By Steve Combs
The Controllership Group, Inc.

In this season of giving, I thought I would provide a list of action items to make your Holiday a little more relaxing and allow you to bring in the New Year with a little less stress.

Yes, It’s Always About Cash Flow

As a small business owner, you know it’s always about cash flow. As the year-end approaches, the balance between ending the year with too much cash in the bank and not having enough to pay all the bills is a delicate one. The issue is compounded with the fact that your customers and your vendors are trying to do the same. Regardless of which side of the spectrum you’re on, it’s never a good idea to ease up on collecting cash from your customers. So keep up your collection efforts throughout December. In  fact there may be opportunities to collect “up front” monies from your customers as they try to play the same cash flow game.

On the outflow side of the equation, again I always encourage clients to maximize the payment terms from vendors. But as the yearend cliff approaches, don’t be afraid to establish another deductible expense by paying vendors a few days early or settle that outstanding invoice that’s been hanging out there since the summer.

Reconcile Your Accounts

I’m guessing you’re reconciling your checking account on a monthly basis, but when was the last time you reconciled your inventory accounts or payroll liability accounts or debt accounts? Reconciling your inventory account is critical to properly expensing your cost of goods sold and thus properly stating the value of your inventory.

The critical action in reconciling your debt accounts is to make sure you’ve correctly identified the interest expense from the principal payments.

Another critical area is to reconcile your payroll liabilities accounts, especially if you process your payroll in-house. You’ll need to make sure you’ve correctly processed your payroll tax deposits, both the withholdings and the actual payroll tax.

Speaking of Payroll

Ah yes, payroll. Do you know who is going to file your forms W-2 and W-3? Are you sure you have all of the necessary items for your employees’ W-2s? What about your  W-2, as the business owner? A first consideration is to properly report personal auto mileage if your policy is to reimburse for all auto expenses. Make sure you are tracking all of your mileage and identifying personal versus business miles. The personal portion will need to go into your (and your employees’) W-2 as wages.

A second consideration is health insurance premiums for the more than 2% shareholder of an “S” corporation. If your health insurance plan is qualified, the total amount of the premiums must be reported in the shareholder’s W-2, Box 14. This same amount can then be deducted on the shareholder’s Form 1040, line 29, self-employed health insurance.

A final consideration for payroll is the timing of the final payroll of the year, a topic that is also a consideration in cash flow planning. Consider both the timing of the final  payroll (another potential expense deduction) and the inclusion of year-end bonuses (also another deduction).

Section 179 Deduction

You’ve probably heard of the Section 179 accelerated tax deduction but in case you haven’t it is a section of the tax code that allows for accelerated depreciation of certain types of assets, thus lowering your taxable income. The types of assets qualifying for Section 179 include “tangible personal property” such as software, furniture, machinery, and equipment, but not land or buildings. The 2008 Economic Stimulus Act increased the amount of assets that are available for the Section 179 deduction from $128,000 to $250,000 for 2008. The deduction phases out for expenditures beyond $800,000. So, the action item for small business owners is to review any capital expenditures to see if they qualify for the Section 179. And secondly, to review the impact of Section 179 on that capital purchase that you have been considering. Although there are certainly non-tax factors involved, it may make sense to make the expenditure in 2008 taking advantage of the increased allowable amount and lowering the after-tax cost of the purchase.

The Fine Print

Of course, in all of these situations, please check with your accountant before making any final decision. Your particular tax situation may alter the impact of such a decision.

In the meantime, enjoy the holiday season. And count your blessings as the owner of a small business in this great country of ours.

Steve is a partner with The Controllership Group. His firm provides outsourced accounting services to small business owners, including bookkeeping, tax, and CFO-level services. He can be reached at 317-572-1228 or stevec@thecontrollershipgroup.com.

C.J. Mcclanahan

Besides your time, what is the most important asset in your business?

To answer this question, consider the following 2 questions:
1. What causes you the most problems?
2. What is your largest fixed cost?

For most business owners, the answer to these 2 questions is often “my employees” or “my team”. The fact is that if you want your company to continuously grow and generate a profit, you need to make sure that you are getting the most out of your team.

Unfortunately, most businesses struggle to get the productivity they should out of their employees. There are a variety of reasons for this challenge and most are directly related to a lack of leadership.

However, even in those circumstances where management does an exceptional job of leading, a problem with productivity typically still exists. One reason for this challenge is that most employees aren’t fully committed and loyal to the company and its leadership.

I argue that these employees are stuck in the middle of the “Loyalty Spectrum”. The “Loyalty Spectrum” is a simple visual representation that allows leaders to clearly set expectations with their team.

Here’s how it works. The loyalty spectrum has 2 extremes. On the far left you see an “I” which stands for “Idiot”. The employee who falls on this end of the spectrum has the following opinions about leadership at the company:

_ They pay me far less than I am worth.
_ They don’t care at all about the growth of my career.
_ They are making bad decisions and running the company into the ground.
_ They are dishonest, have a bad character and no integrity.

On the far right you see a “G” which stands for “Genius”. The employee on this side of the spectrum has the following opinions about leadership at the company:
_ They pay me at or above my market value.
_ They are completely dedicated to the growth of my career.
_ They are making the right decisions and helping the company to grow profitably.
_ They are honest, have an impeccable character and their integrity is never in question.

The problem is that most employees fall somewhere in the middle of this spectrum. If their boss just gave them a raise or implemented one of their suggestions, then leadership is viewed as a genius. On the other hand, if they just received a memo indicating a change with which they completely disagree then the company is being run by a bunch of idiots.

Bottom Line Blunders
A brief summary of the most common errors made by today’s business owner
As a leader you must get your employees to choose one end of the spectrum. If they aren’t close to the “G” (indicated with green on the diagram above) they need to do quit and get another job.

Positioning themselves in the green doesn’t mean that an employee agrees with every single decision that is made by leadership. However, it does mean that they trust that leadership is taking the company in the right direction and providing the employee with a fair wage and an opportunity to grow.

If you want to get the most out of your team, you must insist that they pick a side (red or green). There is no more living in the middle.

_How many of your employees are living in the “middle”?
_Does their productivity change with each circumstance?
_How much more profitable could your company be with a dedicated team that lived in the green?

C.J. McClanahan
ReachMore Strategies
317 576-8492
cjm@goreachmore.com