A L Bean & Company

October 5, 2018

Are Your Finances In Order?

Filed under: Accounting,General,Tax — artlbean @ 1:20 am

Are Your Business Finances In Order?

We recently had a conversation with a client about buying a business. He wanted to buy an existing business and had found a seller. At first this sounded great: a buyer found a seller and vice versa. If you own a business and need to sell the business, this sounds like a perfect situation.

Unfortunately after probing, we found that the person wanting to sell did not have their financial statements in order. They did not have any evidence of how profitable the business had been. They gave vague numbers on sales and expenses, but that helps very little. A business has to have credible financial statements, preferably prepared by an Accountant. The owner could not produce this information and we walked.

Get Your Business Finances In Order
There are a great number of reasons to get your finances in order. This is only one example, but there are many examples of businesses missing out on opportunities because they didn’t have their books in order. Small business owners wear many hats and often times the accounting hat is neglected. The results can be horrific. Below is a list of a few items that we see small business owners face when they don’t’ have their books in order.

  • IRS Problems
    Taxes are based on the income your company generates. The IRS requires business owners to maintain proof of transactions and keep sound accounting records. If you are audited by the IRS and you can’t provide proof, you may find yourself in a trouble with the IRS. Keeping good records can help avoid some of these issues. Keep in mind there are specific IRS guidelines in how you account for expenses and income. If you keep records, but do not account properly, you still may have problem.
  • Loss of Contracts
    Some business owners have tried to acquire contracts (Government or Private) and have had to submit financial information about their business in order to get the contract. Due to the lack of proper accounting, they could not get the contract. Some potential clients need to feel comfortable your business can provide the product or service. There may be information you need to provide to assure the potential client you have the resources. If a business can’t provide the information, they may lose the contract.
  • State and Federal Penalties
    Your business may be required to pay various taxes, which are determined by your financial transactions. For example, payroll taxes, franchises taxes and sales taxes are required by federal and state governments. Improper accounting for these taxes could cost a business owner stiff penalties. Filing late can result in penalties as well. If you finally get your books in order, but it is after the deadline, your business could face stiff penalties.
  • Unable to Sell (Exit the Business)
    This is the example that we gave initially. There are various reasons a business owner may want to exit a business. Family issues, health concerns, a desire to do something different are a few examples. If you can’t provide a potential buyer good financial information, you may not be able to sell the business.

There are multiple reasons to keep your books in order. These are only a few. Don’t hesitate to ask for help, as part of being a successful business owner, is accounting properly for your business transactions.

If you would like assistance, please contact A.L.BEAN & Company at 512-244-4912 or email at admin@albeancompany.com.

ABOUT A.L.BEAN & COMPANY
A.L.BEAN & Company is a consulting, tax and accounting firm that specializes in serving small-to-medium sized businesses. We help businesses by offering the following primary services:
• Accounting Services
• Tax Services
• Business Plans
• Budgeting and Financial Planning
• Business Process Improvement

January 27, 2014

Small Business: Tax Time

Filed under: Tax,Uncategorized
Uncategorized
— artlbean @ 10:13 am

Small business owners often want to know what is tax deductible. Here are a few items. They may or may not apply to your business. Contact us or another tax advisor to see if they apply to you.

Deductible Business Expenses
According to the IRS, for business expenses to be deductible, they must be ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business, trade, or profession. A necessary expense is one that is helpful and appropriate for your business, trade, or profession.

a. Business Start-up costs – Business start-up costs are the expenses you incur before you actually begin business operations. They may include costs for advertising, travel, surveys, and training. The IRS has strict guidelines on how to deduct these expenses. There are limits on the amount that can be deducted in years one and beyond. Please contact us for further information regarding start up costs.

b. Automobile Expenses – If you use your car or truck in your business, you can deduct the costs of operating and maintaining it for business purposes. You generally can deduct either your actual expenses or the standard mileage rate.

c. Other ordinary and necessary expenses – expenses for office equipment, postage, phone, internet, rent, computers, and others. Keep in mind that some expenses should be depreciated over a period of time. Business property you must depreciate includes: office furniture, buildings, machinery and equipment. There are very specific guidelines regarding depreciation. Please contact us for further detail.

d. Business Use of Your Home – This one can be complex. Consult us or another tax advisor on whether this applies to your business.

June 11, 2011

Managing Small Business Cost Structure

Filed under: Accounting,Consulting,General,News
News
,Tax — Tags: , , — artlbean @ 9:48 am

Business owners have to wear several hats, and all are important to running a successful enterprise. The Finance hat should be given a considerable amount of time, considering that cash flow kills businesses more than any other reason. For many small business owners, managing costs is arguably at the very top of the priority list. There are two types of costs to consider and we discuss them in this article.

When considering managing costs, there are two primary types of costs that should be given attention: Fixed costs and variable costs.

Variable Costs
Variable costs are the expenses that go into making a product or providing services. For example, variable costs for a restaurant are food items purchased for resell. Variable costs include inventory items, hourly direct labor, shipping expenses and others. These costs will go up when sales are high and down when sales are low. Business owners should take a lot of care in managing variable costs, because they directly impact the quality of your product or service. Simply finding the lowest cost may not be the best strategy though. For example, a high-end retailer like Saks Fifth Avenue can’t sell low quality items and expect to stay in business. The items cost less, but will have an inferior quality. Therefore, a higher cost can be justified. Wal-Mart can sell low cost items, because its business strategy is to offer low priced items. We don’t go to Wal-Mart to purchase an Armani shirt. Companies spend a great effort managing their supply chains to balance cost with quality.

Fixed Costs
Fixed costs are expenses that are stable over time. These are costs that are generally the same or similar every month. Examples include rent, lease, interest, certain utilities, internet, etc. Business owners should keep these expenses as low as possible. High fixed costs can destroy a business quickly. These costs do not fluctuate with your level of sales, so they are there whether you have banner year or a horrible year. Your business has to cover these costs regardless of how well business is going. Keeping these costs at the lowest possible level will allow you to weather a storm such as the current slow economy. Many companies with high fixed costs are really struggling right now, as they have really high expenses and few sales. Some businesses have high fixed costs, as this is the nature of the business. Businesses that require large and expensive equipment to make a product would be an example. Businesses in this category should still attempt to keep fixed costs as low as possible, though they may be higher than many other businesses

Gross Margin
Of course, sales pay for expenses. As long as variable costs are lower than the sales price of items, a business has cash left over to pay for fixed costs. Will a business have enough though? This is why getting fixed costs to an optimal level is extremely important. Many companies have cost variabilization strategies for their cost structure. In essence, the idea is to increase the percentage of costs that are variable versus fixed. This allows them to weather a long period of low sales. It also may be the best strategy to compete in their market.

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