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If you are like most business owners, the thought of business growth is exciting! You have the passion to succeed and the battle scars to prove it. Perhaps it’s been your sheer will, a lot of hard work, some sleepless nights and even a little luck to get you to this point. Perhaps you have even relied on those small moments of triumph to help carry you through the challenging times. One thing we know is that the same strategies that got you to this point will most likely not get you to the next level. For the business to reach its full potential, it must be able to reach beyond the capabilities of you, the owner.

No one likes to be limited – least of all business owners and leaders.

Many taxpayers mistakenly believe that they have to be scientists inventing something completely new or developing cutting-edge technology to qualify for the research and development tax credit.

Or they think they have to be doing "research" as we commonly understand that word.

These do qualify, but there are many other activities that also qualify. The tax definition of "research and development" is quite broad. A dedicated R&D department or laboratory is not required, and it is not necessary to be a biotech, semiconductor, or similar "high-tech" company to be eligible for R&D tax credits.

Most businesses across a broad range of industries are routinely involved in common activities to develop, refine or improve their products and processes to stay competitive, and thus potentially qualify for the incentive.

Regardless of the nature of a business, as long as qualified research and development activities are being performed, there is an opportunity to pursue R&D tax credits.

This credit applies to many businesses, quite a number of which are in the manufacturing field. It also applies to software or technology companies, as well as architectural and engineering firms if they have taken on the economic risk for the project and have met the retention of rights requirements.

Smaller businesses can qualify for the credit in addition to large companies. Many taxpayers have claimed billions of dollars in federal and state tax credits for qualified research expenditures. Qualified research expenditures include costs associated with investments in innovation and improvements beyond just new product development.

The research and development tax credit is available for businesses developing new or improved products. It also can apply to:

  • Engineering and designing a new product
  • Research aimed at discovering new knowledge
  • Searching for ways to apply new research findings
  • Designing product alternatives
  • Evaluating product alternatives
  • Significantly modifying of the concept or design of a product
  • Designing, constructing and testing preproduction prototypes and models
  • Engineering activity to advance the product's design to the point of manufacture
  • Systems processing modeling
  • System and functional requirements analysis
  • Integration analysis
  • Experimenting with new technologies
  • Experimenting with new material and integrating the material to improve manufactured products
  • Engineering to evaluate new or improved specification/modifications in terms of performance, reliability, quality and durability
  • Developing new production processes during prototyping and preproduction phases
  • Research aimed to significantly cut a product's time-to-market
  • Research aimed to obtain more efficient designs
  • Developing and modifying research methods /formulations /products
  • Paying outside consultants/contractors to do any of the above activities

To determine whether your company qualifies for the tax credit, consult with your tax adviser and consider the following:

1. Is your company discovering some technological information that does not already exist within your company?
2. Is there uncertainty regarding the product or process development?
3. Are the costs your company is expending attributable to a process of experimentation?
4. Does the "research" have a general business purpose?

If you answer "yes" to these four questions, get in touch with your CPA as soon as possible. Your CPA will help you determine whether you are eligible for the tax credit and provide you with an estimate of how much the credit will be.

You can then decide if the benefits of the tax credit are worth the documentation requirements needed to sustain the credit. Under IRS regulations, a taxpayer must retain records in sufficiently usable form and detail to substantiate that the expenditures claimed are eligible for the credit.

To claim the credit, you must clearly establish full compliance with all of the relevant statutory and regulatory requirements. It is imperative to ensure that qualified expenses have been properly quantified and that documentation is properly prepared to support the credit position taken. Failure to maintain records in accordance with these rules is a basis for disallowing the credit, so it is important to consult with your CPA to make sure these records comply with the IRS requirements.

What types of costs qualify for the R&D credit?

The expenditures that may be applied toward the R&D credit include both in-house research expenses and contract research expenses.

The in-house research expenses that can qualify for the R&D credit fall into two categories:

1) Wages paid to company employees for conducting, directly supporting and directly supervising qualified R&D activities

2) The cost of supplies used or consumed in relation to these R&D activities

Contract research expenses are those amounts paid to anyone outside the company performing qualifying research activities on your company's behalf. The time and effort devoted to conducting research do not necessarily have to be undertaken by your employees. By contracting with outside individuals or companies to conduct these activities on your behalf – provided their contract expenses qualify for the R&D credit – you are improving and advancing your company and, as a result, those expenditures may qualify for the R&D credit.

General business credits can be used up to the full amount of the corporation's or individual's tax liability. In addition, credits that can't be used in the current year can be carried back to any of the previous five years.

It should be noted that, due to legislative changes in 2010, this provision is available for "eligible small businesses." An eligible small business is defined as one of the following:

(a) A corporation whose stock is not publicly traded

(b) A partnership

(c) A sole proprietorship

To qualify as an eligible small business, average annual gross receipts of the corporation, partnership or sole proprietorship for the three prior tax periods cannot exceed $50 million. Many businesses that qualified for the credit, but could not benefit cash-wise because of AMT limitations, can now get their credits currently versus having to carry them forward.

In addition, the American Taxpayer Relief Act of 2012 extended the tax credit through 2013. The R&D credit has been "temporary" for many years and its availability subject to many extensions by Congress. Many businesses are lobbying to make the credit permanent, but there are no guarantees.

Additionally, in recent years a few states have added a "refundable R&D credit" to companies that meet their general R&D criteria, but are not yet profitable and operated at a net operating loss for that specific tax year.

To encourage additional development and growth, which would translate to future state taxes, some state legislatures have voted to support state qualified (small) businesses by offering them a refundable credit based on a few additional R&D criteria. Generally speaking, it mirrors their regular R&D credit but requires additional details about the business, etc.

If you are entitled to these credits – take them! In these hard economic times, don't leave tax dollars on the table for the IRS or states that could be in your pocket.

The nature of work and the work force have been changing rapidly in recent years. One of the most significant changes in the United States and much of the developed world is an aging work force. This is being brought about by several factors:

  • The Baby Boomers – the largest generation in history – are moving into old age.
  • Declining fertility rates mean that fewer young workers are entering the work force.
  • Many older workers are choosing to work later, whether by necessity or desire.
older employee shaking hands with younger employee

The graying of the work force presents both challenges and opportunities for employers.

First, in spite of the continuing high unemployment rate, there is a shortage of skilled workers, which is expected to worsen.

Keeping older workers longer is becoming an important business strategy. Generally, older employees are well-trained and dependable and have organizational knowledge that can take years to develop in a new employee.

To retain and get the best results from older workers:

  • Match job tasks and work spaces to each worker’s strengths and weaknesses.
  • Promote an atmosphere of inclusiveness and prevent age-related discrimination.
  • Implement flexible work arrangements for employees who want “semi-retirement” or part-time work.
  • Implement flexible policies around medical leave and return-to-work.
  • Provide safeguards against musculo-skeletal injuries.

Safety and Health Practices

It’s crucial to consider every worker’s capabilities so the job and work environment can be designed accordingly.

Work with employees individually to determine if they are physically able to perform certain job duties and make adjustments where necessary. You also need to consider that older workers may require better lighting and less background noise than a younger worker to perform at their peak.

While older workers actually make fewer injury claims than younger workers, the accidents and injuries they have tend to be more serious and more costly and often require more time to heal. This makes safety an important concern.

Slips and falls are the leading cause of injury for workers over 65. Here are some strategies for reducing them:

  • Ensure good lighting indoors and out.
  • Install non-slip walking surfaces and keep them clean, dry and unobstructed.
  • Put in secure guardrails around high elevations.
  • Install handrails on both sides of stairways.
  • Require employees to wear safe footwear.

Task rotation – and sometimes even job reassignment – may be needed to prevent repetitive stress injuries.

HR Policies and Procedures

One study found that older workers who experience age discrimination are less satisfied with their jobs and are more likely to quit.

So it’s important to promote a climate of inclusiveness that discourages ageism. Encourage working relationships across age and other demographic boundaries.

Seek and implement diverse points of view in decision making. Train line managers on inclusive leadership and respect for diversity.

On a more specific note, older workers may need more flexibility for doctor’s appointments and may need time off due to medical conditions or treatments. After a medical event, they may benefit from a gradual transition back to work, perhaps with accommodations until fully recovered.

Most employment experts agree that making the effort to support older workers more than pays off in being able to retain a talented segment of your work force.

 

Little good can come of political debates in the workplace. And during a highly charged presidential election campaign, this is an understatement.

Political debates at work can result in a polarized work force, tinged with rancor and recrimination that can sour the atmosphere and stymie productivity. Employees can lose respect for each other and their managers. So what is a manager to do?

First, don’t get into political discussions with employees yourself or broadcast your political leanings at work. Doing so can result in your losing some people’s respect, which can undermine your authority. It can also lead to discrimination claims on the basis of political beliefs by employees whose views are different from yours.

man and woman squaring off at work

The most sensible approach to political discussions at work is probably to tolerate them as long as they remain civil and do not disrupt work flows. But if they become disruptive, managers need to intercede. Here are some suggestions for how to go about it.

  • When you happen onto a heated political discussion, politely say something like “I think political debates are healthy some places, but not at work. We are getting paid to (whatever the job is), and political arguments interfere with that.”
  • Put similar sentiments into an email, asking that employees limit their discussion of politics at work. Point out that it is an issue of respect for diversity, and that the company does not tolerate anything that resembles harassment. “Diversity” and “harassment” are laden with meaning for most employees.
  • If political literature, buttons, cartoons or jokes have been disruptive, you may want to ban them from the workplace. You should certainly ban their use in front of customers.
  • Single out agitators or those who ignore requests to turn down the heat. Have a private discussion with them. Explain your concerns. For example, point out how employees are becoming polarized into “blue and red” factions, and that prevents them from working effectively as a team.
  • Ask that they refrain from further political discourse during work hours, and tell them that their failure to comply will be handled as a disciplinary issue. Then, if necessary, follow your progressive discipline policy.
  • Implement a ban on using company resources to promote a political candidate, party or view. This includes phones, computers, printers, fax, smart phones and tablets.
  • Consider posting suggestions for how to have a civil discussion of politics “during breaks or before and after work.”

Following are some examples of suggestions you might want to post for employees:

  • Before expressing an opinion, think of how it might change other’s perceptions of you  in your role at work.
  • Be respectful of others’ opinions.
  • Allow others to speak without interrupting them.
  • Ask them questions about their views to try to understand them better.
  • If you can’t discuss a subject without getting emotional, it is best avoided.
  • Avoid topics that are highly charged or personal.
  • Don’t discuss politics with argumentative co-workers.

There is a place for political discourse and debate but, with few exceptions, it is not at work. It is the manager’s responsibility to stay out of the fray and to intervene if civility or productivity suffer from such discussions.

 

How can you plan for your business future when sales may go up, stay the same or hit another dip?

The long-term unemployment and depressed housing market of the past four years have resulted in a pervasive sense of uncertainty, especially for small businesses dependent on the disposable income of consumers.

In this situation, a static one-year budget is next to useless. So is a cumbersome budgeting process that takes months to conceive and implement.

BudgetConservation of cash, optimal inventory and staffing levels, and right-sized resources are key to successfully navigating this uncharted economic landscape. Deploying your assets wisely requires nimble management – and a flexible budget.

In contrast to traditional budgets, a flexible budget may include a range of scenarios or a shorter time frame, or both. Three scenarios at a minimum should be prepared: best, worst and most-likely cases.

A bare bones worst-case budget will show you exactly which expenses are crucial and where your break-even point is. What would happen if you lost a major client or there is another recession dip? Using this information, you can create contingency plans now, rather than in the midst of a crisis.

Prepare your flexible budget scenarios for shorter time increments – for instance, in six-month blocks. You can build a 12- or 24-month budget in various configurations to test business outlooks and help decide exactly when you’ll be able to add employees or make new capital investments with a degree of certainty.

Preparing a flexible budget means digging deeper into the line between fixed and variable costs. Fixed costs are those expenses not tied directly to a level of output – rent, loan payments and core staff. Variable costs such as inventory, supplies and shipping are dependent on sales volume.

Some costs are mixed, such as electricity, which has a base cost but may rise and fall with production and sales. A standard budget accounts for fixed costs and then projects variable costs based on the expected level of sales.

Rather than considering all your fixed costs as not subject to change, think about the level of activity they support.

The number of project managers goes up and down with projects and associated revenues, so is considered a variable cost. The assumption is, if you hire more than a certain number of managers, you will need another administrative assistant.

A review of work flow and the time the assistant actually spends helping each project manager may reveal a relationship between the two functions that turns a formerly fixed cost into more of a variable one.

In response, perhaps you hire a half-time person or add duties to a presently underutilized staff person. Contract employees can also help fill gaps on an as-needed basis.

Some fixed costs aren’t subject to negotiation, of course. But trimming or delaying expenditures across the board will help conserve cash. Once in place, a lean mindset can be a benefit even when sales take an uptick.

Any investments and new expenditures can be thoughtfully considered as to their true benefit.

Conversely, setting aside some resources so that you can take advantage of unexpected opportunities is a good idea.

Once your flexible budget is in place, it may be beneficial to update it on a rolling basis if your particular marketplace is struggling or volatile. After sales stabilize, it may be sufficient to update in six months. Depending on economic forecasts, develop a budget for the next period. While no one can predict the future, especially in this economy, a flexible budget is one tool that can help your business survive the uncertainty.

Business lending is tight right now, even for companies with existing loan officer relationships. It’s more important than ever to submit a complete loan package.

Besides making the process smoother, a well-executed presentation will testify to your professionalism and ability to make your business successful.

Loan PackageSo what do you need to include? The following discusses how a loan officer evaluates your proposal.

The first hurdle is some initial number crunching. For a lender to make a loan, there needs to be sufficient existing cash flow to cover all debt.

Using your most recent business tax return, add back non-cash items like depreciation or amortization, interest and other one-time or discretionary items, such as owner bonuses. That’s your available cash flow.

Next, calculate your new loan payment amount by inputting amount, term and estimated interest rate into an online amortization calculator. Add a year’s worth of those payments to your existing annual loan payments.

Then divide the available cash flow by the total annual debt payment amount. The result is your cash flow coverage. Banks like to see 1.15 to 1.35 in coverage, and they usually go back three years and average it.

What if your coverage is too low? Then the logic of your business plan and financial projections is even more critical.

Depending on the size and complexity of your business, a plan can be two pages or 100 pages. It’s not the length so much as the need to address key success factors and strengths of your business as well as honestly discuss your present situation if it is weak.

You must have a solid, well-reasoned plan of how the debt will build sales and reduce costs – or a combination of those.

Back up your assumptions with information from past performance, industry outlook and market trends. The idea is to mitigate the perceived risk of the loan with the intangible, but crucial, ingredient of your business management expertise in meeting your company’s challenges. A business plan should discuss every aspect of your business, including history, product or services, employees, management and financial performance.

Accurate and defensible cash flow projections are another important part of the package. Using past history as a guide and adding in the projected new activity you anticipate after the loan, prepare statements of cash in and out for one year at minimum. Some lenders want to see three years.

In preparing the projections, just adding percentage increases to revenue isn’t enough. You need to understand the building blocks that make up your revenue picture and assess their growth.

For example, what is the outlook for each of your customer segments? What percent does each segment contribute to your revenue?

Remember to show your loan in the projection – both the new cash and the areas where it will be spent – e.g., new employees, equipment or marketing expense. Preparing good projections is hard work, but you want to be prepared to answer the dreaded question, “Where did this number come from?”

Other items for the package include:

  • The last three years of personal and business tax returns
  • Summary source and use of funds for loan project
  • One year of bank statements
  • Management resumes
  • List of assets and depreciation schedule
  • Real estate tax assessments
  • Articles of incorporation
  • Business licenses
  • Relevant leases and contracts
  • Audits or previous appraisals, if available

You can find business plan and cash-flow templates at your local Small Business Development Center office.

Just as with other relationships, it’s easy to take customers for granted – especially those you’ve had for a while.

It’s important to remember that feeling of gratitude you had when you first started your business and your very first customer paid you.

You knew then that you would be a success, that you had something people wanted and that they would choose you over the competition.

Best CustomersThat’s the key: They choose to buy from you.

Whether you sell to individuals or businesses, people have more options every day. Keeping their business is a matter of rising to the top when they consider their need for your product or service.

Stay in first place by periodically asking your customers their thoughts about your business and ways you can serve them better. The first step is to figure out what you want to know. You can ask customers to rate your service or products, of course, but think beyond that to find out their impressions and feelings.

Is spending time at your business a pleasant experience or an endured necessity? Do they have favorite items or offerings that you’d better not discontinue? What do they appreciate most about your company – your reputation, consistency or friendliness?

Who are their favorite employees? Don’t discount the influence of relationships and pleasant interactions on customer loyalty. The method you use to ask your customers how you can better serve them will depend on your type of business.

For example, a professional services firm that works intensively with clients over a long period may find it most useful to just have a conversation about how the relationship is working. This conversation can pull in thoughts about future client needs and may lead to additional assignments.

Service or retail businesses with large volumes of customers have many options. Surveys can be done on site or later, and the method that works best will depend on your customer base and their technical level of proficiency.

Comment cards on restaurant tables or at the cash register are still quick and easy. Their content is relevant because it reflects an immediate experience.

Companies such as Survey on the Spot have created online surveys that can be accessed via mobile phone or iPad on the premises. However, you still need printed materials to promote the surveys.

Survey links can be provided at point of sale directing customers to an online survey through Survey Monkey or another service, although asking customers to do a survey later is tricky. National retailers are using this method in tandem with cash contests to drive responses.

Your customers will need sufficient motivation to remember to complete the survey. Perhaps you can give them a discount coupon or freebie if they respond. If you have a lot of repeat customers, consider offering loyalty program bonuses to those who give feedback.

Repair or home improvement businesses can benefit from follow-up surveys after a service call. This survey will let you know how well your technicians are performing, not only in doing the work but in how they’re handling customers.

You can also gauge interest about other possible services or needs. Methods include providing a survey link at the end of the service, having someone make a follow-up telephone call, or sending a letter with response envelope. Make the survey short and simple to encourage response.

Customer feedback will never be 100 percent. But you may be surprised how many will respond to your survey. Most people will appreciate your attempt to keep their business. That alone sets you apart – and in first place.

The way managers approach their job tends to evolve over time. The archetypal manager 100 years ago was a no-nonsense authority figure who acted as overseer, making sure employees were hard at work and not goofing off.

By the 1960s, ideas about management became more liberal and democratic. Managers were more likely to elicit employees’ opinions about the work and seek a consensus.

At its extreme, this type of manager took a hands-off role, deliberately abstaining from interfering in how employees worked. Today you can still find both of these types of managers in the workplace – and all variations thereof. However, a new concept of best management practices now predominates and is supported by research findings. The idea, first articulated by Robert K. Greenleaf, is that the best managers strive to serve their employees, and hence it has been called servant leadership.

Servant leaders are not motivated by wielding power over people. Rather, they are selfless in a manner similar to the best elected officials or civil servants. They are concerned with the needs of their employees and are dedicated to solving employees’ problems, removing their work-related obstacles, getting them the resources they need, and promoting their personal and professional development.

These leaders do this because they believe that fulfilled, self-actualized, loyal employees will do their best for the company.

Blueprint for Servant Leaders

To translate this philosophy into practice, here are some suggestions for managers:

  • First, take an interest in your employees as individuals. Spend some time one-to-one getting to know each of them and keeping up with the developments in their lives. Ask them about their career goals so that you can be on the lookout for special projects or training opportunities that might appeal to them. Encourage employees to take risks and rise to challenges that you think they are capable of and will further their careers.
  • Don’t try to hold onto your best employees if it is in their best interest to make a career change. Rather, view that as a natural progression. Yes, their loss will be felt, but it will open an opportunity for a more junior employee. Word will get out that people on your team get ahead and that you help them to do so.
  • Share as much information as possible with employees, as early as possible. This will earn you their trust and significantly cut down on the rumor mill. One of your main functions as a manager is to secure for your employees the resources they need to do their jobs, and to remove the obstacles that prevent them from doing so. This means that you have to stay in frequent communication with them to find out what they need from you – a laid-back attitude on your part won’t work.
  • Recognize and praise employees often for a job well done. When you have to give negative feedback, focus more on desired improvements than on their faults.
  • And, perhaps most important of all, do your best to set an example of how you want your employees to comport themselves. What you do is more important than what you say.
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