The IRS has determined that businesses will not need to reconcile their gross receipts with their merchant credit card transactions reported to them on Form 1099-K.  This new ruling is now in effect for the year 2012 and later tax returns.

The IRS deputy commissioner for services and enforcement, Steven T. Miller, said in a written memo to the National Federation of Independent Business that no reconciliation will be required on 2012 or future business tax returns. The IRS previously said in October of last year that no return entry would be required for 2011 tax returns, although they left a line on the returns saying “For 2011, enter 0.”

We previously advised our business clients to separately track their cash receipts from merchant card payments beginning in 2012. Please be advised that you are now no longer required to do this reconciliation.

If you have any questions regarding this alert please feel free to contact Fred Crooks or Bill Simi at 916-782-8500 or e-mail fred@cpacorporation.com.

Regards,

Fred Crooks and Bill Simi

Our guest blogger this week is Chad Nelson,  President of Champion Online Marketing. Chad has some valuable insights to offer on the subject of search engine optimization and what it means for the business owner.

Search Engine Optimization, or SEO, is an often used term but one that many or most people don’t fully understand. On an almost daily basis I get asked, “What is SEO?” Before diving into the definition of “SEO” it is best if we take a quick look at the normal process involved when someone searches for a product or service on the Internet.

When a potential customer is looking for a local company to purchase a product or service they typically type in the word or words (called keywords) they are looking for into a search engine.

Let’s look at an example. If you were looking for an accounting firm and you lived in the Granite Bay, CA area, you might type in the keyword phrase “Granite Bay accountant” into a search engine.  Search engines are websites that then go out into the vast expanse of the Internet and provide a list of search results that it feels are the most relevant to the keyword the searcher just typed in. The most popular search engine is Google, and then Bing and Yahoo round out the top three search engines. The search engine will then show the websites it thinks are the best match for the keywords the searcher typed in. In our example, the search engine would return with a list of accounting companies in or near the Granite Bay area. The accountants that the search engines will show are the ones that have been active and done the best job with their search engine optimization.

Search engine optimization, or SEO, refers to the process and strategies involved in trying to get your website to be one of the first websites that a search engine lists when someone is searching for keywords that are related to the product or service that you provide. (If you would like to learn more about Sacramento SEO or for any other area feel free to contact us.)

SEO encompasses a lot of strategies but it can be boiled down into 3 basic categories or strategies – keywords, On Page Optimization and Off Page Optimization. Don’t worry, they’re easy to understand once you get a little explanation.

Let’s start with keywords. Keywords, as mentioned above, are the word(s) or phrases that people type into the search engine when they are looking for a product or service. Since these are the words that your potential customers will be using it is critical to do some research to find out the correct words that people are actually using to search for the products or services that you offer. Not what you “think” they are typing in, but what they are “actually” typing in.

There’s no room for guesswork here. It would be a huge blunder to assume you know the keywords that people are typing in only to find out many months and potentially lots of dollars later that you picked the wrong ones or missed some. A great place you can do lots of free research is Google’s free Keyword Tool. Just go to Google.com or any search engine and type in the keyword “Google Free Keyword Tool” and you will find it. Spend some time and do some research to find different keywords that your potential customers are typing into the search engines when they are looking for what your company has to offer. 

Spending the time and effort to research for the right keywords that your potential customers are actually using is a crucial first step to a successful SEO campaign.  Once you’ve identified the keywords you want to rank high for you can move on to the next step in your Search Engine Optimization campaign – On Page Optimization.

Part 2 will go into detail and give some free tips on how to effectively proceed with your On Page Optimization.

If you have any questions regarding this post please feel free to contact Fred Crooks or Bill Simi at 916-782-8500 or e-mail fred@cpacorporation.com.

Our good friend and guest blogger, Brad Harsch of Lighthouse Strategic Advisors is back with the latest presentation in his strategic Investor series. This week Brad has some valuable insights to offer on the subject of exit planning for the business owner.

If you prefer to watch a video presentation of Brad’s post, just click the link below.

The Exit Plan…Revisited

The Exit Plan…Revisited

by Bradley Harsch, AIF® 

Today’s business owners face many challenges in maximizing their business exit options. The exit transaction may likely be the largest financial transaction of an owner’s life, and could even provide generational wealth. 

 A favorable financial exit depends largely on having the right team of talented tax, legal and financial experts to help explore all options and optimize the owner’s financial readiness. Assembling the expert team in collaborative meetings fosters clear communication, knowledge sharing, greater clarity and synergy toward a positive outcome. In preparation for the financial exit, however, owners should also invest the necessary time and energy to assess their mental readiness to begin the post-business phase of life.

Assessing an owner’s mental readiness to exit encompasses three primary topics:

First, business owners need to evaluate their personal and emotional attachment to the business. In closely held businesses especially, it’s common for owners to have strong sentimental attachment to the business. Considering the significant investment of time and energy to grow a successful business, many owners have avoided personal hobbies or activities outside of the business, and some may subconsciously resist or avoid important exit planning steps as a way of prolonging the attachment. As a result, transitioning to the post-business lifestyle may not be as seamless as one would normally expect.

Second, business owners need to be aware of the potential conflict between market price and personal perceptions of business value. Businesses manifest from ideas invested with not only financial resources, but countless hours of planning development, testing, and revision. As a result, an owner’s personal identity can often be enmeshed with the viability of his enterprise. The owner can experience great frustration in attempting to reconcile his personal beliefs of the business value with a realistic market price potential suitors would be willing to pay. This value-price disconnect will certainly complicate exit negotiations, and can possibly delay or prevent an owner from realizing the fruits of his labor.

Third, business owners need to be mindful of potential exit timing complications. For instance, business valuations may be most attractive at a time when the owner is not mentally ready to leave. Similarly, an owner may be completely prepared for post-business life at a time when the exit transaction would provide insufficient funds to finance his post-business lifestyle. Considering that the exit process can take from a few months to several years, an experienced exit advisory team will assist with managing both expectations and exit timing.

Many resources exist to help owners preemptively evaluate the alignment of mental readiness with financial readiness. Key questions to help assess mental readiness include:

• What is most important to you about the post-business phase of your life?
• How do you plan to spend your post-business time, energy and resources?
• Are there activities, opportunities, causes or relationships you would now pursue with as much commitment and passion as you invested in your business?
• How will your post-business lifestyle be similar (and different) to the lifestyle you now know?
• How does the cost of financing post-business endeavors compare with your current exit valuation?
• Would delaying (or accelerating) your exit materially improve enjoyment of your post-business life?

Once you’ve evaluated and reconciled the normal feelings of attachment to your business, identified potential disparity in actual versus perceived exit value, and aligned your exit timing with favorable valuations, suitable exit strategies become more easily identifiable, and a fulfilling post-business life can be pursued with confidence.

To subscribe to future and past presentations of the “Strategic Investor” on either iTunes or YouTube click on the preferred link below:

Strategic Investor Spotlight on iTunes 

YouTube Channel – Strategic Investor Spotlight      

http://www.youtube.com/StrategicInvestors

Another year is coming to an end and we would like to remind you of items that should be address before December 31, 2011.  The information below will assist you in getting the most benefit on your 2011 individual and business tax returns.

I.                    INDIVIDUAL TAX PLANNING

Residential Energy Credit

The tax law provides a 10% tax credit, up to a maximum of $500, for certain energy saving installations in the home. The list of qualified expenses ranges from insulation to energy-efficient central air conditioning units and furnaces. Previously, a maximum credit of $1,500 was allowed for 2009 and 2010.

Year-end action: Make energy-saving improvements before January 1, 2012. Unless this tax break is extended again by Congress, it will expire on December 31, 2011.

The maximum $500 credit must be reduced by any credits claimed under the prior rules in 2009 and 2010.  And, you will need a receipt by the contractor or store that it qualifies for the credit!

Charitable Donations

Normally, you can deduct the full amount of your cash contributions to charity, as long
as you get a receipt.  And, you may be able to deduct the fair-market value of donated property that has appreciated in value if you have owned the property longer than one year. For example, if you have a piece of art you inherited from your Aunt Ethel that you despise, but is worth more than when you got it, you can donate it to charity for the increased value!

Year-end actions: Complete donations before January 1, 2012 to lower your taxes for 2011. If you are planning to give something next year to a charitable organization, consider donating it this year.  If you make a charitable gift by credit card and the charge is posted by December 31, 2011, it is currently deductible, even if you actually pay off the charge in 2012.

Deductions for donations of used clothing and other household items are generally available for those items in “good condition.”

Retirement Contributions

When it comes to retirement savings, rule number one is to contribute the maximum amount allowed every year.  For 2011, the IRA contribution limit is $5,000, and those 50 and older can contribute $6,000.  Participants in a 401(k) plan can contribute as much as $16,500 ($22,000 if 50 or older).

Did you know you can make IRA contributions for your spouse when you’re working and your spouse is not?  For 2011, the maximum spousal IRA contribution is the lesser of $5,000 or your combined earned income.  You can add an additional $1,000 when your spouse is over age 50.

If you’re self-employed, establishing a retirement plan such as a SEP or a SIMPLE means a current-year tax deduction in addition to tax-deferred growth.  For 2011, you can contribute 25% of your salary to a SEP plan, up to a maximum contribution of $49,000.  The maximum SIMPLE contribution is $11,500, plus an additional $2,500 as a catch-up contribution if you’re over age 50.  A federal tax credit may also be available –up to $500 for each of the first three years of your new plan.  Remember, credits reduce your tax bill dollar for dollar.

Year-end action: Max out your 401K by 12.31.11 or IRA by 4.15.12

Did you Provide Support for any Relatives?

While planning to maximize deductions, remember to take into account the financial support you provide for relatives.  Potential tax breaks include dependency exemptions, head-of-household filing status, medical deductions, and the dependent care tax credit.  Generally, you’ll need to provide over half of your relative’s living expenses.

What if you don’t provide more than 50% of support for your relative?  You could enter into an arrangement with other family members who provide help, or you could shift assets you would dispose of anyway to pay for the support.  You would then be shifting the related income and tax to your relative.

Here’s an illustration of asset and income shifting.  Instead of selling stock at a gain and using the proceeds to pay for a parent’s living expenses, gift the stock to your parent and let him or her make the sale.  Long-term gains could qualify for a zero-percent tax rate if your parent is in the lower tax brackets.

Avoid Penalties by Making Your Estimated Tax Payments Timely

If you do not pay enough income tax through quarterly installments or income tax withholding, you may be assessed an “estimated tax penalty.” But no penalty applies if payments equal at least 90% of your current liability or 100% of the prior year’s tax liability. The 100% threshold is increased to 110% if your adjusted gross income (AGI) for last year exceeded $150,000.

IMPORTANT Year-end action: Make sure to be at least 90% paid in for 2011 taxes or 100% paid in of 2010 taxes before 1.15.2012. Typically, it is easier to meet the requirement based on the prior year’s tax liability.  Call us to discuss.

Miscellaneous Tax Tips for Individuals

●        Make sure to pay your real estate taxes in 2011 to deduct them for 2011!  Some clients forget to pay and wait until the deadline the following year, thus losing the tax deduction for this year.

●        The tax law allows you to deduct annual unreimbursed medical expenses only in excess of 7.5% of your AGI for 2011 (scheduled to increase to 10% in 2013). If you are close to the 7.5% mark or already over it, schedule non-emergency medical and dental visits before the end of the year.

●        Consider consolidating outstanding personal debts into a home equity debt. Interest on personal debts (like credit cards) is not tax-deductible, but you may deduct mortgage interest paid on the first $100,000 of home equity debt, no matter how the proceeds are used. Caution: The debt must be secured by your home, so use this technique carefully.

●         If you are a parent of a child in college, you may claim a tuition deduction or one of two higher education credits for qualified expenses paid in 2011. However, these tax benefits are phased out for high-income taxpayers.

II.        BUSINESS TAX PLANNING

Depreciable Property

Certain enhancements to business depreciation provisions are scheduled to expire December 31, 2011, although President Obama has proposed an extension through 2012.

Section 179 – A $500,000 expensing election limit applies to qualifying property purchased and placed in service during 2011.  As a result, many businesses will receive an immediate tax write-off for the cost of most new and used tangible personal property.  Unless Congress acts to further extend the higher limit, it will drop to about $134,000 in 2012.

Companies that purchase more than $2 million of qualifying property during 2011 have their deduction amount reduced, dollar-for-dollar, for purchases in excess of $2 million.

Bonus depreciation – Property that does not qualify for an immediate tax write-off under the expensing election may qualify for an increased first-year depreciation deduction under bonus depreciation rules.  Unlike the Section 179 deduction, there are no restrictions on the amount of qualifying property and there is no taxable income limit.  The one restriction on the bonus depreciation is that it is available only on new assets.  The deduction is 100 percent of the cost for property purchased and placed in service during 2011.  Unless Congress acts to extend the bonus depreciation (now proposed by the President), it will not be available for 2012.

The Section 179 deduction may be combined with 100% bonus depreciation in 2011 for an unprecedented write-off of qualified business assets.

Business Tax Credits

Research and development tax credit – Many business owners in nearly every industry are unaware that federal and state research and development (R&D) tax credit programs exist that may reward their day-to-day efforts aimed at producing an improved product.  This credit is scheduled to expire December 31, 2011.

Health insurance tax credit – To encourage smaller businesses to offer medical insurance coverage for their employees, the law offers a tax credit to offset all or part of the cost.  If your business qualifies as a small employer, meaning fewer than 25 employees and average annual wages of less than $50,000, you are eligible for a credit of up to 35 percent of non-elective contributions you make on behalf of your employees for medical insurance premiums.  The credit varies based on the numbers of employees and average compensation.

Credit for hiring new employees – Businesses that hire workers who are members of certain target groups, such as disabled veterans, food stamp recipients and ex-felons, can claim a credit up to 40 percent of the first $6,000 of wages paid to each such employee.

Miscellaneous Tax Tips for Businesses

●         Purchase routine business supplies before the end of the year. A company can generally deduct the cost in 2011—even if the supplies will not be used until 2012.

●        Losses claimed by S corporation shareholders are limited to the basis in the stock plus outstanding debt. Thus, shareholders might make a capital contribution or lend money to the corporation before year-end to increase the basis for loss deduction purposes. Call us to discuss if you think it applies to your situation.

●        A company can deduct 100% of business travel costs and 50% of entertainment and meal expenses. To increase your current deduction, accelerate trips planned for 2012 into 2011. Note: A company can deduct 100% of the cost of a holiday party if the entire workforce is invited.

●        Get a new business up and running before 2012. For 2011, you can claim a maximum first-year deduction of $5,000 of qualified start-up costs.

●        If you buy an SUV or van for business driving, you may be able to claim a first-year deduction of up to $25,000. The usual “luxury car limits” don’t apply to certain heavy-duty vehicles.

III. FINANCIAL TAX PLANNING

Sales of Stocks and Bonds

Tax-smart investors can use capital losses from securities sales to offset capital gains and vice versa.

A capital loss in 2011 may offset capital gains plus up to $3,000 of ordinary income. Any remainder is carried over to next year. Under current law, the maximum tax rate on long-term capital gains (i.e., on assets owned for more than a year) is 15% and 0% for certain low-income taxpayers.

Also, if you have capital gains for the year, sell loser stocks to soak up the capital gains, creating a net tax effect of zero.

Year-end action: When it makes sense, take losses from securities sales before 2012 to avoid tax if you are currently showing a net capital gain. If you really love the stock and still want it in your portfolio, wait 31 days and buy it back, avoiding the wash-sale rules.

The 15% and 0% maximum tax rates for long-term capital gains are scheduled to increase to 20% and 10%, respectively, in 2013. But this may be changed by future legislation.

Roth IRA Conversions

There are two main types of Individual Retirement Accounts (IRAs): traditional IRAs and Roth IRAs. In brief, contributions to traditional IRAs may be tax-deductible, but tax deductions are phased out for “active participants” in employer-sponsored retirement plans (401K and 403B). Distributions are taxed at ordinary income rates. Conversely, Roth IRA contributions are never tax-deductible, but qualified distributions from a Roth that is in existence five years are 100% tax-free.

Year-end action: Consider converting funds in a traditional IRA to a Roth. The transfer is currently taxable, but can provide future tax-free benefits. This is especially attractive if you are going to be in a lower tax bracket in 2011, as converting now will save you big tax dollars later if you decide to convert in a year when your tax rate is higher.

Unfortunately, a one-time tax break for Roth conversions is no longer available. For 2010 only, taxable income from a conversion could be split evenly over the following two years.

The contribution limit for both traditional and Roth IRAs in 2011 is $5,000 ($6,000 for those age 50 or older). This limit applies to any IRA combination (but Roth contributions are restricted for high-income taxpayers).

Required Minimum Distributions

As a general rule, you must receive “required minimum distributions” (RMDs) from qualified retirement plans and IRAs once you have reached age 70½. The amount of the distribution is based on special life expectancy tables.

Year-end action: Make sure you take the RMD before January 1, 2012. If you fail to do so, you may be assessed a penalty equal to 50% of the required amount.

If you are still working and not a 5%-or-more owner of the employer, you can postpone RMDs from the employer’s qualified plan until retirement, but not for any IRAs.

Estate and Gift Taxes

During the last decade, the top estate-tax rate gradually decreased from 55% to 45% while the estate-tax exemption increased from $1 million to $3.5 million, before the estate tax was generally repealed for 2010. Now a generous estate-tax exemption of $5 million, with a top estate-tax rate of 35%, is available through 2012. The chart below summarizes the recent progression.

Year-end action: Review your estate plan with a professional financial adviser. Frequently, it will make sense to reduce your taxable estate with lifetime gifts to family members. The annual gift-tax exclusion allows you to give each recipient up to $13,000 in 2011 without paying any gift tax ($26,000 for joint gifts by a married couple).

The gift-tax exclusion applies annually. Therefore, you can give the maximum tax-free gift to someone in December 2011 and give the maximum to the same person in January 2012.  Therefore, you and your spouse could gift $52,000 to one person over 2 days

Miscellaneous Financial Tax Benefits

●        When it makes sense, you may defer tax on investment income by acquiring certificates of deposit (CDs) and Treasury securities that mature next year. Generally, the income from these investments is not taxable until the year it is received.

●        It is often beneficial tax-wise to sell mutual fund shares before the fund declares dividends (the “ex-dividend date”) generally in the 4^th quarter, and to buy shares after the date the fund declares dividends

●        Consider investments in dividend-paying stocks. As with long-term capital gains, the maximum tax rate on qualified dividends received in 2011 is 15% (0% for low-income taxpayers).

●        Maximize deductions for vacation home rentals. Generally, you may claim a loss only if your personal use does not exceed the greater of 10% of the time the home is rented out or 14 days. However, you may qualify for loss deductions if you are an “active participant” in the rental activity. This tax break is phased out for high-income taxpayers.

Tax changes coming in 2013 to be aware of:

Some future tax changes have already been enacted but have yet to take effect:

Effective Jan 1, 2013, a new Medicare Hospital Insurance (HI) tax applies to high income            individual taxpayers:

●        The tax is 0.9 percent of earned income in excess of $200,000 for single filers ($250,000 for joint return).

●        A 3.8 percent tax applies to investment income (including dividends, annuities, royalties and rents, etc.) for the same individuals.

Consider talking with us or your tax adviser about strategies for minimizing this tax.

In 2013, the threshold for the itemized deduction for unreimbursed medical expenses is increased to 10 percent of adjusted gross income from the current 7.5 percent.  You may want to plan for unreimbursed medical procedures in 2011 or 2012 to maximize your tax benefit.  There is a break for older taxpayers.  If an individual or spouse is age 65 or older, the threshold remains at 7.5 percent of adjusted gross income through 2016.

CONCLUSION

Unfortunately, the ways for middle class taxpayers to save taxes are limited.  When you are a Donald Trump, you employ teams of CPAs and tax attorneys to maneuver your money into special situations within the tax code carved out by politicians for high income people (like themselves).

This year-end tax-planning blog is based on the prevailing federal tax laws, rules and regulations. Of course, it is subject to change, especially if major tax reform provisions are enacted before the end of the year.

Finally, remember that the letter is intended only as a general guideline. Your personal circumstances will likely require greater examination. Please contact us if you would like to schedule a meeting to discuss your specific situation.

As with many situations in life, entering into a relationship with a financial advisor, is about asking the right questions.  Our guest blogger this week, Brad Harsch of Lighthouse Strategic Advisors, shares with us the 10 crucial questions investors should always ask -

Choosing an advisor to help manage your money is one of the most important hiring decisions you’ll make. But even those who hire competent individuals for their businesses struggle when it comes to selecting and retaining the right financial advisors to grow and protect their wealth. Even the most discerning investors often don’t know which questions to ask or what the position actually entails.

These 10 questions should help you identify those advisors best suited to properly guide you on a successful financial journey.

1. What is your educational and professional background?

Look for a pattern of accomplishment and self improvement, and don’t assume that age translates to experience. Find out what licenses and registrations the advisor currently holds and for how long, what professional accreditations or certifications have been received. Most importantly, find out how they chose this career.

Some advisors will articulate an interest with economics and investment fundamentals. Others describe their interest with the impact of effective financial management on family relationships, attitudes, and personal fulfillment. You have to decide if you prefer to work with an advisor who is more interested in the markets, or more interested in helping you navigate toward your desired financial outcome.

2. What is the scope and extent of your professional services?

Find out what aspects of financial management are covered, and which are not. Make sure your advisor’s expertise and services match your needs. If you need additional services, ask the advisor to describe the collaborative process with other key tax, legal and financial professionals.

Beware a candidate who seizes an opportunity to disparage others in order to make themselves shine. Such behavior indicates that the advisor may place his needs above the ultimate need of helping you achieve your goals.

3. What is your regulatory and disciplinary record?

Don’t be afraid to ask this question and, if necessary, follow it up by contacting the regulatory authorities for additional information. Specifically, find out if the advisor has a disciplinary history, if open or current complaints exist, and if so, the nature of issues involved.

4. How are you compensated?

Many advisors hold multiple licenses and registrations. Get a clear understanding of whether you’ll pay fees, commissions, or both. Ask if the practitioner earns any compensation from third parties, also called “soft dollar” compensation. Some firms and investment product sponsors incentivize advisors for selling their products, which inherently creates a possible conflict of interest.

5. What fees and costs are not covered in your compensation?

There can be a surprising difference between what your advisor charges you and how much you actually pay. Familiarize yourself with any set-up, termination or transfer fees. Additionally, ask about annual maintenance fees or other charges that could impact your bottom line.

Check into record keeping and tax reporting services. You may incur additional expense If you are not provided with all the information you’ll need for tax preparation.

6. What is your strategic methodology and process?

Ask if the advisor has a written philosophy that guides the investment strategy. Many advisors don’t have a formal approach to investment management. If there is a formal approach in place, get a copy. Find out what it entails and how the advisor came to develop it. Ask how long the current approach has been in place and what specific ongoing processes guide your portfolio toward your stated objectives.

7. Are you a fiduciary?

Fiduciaries are held to a higher standard of care than other financial professionals and are accountable to place client’s interest above their own. If the advisor is affiliated with a Broker-Dealer, find out if his firm supports a uniform fiduciary standard of care.

Non-fiduciaries often act as a salesperson for either his firm or the product sponsors he represents, which presents an increased potential for conflicts of interest.

On a related topic, find out where and how the advisor will custody your financial assets and whether the advisor will take direct possession of clients funds. If so, the advisor must maintain a surety bond.

8. What if something happens to you? 

Ask what procedures are in place should the advisor be out sick, on vacation or simply out of reach. Additionally, what happens to you and your portfolio if your advisor quits, retires, or dies?

Beyond asking the advisor how long he plans to continue in this field, get informed about and what will happen should your advisor be out of reach. And know your available resources and options in the event he sells, quits, retires or dies. Meet the staff and advisors who will be taking care of you and your portfolio should any such situation occur, and make sure you’re clear, and comfortable, with the continuity and succession plan.

9. What are advisor, staff and team member’s roles?

Find out if your advisor works collaboratively with the other advisors and staff in the firm to facilitate your professional relationship. Ask who is responsible for delivering performance reports, account statements, tax documents, scheduling review meetings, and providing timely communication with you. Find out who is responsible for conducting investment analysis, making recommendations, monitoring progress and executing your portfolio strategy.

10. Tell me about your ideal client

Although logical, it may be counterproductive to tell a prospective advisor about yourself right away. Instead, ask them to describe their typical clients. Find a financial advisor whose ideal client sounds very similar to your situation in terms of age, stage of life, and asset level. Ideally, you want an advisor who has extensive experience working with people just like you.

Facilitate a conversation based less on assets and more on the relationship dynamics. For instance, it may be helpful to ask: What’s a good client relationship look like to you? What’s most important to you and what do expect of me for a good business relationship?

When you’ve completed the interview, the final questions is yours: Do you feel compelled to move forward? Your reaction to this question should be a reflection of both the advisor’s skills and abilities, as well as their ability to connect with and advocate for you.

About the author:

Bradley Harsch is an Accredited Investment Fiduciary® specializing in strategic investment portfolio optimization. Brad lives in Sacramento, California with his wife Michelle and their five children. Brad can be reached at 916-849-5728 or bharsch@lighthouse-sa.com

 Bradley Harsch is a registered representative with, and securities are offered through, LPL Financial LLC, Member FINRA/SIPC.  Investment Advice offered through Strategic Wealth Advisors Group (SWAG), a SEC registered investment advisor and separate entity from LPL Financial LLC. Tracking #1-025295

Even the smartest small business owner can do dumb things now and then. Unfortunately, some mistakes can kill a company.

Just ask Jeff Seifried, small business coordinator for the City of Aurora, Colo., and Peter Tourtellot, chairman of the Turnaround Management Association.

They, along with other experts who prefer to keep their observations anonymous, have seen the best – and worst – of small-business operations.

Here are 10 examples of common, but potentially deadly, errors committed by otherwise brilliant small-business owners. Don’t make the same mistakes.

Underestimating the importance of cash flow management

Two woodworkers had a thriving business building interiors for retail stores. They did beautiful work and their customers were pleased, but it often took them 60 or even 90 days to pay the bill. Until the money rolled in, the partners couldn’t start on the next job because they couldn’t buy materials. They lost jobs because customers were in a hurry. You can be making plenty of money, but if cash isn’t arriving in time to meet payroll and buy inventory when it’s needed, you can be quickly out of business.

Getting sloppy with record keeping

The owner of a lawn service was haphazard about record keeping. If he had kept better track of lawns mowed, he would have known that his oldest mowers had so many miles on them, they were unlikely to last the season without an overhaul. Instead, it came as a very unpleasant surprise when three of them burned up in one week. Good records are a key decision-making tool. If you’re not keeping good track of your business, you are denying yourself the tools to make good business decisions.

Ignoring inventory

The owner of a business-supply store bought a flat of construction paper just before school started. Three years later, employees were still stepping around the boxes to get into the storage room. If you end up with stale inventory, discount it and get it out of there. Otherwise, you’re just tying up money and taking up storage space.

Neglecting collections

A dentist had dozens of outstanding bills for routine and special dental work approaching 180 days old because his assistant hated to make collection calls. Nobody likes to dun people, but unless you have a systematic collection plan and make sure it’s carried out, some people just won’t pay.

Disregarding employee concerns

The owner of a small jewelry manufacturing operation refused to pay overtime. He thought workers should be able to get the job done in the time allotted. Employees came and often left unhappy over what they saw as unfair treatment. Finally, one of them complained to the state division of wage and hour, which launched an ugly and (for the jeweler) expensive investigation. If you have a hard time hiring and retaining good employees, your business is doomed. And if you find yourself the target of an employment-related lawsuit, your expenses can be astronomical. Get expert advice on human-resource issues. While it may look expensive, it can save you a bundle in the end.

Failing to delegate

A baker thought she was the only one who could make the perfect cookie. Back trouble that put her in bed two weeks before Christmas nearly shut down the business. Recognize that you can’t do everything. Turn some of the job over to the best assistant you can hire and trust him to do the job, even if he makes a mistake now and then. If you insist on doing it all yourself, you can’t grow.

Offering something the customer doesn’t want

A water ice vendor spent all his time and money developing 100 delicious flavors. The trouble was nobody bought anything but cherry, lemon and vanilla. Ultimately, his inventory melted away and so did his profits. Market research is vital. Talk to potential customers, talk to current customers and respond to what they tell you.

Letting costs get out of control

The owner of an auto body shop was having such a great year, that he bought a lift that wasn’t in his budget. He also hired the son of an employee who needed a job, even though there wasn’t quite enough work to keep another person busy. In the final analysis, revenue went up significantly, but costs skyrocketed. If you’re not careful, you’ll spend up all the profits.

Spreading marketing dollars too thin

The owner of a Tex-Mex restaurant in a part of the country that’s not exactly a hotbed of enthusiasm for Southwestern cuisine had an obvious need to advertise. And she did. She bought one cable TV ad, one radio spot and a small coupon in the local weekly. Although she spent plenty – several thousand dollars altogether – her efforts didn’t add up to a marketing campaign. Failure to spend wisely on an integrated and continuing marketing plan is an expensive mistake. In this case, her location is now a pizza parlor.

Underfunding an emergency account

When unannounced road resurfacing closed a popular dress shop’s doors for a month, it put the owner out of business because she had no emergency money and she couldn’t go a whole month with virtually no sales. As every gambler knows, no matter how good a player you are, you’re occasionally going to be dealt a bad hand.

Likewise, every business needs a financial resource to turn to when disaster strikes. Bad things do happen frequently to good people and their businesses, so, like a good Boy Scout, you have to be prepared.

At CPA Corporation we can help business owners avoid these kinds of common business pitfalls, as well as, assist them in addressing other issues and concerns that may be keeping them awake at night.

Please call us for an appointment to sit down and talk with us about your business needs. There is no cost or obligation to you.

Or visit our website at and take advantage of our free online business diagnostic. It will take only a half hour of your time, but we are confident that it will be enormously valuable to you.  Again, there is no cost or obligation to you.

We wanted to alert small business owners that it is not too late to claim the Affordable Care Act’s Small Business Health Care Tax Credit. The filing deadline for many small businesses has already passed, but qualifying employers that provided insurance in 2010 can still claim this significant assistance on 2010 tax returns:

• Small businesses that already filed and want to claim the credit can amend their returns using Form 1120X for corporations or Form 1040X for others, including individual sole proprietors.
• Eligible tax-exempt organizations can claim the credit on Form 990-T.
• Small businesses without taxable income to offset should remember that the credit is part of the general business credit for Tax Year 2010, meaning they may be eligible to carry back the credit for five years or forward 20 years.

The credit is worth up to 35% of the health insurance premium costs a small business incurred for insuring its employees in 2010. Eligible small businesses that do not yet provide insurance can start doing so to claim the credit for 2011 forward.

The credit remains available for several years, so small employers should check each year to see if they are eligible.

More information is available on the IRS website at:

http://www.irs.gov/newsroom/article/0,,id=223666,00.html.

Additionally, here are some important links:

Small Business Health Care Tax Credit Brochure

Fact Sheet: Administration Releases New Information on Affordable Care Act’s Small Business Health Care Tax Credit

If you have any questions about your eligibility for this valuable tax benefit, or about how and when to file to claim the credit, please contact Mike Giotto by phone at 916-782-8500 or by email at mgiotto @cpacorporation.com.

This edition of our blog deals with Workers’ Compensation Insurance and the influence you as a business owner have on the cost of your premiums. Tom Bone is our guest author for this entry. 

Tom is an insurance broker and the host of the radio show “Insurance matters”.  His radio show airs every Tuesday at 8 a.m. and the first Saturday of every month at 9:30 a.m. on-line Small Business Talk Radio.  Please let us know your thoughts on this very important topic.

If employers could have influence over their cost of workers’ compensation insurance, wouldn’t they want to know how?

If insurance agents would help their employer clients lower their costs, wouldn’t that be a valuable service?

Most employers consider the renewal date of their workers’ comp policy to be the most important annual date for their policy. Unfortunately, employers have been misinformed by the insurance community and this is NOT the most important annual date.

Yes, the renewal date is when the incumbent carrier offers a new 12 month policy with their rates. This is also the date when the employer’s new Experience Modification (ExMod) is used to modify the rates the employer will pay. The Experience Modification is an important factor that rewards (lowering the Ex-Mod) for employers with little or no claims and penalizes (raises the Ex-Mod) for those employers who have had greater than expected claims for the employer’s industry and size. The application of the Experience Modification is a State process that applies to employers who meet a minimum annual premium. One of the goals of the Experience Modification process is to promote low claims activity and to provide a means to compare that success between employers.

The most important annual date to employers is the review and evaluation of all claims information from the employer’s workers’ compensation carriers before this data is presented to the California Workers’ Compensation Rating Bureau (WCIRB). This data determines the Experience Modification that in turn calculates what the final rates the employer’s incumbent, or any other insurance company, can offer when the policy renews. This event occurs approximately six months into the employer’s policy term. The information provided includes payroll (per classification) and the actual value of each claim the employer may have incurred over the last 4 years. All insurance companies are obligated to use this Experience Modification factor.

Just before the information is sent is the time the claims information needs to be reviewed and perhaps questioned to make sure it is an accurate reflection of the employer’s claims. In my experience, the majority of the value for open claims at this time can be lowered – which will result in a lower Experience Modification factor – which results in a lower future premium paid by the employer. This is really a most important time for employers to be involved – armed with advisors to review claims and audit payroll, the employer has a golden opportunity to reduce their future premiums.

Workers’ compensation is unlike other insurance program. Think of it as a credit line. Use it and you must pay it back plus more. So, workers’ comp is more of a way of financing workers’ comp claims.

It is amazing to me that this most important annual opportunity for employers is continuously ignored by insurance agents, insurance companies, and employers (who typically are not informed of this opportunity). Those employers who know about this process, become immediately engaged, involved and actively participate in this review process.

Any insurance broker, who is not working with their clients to manage this information in an effort to reduce employer’s cost, is doing their client a great disservice. Unfortunately, I continue to see that most insurance agents overlook this important time, because they are either disorganized, do not know what to do, or just don’t care.

Insurance companies also seem to not have any financial incentive to lower employer costs. Even Warren Buffett, Chairman of Berkshire Hathaway, a large insurance holding company, commented that since open claims are like free money – we have all of these extra funds to invest to increase stockholder value and higher profits. (Stockholder Letters)

Tom Bone can be reached at tbone@isugroup.com.

Our good friend Jim Harris at Celtic Bank wanted to make sure our clients and contacts were aware of what is going on currently with SBA Financing.

 No need for alarm but it’s worth noting that the SBA may exhaust its budget before the fiscal year ends on September 30, 2011. Her are some details. In rough numbers, about $300 million in SBA loans are being funded each week, and with 9 weeks remaining until fiscal year end, the $2.5 billion in remaining funds could run out before September 30, 2011. At this pace, the shortfall could be short lived, though if there is a late surge in demand, this gap could widen and impact your client’s ability to receive SBA financing.

So in early September, SBA is expected to require that 7(a) refinance loans be put in a queue so that it can control the funding process. Simply put, loans with “new dollars” that are expected to create new jobs will take priority (i.e refinance loans could receive lower priority).And shortly thereafter, about September 15th, all SBA 7 (a) loans will be required to go be put into a queue so that the SBA can select which will receive priority to fund. More information to come, but if you know of any fence-sitters, you may want to let them know. FYI SBA-504 loans aren’t expected to be part of this queue process.

If you have an questions reguarding this alert please feel free to contact Fred Crooks or Bill Simi at 916-782-8500 or e-mail fred@cpacorporation.com.

What is the most important characteristic of a successful CEO?  How many of us feel enslaved by our businesses?  Addressing these issues, Chip Conley gives a very compelling presentation at STAN, a TEDxStanford prototype event held on the Stanford University campus on Saturday, May 21st.   After going through many personal and business setbacks over the course of his career, Chip discusses the emotional equations he derived in an attempt to find meaning in his life’s work. Click the link below to view this presentation.

http://youtu.be/GdEvRiOANsg

Chip is the founder and CEO of Joie de Vivre Hospitality, California’s largest boutique hotel company that was founded in 1987.  At the age of 26 with no industry experience, Chip created the Phoenix, taking a 1950’s seedy motel and turning it into a world-renowned “rock n roll hotel” that catered to celebrities from David Bowie to Linda Ronstadt.  He is also the author of several business books, including, PEAK: How Great Companies Get Their Mojo from Maslow.