform of entitlements, real spending controls, and a fairer, cleaner tax code, our debt will continue to grow, and our economy will continue to stumble."

What is your thoughts on deficit reduction and tax simplification?

Do I pay sales tax when I buy a business?

By Leonard Holler, CPA, CVA, CGMA – Regional Director in Casper.

“I want to buy a business, but someone told me that I will have to pay sales tax on the purchase of the business.  Is that right?” – Bruce in Wheatland.

Depending on the terms of the business sales transaction, it may be.  If you are purchasing at least 80% of ALL of the assets of the business located in Wyoming and you continue to use the tangible personal property in the operation of the ongoing business in the state, it is excluded from the statutory definition of a “sale” subject to tax.  Therefore, it would not be subject to sales or use tax.  If the sale includes vehicles and you meet that 80% threshold, those vehicles would be exempt from sales tax when you go to license them at the county treasurer’ office.

However, sales tax would be charged on the sales price of the “tangible personal property” if the sale is for less than 80% of ALL assets of the existing business.  By definition, if the sale is for less than 80%
of ALL the assets, it would still exclude accounts receivable, inventory items for resale, goodwill (and other intangibles), and real estate, but could include furniture, fixtures, vehicles and equipment used in the business.  You, as the purchaser or successor of the business, also retain the obligation to pay the tax until the former owner produces proof of the payment (certificate of no tax due) from the Department of Revenue of the sales tax owed.

The seller should file a return within 30 days after discontinuing or selling the business and you, as successor, should probably withhold enough money from the purchase price to pay the taxes until the proof of payment (certificate) is received indicating that there is no further taxes due.

For more questions about the terms of your sales transaction, you can call the Department of Revenue at (307)777-2459 or e-mail them at DOR_taxability@state.wy.us.

Developing Cash Flow Projections

Have you applied for a business loan and been asked for projections or a cash flow?  Most lenders will want this information but entrepreneurs often don’t know where to start.

If you are an existing business you can use your historical financial information to project out what the next 12 to 24 months will look, including the debt service on the new loan you are applying for, any new sales or revenue that investment will create, and what might go away (for instance rent if you are buying your own building versus leasing). The purpose is to demonstrate that you understand how your income and expenses will flow in and out (cash flow) of the business, and that you can repay the amount borrowed.  Include some margin for error since nobody ever projects perfectly.

If you are just starting a new business, this is a little trickier.  Estimating the expense side is usually easier than the revenue.  You can negotiate rent, find out what utilities cost, price insurance, set a marketing budget, and so on.  Sales are another matter.  How many people will by your product or take advantage of your service depends on what it is, competition, how much marketing you plan to do or can afford to do, and a whole host of other factors.  Since you will have some of your hard-earned money and time invested in the deal as well, you want this estimate to be as accurate as possible so as not to enter into this venture only to have it fail.  Remember to account for how much, if any, money you need to generate from this business to sustain your lifestyle.  If you have personal bills and living expenses that must be paid, that needs to be factored in.

I usually recommend to my clients that they generate projections for at least two years (some lenders will want three).  Wyoming Entrepreneur has a very good template on the web site, www.wyen.biz, under the Start a Business tab.  It includes a loan calculator to assist in determining what that new debt will cost you.  This template generally satisfies the format a lender wants to see.

Remember, it usually takes more money and more time than you think to get the business to the point where it is operating at a profit on a monthly basis.  Be especially careful with highly seasonal businesses and recognize that when you start can make or break the deal.  For assistance in developing these projections contact the Wyoming Small Business Development Center office in your area, or call 1-800-348-5194.

Financial Literacy

I recently had someone tell me that after receiving their tax information back from the accountant, they realized that they need to have a better understanding of the financial side of the business. This is a fairly common theme this time of year.  Perhaps you received the news that you owe some tax to the IRS because you made a profit, yet you don’t have the cash to actually be able to write that check.  How can this be?

There are a number of reasons why this could happen and many business owners don’t truly understand all of the financial relationships that take place.  The income statement is fairly familiar to most as it tells you whether or not you made a profit, but the balance sheet is typically not as well understood (if they even know what that is), yet it is on the balance sheet that cash is managed.  And we pay bills with cash, not profit!  Do you have money tied up in accounts receivable, excess inventory, have loan principal payments to make, is debt structured properly, and so on?  All of these could be part of the answer.

Until September of 2012, Wyoming Entrepreneur – Small Business Development Center has made available to every business in Wyoming a program called Profit Mastery.  It is FREE, and is a great resource to help business owners obtain a better understanding of the financial side of their business.  To learn more about this program visit our web site at www.wyen.biz and click on the Profit Mastery button at the bottom of the home page.  This is an on-line course that you can take at your convenience, with great tools to assist you in implementing the concepts in your own business.  If you have questions about the program, contact the Wyoming Small Business Development Center office in your area, or call 1-800-348-5194.

Register your business with the WY. Department of Employment - even if you don't plan on hiring employees NOW

One of the best kept secrets to businesses in Wyoming is the Wyoming Department of Workforce Services, Workforce Development Training Fund program (wyomingworkforce.org/wdtf). The program may be able to assist new and existing businesses by providing up to $2,000 per employee (owners are considered employees) per fiscal year for established businesses who need a skill upgrade or retraining. The program may also provide between $1,000 and a maximum of $4,000 per employee per fiscal year for new or expanding businesses, depending on the employee's full-time status and wage amount.

In order to register the business and submit an application for a grant, businesses must be in good standing with the Wyoming Department of Employment, Unemployment Insurance and Workers’ Compensation. The business must complete the “Joint Application Form” with the Department of Employment (wydoe.state.wy.us/wyereg/contactperson.aspx) prior to applying for a grant, regardless of entity type (sole proprietor, LLC, Corporation, etc.), even if the business has no employees (this can take 2 weeks to process). A business currently registered with the Wyoming Department of Employment does not need to re-register in order to apply for a Business Training Grant.

Time is of the essence when applying for a grant. The program provides a date calculator at (wyomingworkforce.org/wdtf/existing.aspx )under “What do I need to know about preparing an application.” This will let applicants know when an application can be submitted based on the start date of the training. Applying one day late can make the difference between receiving the grant or not.

Online Invoicing & Time Tracking Tools for Small Businesses

I own a small, but profitable, engineering company.  I make far more money doing engineering than doing books, and have a bookkeeper that takes care of my taxes.  I need a simple application that will help me track my time and do my invoicing.  Do you have any ideas?  Eric R. - Casper

There are a number of online tools available that track time and do invoicing, and many are free, if your business has a very low volume of clients.  FreshBooks is an interesting option that does time tracking and invoicing.  The service is free for up to three clients.  They charge $19.95/month for up to 25 clients.

You can use FreshBooks to track your time and expenses, generate invoices in any currency, send invoices either via e-mail or snail mail, track online collections, and automatically send late payment reminders to your clients.  You even can set-up recurring bills to automatically charge a client’s credit card on a regular basis.  Clients can pay online through a number of different payment gateways and view their own accounts. 

You can email invoices directly from the system or, for clients that prefer a physical invoice, print them and send via snail mail.  For an extra fee, FreshBooks will take care of the mailing chores for you, sending invoices directly to your clients in a window envelope, complete with a return envelope and return voucher.  If you have a client set-up with a recurring charge and are having FreshBooks mail your invoices, the entire process will happen automatically.  You just deposit the checks. 

This application is great for companies who bill time and use subcontractors.  You can set-up a project to include different tasks and different team members to be billed out at different rates.  You can even add outside contractors/subcontractors who can record their time on your project remotely from a smart phone.  You can track your time remotely too.  The system will also create cost estimates that can later be converted into invoices.  FreshBooks can also generate a number of bookkeeping reports.  Of course, for these reports to be accurate, you will have to enter your general business expenses into the system, in addition to project expenses. 

FreshBooks allows your micro business to look like a mega-business to your clients.  You upload your logo, pick your color, and the result is a very professional looking invoice.  FreshBooks has been highly rated by PC Magazine and others, because the program has so many features and connects to so many other applications, including Salesforce, Basecamp, Outright, Typepad, Constant Contact, and Peachtree.  The program will import client data from any source that can export in CSV format.   

FreshBooks is not a full-blown accounting program, such as QuickBooks or Peachtree.  Personally, I would not want to be without the checkwriting and posting abilities of that software.  Also, a one-time purchase of an accounting program is probably less expensive in the long run than paying a monthly fee.  But, if simplicity and convenience are your most important parameters, and the only accounting functions you require are invoicing and time tracking, this application fits the bill.  If you don’t need the time tracking component, other programs such as Zoho, Citrus, and Invoices Made Easy are less expensive.   Each of  these products offers a free tour and trial, so experiment to see what application will best meet your needs.  To find additional online business applications, check-out the directory on The Small Business Web, http://thesmallbusinessweb.com/directory?page=1.

DO I REALLY HAVE TO BUY A NEW COPY OF QUICKBOOKS EVERY TIME A NEW VERSION COMES OUT?

The answer to your questions is “It depends”. You don’t really need to purchase a new copy of QuickBooks every year, but you might want to. With each new version of QuickBooks there are usually new features to the program. These features usually come from suggestions made from current users wanting improvements. Check out what’s new for 2011 QuickBooks Pro http://quickbooks.intuit.com/pro/whats-new/ .

As Intuit finds bugs in their software, they release fixes. There is no charge for these fixes. If you press the F2 key when you have your company file open, you can see what release you have at the top of your screen. These releases keep your program running smoothly and it is suggested you continue to download them when they become available.

Unlike fixes to the program that are free, when Intuit releases a new version of their software you will have to purchase it again. There is often a discount to upgrade through Intuit, often it can be found it at a lesser cost somewhere else or on the internet.

The main reason you would want to upgrade your software to a newer version is Intuit no longer will offer support of a version older than three years. What this means:

* If you have employees and have been using a payroll subscription through Intuit, payroll updates will not be available.

* There are no longer any “fixes” for bugs that might occur in the program you are currently using.

* There will be no more support offered for your product through the Intuit email server (emailing invoices, etc.)

Deciding to upgrade QuickBooks is something you might consider talking to your accountant or CPA. If upgrading allows for features with easier and better reporting, your business has employees and additionally want support from QuickBooks you should consider upgrading at least every 3 years. What is your experience with updating QuickBooks? Need help? Contact our Certified Professional Advisor at mrowell@uwyo.edu for free and confidential support.

Improving Cash Flow

Cash flow issues seem to be a concern for many small businesses, and this time of year is usually more difficult.  First of all, let's define cash flow.  For the purposes of this dialogue I'll call it the "flow of money into and out of the business."  This includes revenue generated from sales, collecting that revenue, paying your bills for both the cost of goods sold and fixed expenses, and repeating the process.

I have often had people tell me, "my income statement or tax return says I made money but my checking account is essentially empty."  How can that be?  First of all, there are some differences between cash flow and net income.  A business may have money tied up in accounts receivable which shows up in revenue but not cash as you have yet to collect it.  Other areas could be excess or stale inventory, principal payments that don't reflect on the income statement but have to be paid with cash, or owner withdrawals that have not been accounted for, just to name a few.

Okay, but what can I do about it?  See if any of these ideas can be implemented.

- Beef up your collection process and consider changing your credit policy.

- Speed up billing.  Send invoices weekly or twice a month instead of at month-end.

- Negotiate longer terms with suppliers/vendors.

- Be careful with taking discounts if you don't have the cash.

- Watch your inventory levels carefully, and move out stale or excess items.

- Take a serious look at your expenses, and cut where you can.  But be careful about what you cut, like marketing.  It is usually a large number and tempting to reduce, but that could have the exact opposite result of what you intend.

- Anticipate cash needs (budget) and establish a line of credit to cover shortfalls.

- Fire some customers.  If they aren't profitable you need to get them to the point where they are, or weed them out.

If you need help analyzing your personal situation and developing a strategy for your business, contact Wyoming Entrepreneur for one-on-one guidance.

Should you delegate your business bookkeeping tasks to a friend or relative?

Getting your new business off the ground in a highly competitive market will require not only knowledge and skill to produce your product or service, but will need a sound financial footing.  Many businesses are passionate about their product or service, but may dismiss the bookkeeping as effortless or trivial. Keeping track of financial data requires skills that may or may not be appropriate for a family member or friend, especially if that person does not share the passion of your business.

Before delegating the bookkeeping tasks of your company to a friend or relative, ask the following questions.

1. Does this person have the skills and knowledge to support your business’ bookkeeping needs?
2. Does he/she really understand the inner workings of your business, i.e. the terminology of your field, how you order your products, how you wish to keep track of inventory, and how you will project future expenses?
3. Will you be able to communicate your need for accurate and timely financial statements, payroll and quarterly tax preparation for the IRS?
4. Will that person have time to devote to preparing invoices or sending statements on a regular basis? What if he/she already has another job?
5. Can you mix your business with personal life without causing difficulties within the relationship?
6. Have you discussed compensation for the work?

If your answers are positive, then working with a friend or family member may be appropriate for your company. If you or that person needs some extra help getting started, Wyoming Entrepreneur offers free assistance.

However, another option may actually be more beneficial in the long run. Many businesses make the decision to hire an outside bookkeeping firm. The cost is less expensive that hiring an employee since you are only paying for the actual hours that are being spent working on your books. Often, bookkeeping services are flexible and will do part or all of the bookkeeping process, allowing a business owner to do some of the tasks, leaving the more time consuming or difficult processes to the experts…and leaving family relationships and/or friendships intact.

Communication and trust are keys to working with any bookkeeper, whether it is in-house or an outside firm.  Interview several bookkeepers to find a good fit and make sure you understand the fee structure and expectations. It is important to review reports on a regular, monthly basis. Also, make sure that taxes and bills are paid on time. When you have an active part in such a review of financial reports, your business will continue to have current information…critical for making smart decisions.

Knowing that your financial interests are being taken care with quality bookkeeping will ease the way for you to focus on your strengths, to build the business.

 

Electronic Payment of Taxes - Probably Not an Option Anymore!

    Previously, once your business’s federal tax liability (including all taxes) during a calendar year exceeded $200,000 or your payroll tax deposits exceeded $50,000, you were required to use EFTPS or Electronic Federal Tax Payment System, in the second succeeding calendar year.  However, under a proposed rule from the U.S. Treasury (REG-153340-09), any business with a tax deposit requirement would have to make deposits electronically as of January 1, 2011.  The Financial Management Service (FMS), a Bureau of the Treasury Department, beginning in 2011, is eliminating the system that enables the processing of Federal Tax Deposit (FTD) coupons.  Accordingly, these proposed regulations require the use of EFTPS for all FTDs, effective January 1, 2011, which is not that far away.  Designated federal taxes include employment taxes, corporate income taxes, social security taxes, FUTA tax, excise taxes and various other types of non-payroll withholding.
    EFTPS, or Electronic Federal Tax Payment System, is provided FREE by the U.S. Treasury Department for payment of federal taxes via the Internet or by phone 24/7.  It is handled by a secure government website that uses the highest level of security.  The system can only be accessed through a secure Internet browser with 128-bit encryption.  When you enroll or to gain access to your account, you must provide three forms of unique information – a taxpayer identity (EIN or SSN), EFTPS Pin#, and a password.  They claim it is secure, fast, accurate, convenient, easy to use and reduces penalties.  Once enrolled, business taxpayers can use the system to make all their federal tax payments via the Internet or by phone.  Both methods are interchangeable.  Via the Internet you can initiate a tax payment 24 hours a day, 7 days a week.  Also, you can conveniently schedule tax payments up to 120 days in advance of a tax due date.   It takes about two weeks after you enroll to receive an enrollment confirmation, so plan ahead.  For more information about enrolling in EFTPS, visit www.eftps.gov to get started.
    So get ready to make the change and (maybe) get rid of those paper FTD coupons, you probably won’t be able to use them after the first of the year.