As this historic year comes to a close, it will be necessary for all small business owners to take time from their busy schedules and conduct careful inventories of their respective financial situations. Unfortunately, in many cases due to the dramatic downturn of the second half of 2008 it will be a difficult and painful process. As a small business owner there are a few suggestions I have as the new year approaches. Conducting a thorough financial review will be an important first step in terms of tax preparation, a 2009 company operations budget (although in some cases this particular exercise will have already been completed) and anticipating changes that may be in order when the Obama Administration takes office. It is also absolutely the right time to make decisions on ways to make your organization leaner and more efficient heading into the new year.

If you’re a small business owner and looking for financing services or tax preparation, visit our tax reporting business service center.

The details in regards to proposed tax cuts are relatively few under President-elect Obama’s plan, even as to whether his $250,000 threshold is on Adjusted Gross Income or Taxable Income. That would make a big difference for many small businesses. Generally for everyone above the mark, you would want to maximize as much as your cash flow allows in terms of contributions to retirement plans: SEP’s, Simple’s, IRA’s, deferred compensation plans, etc. Equipment purchase write-offs are most important in those high income years. For one to consider deferring Social Security benefits or taxable retirement income to later years when income is lower may be preferable. At this point there is very little information as to what the Obama plan actually is and what will materialize from it, so it will be advisable to watch closely how this all unfolds in future months.

It’s certainly very easy to be negative and cynical when times are tough, especially after the second half of 2008. However, it’s also essential to keep in mind that history dictates this as a cyclical occurrence and things should improve at some point in 2009 or 2010. It’s equally essential to take a few minutes to remember every day how fortunate we are to live in the greatest country in the world. I ask that you reflect upon the incredible freedoms and capitalistic traditions we all benefit from.

During a year in which there has been a lot of disagreement throughout our country on a long laundry list of issues, at the end of the day, I don’t think you’ll find a lot of division on this particular statement.

Peter Miralles is the President of Atlanta Wealth Consultants (www.awc2.com).

Because of the economic conditions that are currently facing our economy, many businesses are struggling to remain cash flow positive.  In order to accomplish this, the first thing that companies look to do is to reduce expenses.

As we approach the end of 2008, companies are also in the process of completing their 2009 budgets.  While the prospects of reducing salaries and headcount, advertising costs, or a host of other costs can be frightening and painful, reducing the fees that you are paying to your financial statement auditor can save your business thousands of dollars and can be easy and painless.  So what are ways to reduce audit fees and create a more efficient audit?  The following strategies can be used by businesses of any size to assist in creating a more efficient and less costly financial statement audit.

• - Manage your Auditor. As a former Audit Senior Manager with a “Big Four” San Diego accounting firm, I know firsthand the enormous amount of pressures and time constraints that the typical auditor is facing during the audit process. The typical auditor is juggling multiple engagements of all complexities, all while working 60+ hours per week. Because of this, it is the proactive companies that will get the best service and most attention. Being proactive and asking questions during the audit process will keep your auditor focused on you and your company. In addition, you will be more aware of what to expect during the process and will be more prepared for any obstacles that may arise.

• - Start early. Request a planning meeting with the auditor BEFORE year-end. Preferably this meeting would take place at the company’s location and would include Company management and all relevant parties. Depending on the size of the company being audited, this could include the company’s CEO/President, the individuals responsible for overseeing the progress of the audit (CFO/Controller/Accounting Manager), Audit Partner, and Audit Manager. Ask for a copy of the list of items that they will request of the company in order to begin the audit. Become familiar with this information and plan accordingly. Make sure that your team and accounting department is adequately staffed to take on the rigors of an audit. If you have any questions of the auditor, ask them now and any time prior to the start of the audit. By becoming familiar with the information prior to year-end, you will be in a position to appropriately prepare the information correctly, with no errors, when it is due. Remember, the auditor will send a bill for this meeting, but in the end, it will be well worth the extra few hours.

• - Be Complete. Fully complete the year-end close process AND the list of items and schedules requested by the auditor prior to the beginning of the audit. This is the cause for most inefficiencies during the audit process and as a result, the result of the increased fees. Many companies feel that they can complete the list of requested items during the completion of the audit. This is rarely the case. Unexpected questions will arise from the auditor during the audit process. These questions will create additional questions that Company management may have not been prepared for and will delay the preparation of the other items on the list. In order to maximize efficiencies and to support their accounting department, many companies these days will hire an outside specialist or accounting firm to work with the company and their auditors to assist in the year-end close process, preparation of all auditor requested schedules and documents, preparation of financial statements, and assistance with research and resolution of any complex accounting issues that may arise. These firms work with the company to put a plan in place that is in the best interest of the company. These services typically result in a reduction of audit fees that exceed the fees charged by the accounting firm. These firms also assist in offloading management time by providing an extra layer of expert review to reduce the number of audit adjustments and to make sure that all schedules, source documents, and sub-ledgers tie back to the final trial balance, thus providing Company management with additional flexibility to attend to their regular daily responsibilities. In San Diego alone, there are several San Diego accountants and San Diego accounting firms of which to choose from.

To summarize, an efficient audit results in the reduction of audit fees.  To accomplish this, a company must be organized, prepared, and must have the infrastructure in place within their accounting department to appropriately prepare and complete the requested information, along with the time to answer all audit related questions.

We are all sinners – at least in the business sense. And, it is hard not to be a business sinner today. In our current pell-mell state of rushing about putting out current “business fires” it would be beyond the capacity of mere mortals not to make one or more of the so-called business sins. Knowledge of these seven great business sins will not make you perfect, but can allow you to be a better business manager.

1. WORSHIPPING HIGH PROFIT MARGINS
If you maximize your profit margins, you’ll also maximize your competition. High margins mean your competition will lower their costs just to beat you out. Rather than have the highest profit margin, go after market share instead.

2. MISPRICING A PRODUCT OR SERVICE ON WHAT “THE MARKET WILL BEAR.”
Maximizing the price of a product or service based on what people will pay will not increase your market share. Find your niche, stay in it, and price your product or service to bring in more clients and customers.

3. USING COST-DRIVEN VS. PRICE-DRIVEN PRICING
Cost driven is taking in all your costs and adding a profit margin on what you sell. Price driven is coming up with a price that will cause your product or service to move. It’s usually a lower price, but with that comes less competition. If you get a handle on costs, become price driven and get market share—you will beat out the competition.

4. FINANCIALLY STARVING THE OPPORTUNITIES & FEEDING THE PROBLEMS
Because business owners often have trouble focusing on more than one concern, they put capital into old problems rather than putting it towards new opportunities. Old problems keep you stagnant whereas new opportunities are potentials for growth and can bring in much-needed revenue.

5. PLANNING YOUR BUSINESS FUTURE IN AN ECONOMIC VACUUM
Day-to-day activities of running a business keep many business owners unaware of what’s going on in the economy. This causes them to react to changes instead of planning for it. Seeing beyond the forest will help you prosper in what will be a turbulent economy.

6. NEGLECTING THE TOP LINE (SALES)
Unless your sales and revenue are growing, your bottom line will eventually shrink. Just being a good money and production manager is not enough. You must be a good marketing manager to bring in more business, referrals, and sales.

7. STRAYING FROM YOUR CORE BUSINESS
Don’t go into a business that you know nothing about. It’s foolish to branch out if your second business doesn’t increase your sales significantly and adds to your bottom line. Unless you maintain a certain rate of return on your invested capital, you may wind up losing both.

Here are the 5 most important aspects of the business that investors want to read about in your business plan:

1) That The Company Has Focus

The company has clearly defined its business and can state it in a single strong sentence that says it all. Yes, your plan probably will have a more expansive description in its executive summary but you need to open your plan with that one simple declaration to show the clarity of your vision for the business.

2) That The Market Has Potential

The company has a large existing market for its products and services. If your company does not have significant growth potential then it is probably not going to be of interest to many equity investors. If you are shooting for debt based capital that may not matter most to them (market stability would be though so keep that in mind if your plan is geared towards raising debt based capital); but to an equity investor growth is of paramount importance and the size of the market signifies the opportunity potential.

3) That The Company Has Specific Solutions For Their Market

The company has identified what its customers most need and has created a value proposition for them to make it a simple “buy” decision. If there is nothing unique or distinct about your company’s products/services then you do not have a defensible position in your market. Defensibility of your market position is of key importance to investors and funding sources.

4) That Customer’s Show A Readiness & Willingness To Buy From The Company

In an ideal situation, the company’s customers have a recurring need for their products and/or services, with a reasonable sales-cycle and opportunities for premium up sell of additional products & services.

If you don’t have customers ready and willing to buy now … then that does not bode well for interest from most investors and funding sources. If your market is a long-term development type of proposition then your company will need to prove that it is truly a disruptive business model that will have people flock to it once it is functional. Its not so much “if you build it will they come” but rather “if you build it will they buy?”

5) That The Company’s Main Dynamics Are Strong

What are the main dynamics of a company? Simply put it is two components: a sellable product/service and a management team that can run the business well. Investors and funding sources want to know that the company has created unique solutions superior to their competition. And that the management team consists of smart people able to deliver products/services to their customers, control expenses and make a profit … repeatedly.

* * *

If you create your business plan to address the above; then you are ahead of what most people end up with in their business plan. Weaknesses (dilution) caused by putting too much of the wrong content and not enough of what mattes most, kills interest in a company’s plan. It’s the answers to these 5 important aspects that investors and funding sources find most interesting. How well you answer them will affect the outcome of your search for capital.

In my next post I will get into how to use these 5 as your guide for creating (or revising) your business plan to make it an optimal document that says what it should. Be sure to watch for:

How To Really Get Your Business Plan Read (by investors & funding sources)! Learn how to create the type of business plan that investors and funding sources will enjoy reading and will take action on.

Dennis Lowery
Adducent, Inc.

Over my next posts, I’m going to share with you some important things that I’ve learned over 26 years of business experience from some of the most successful investors, investment and venture capital firms in the world about how they read business plans and what they look for in them.

First some basic advice: With business plans, size does not matter.

Let me say that again.

Size does not matter.

Never lard up a business plan just to make it a hefty read, thinking to “wow” people based on its bulk. That does not impress experienced business people, knowledgeable investors and funding sources.

Experienced and successful business professionals know this and focus their business plan to make it concise and succinct; one that hits all the “hot buttons” but does not say more than it should.

If you use a template to create your business plan, use it as a guide only and modify extensively to give it its own distinct identity. Strip out and replace any “boiler-plate” language that is not necessary and put in only the important things you need to convey (read on to learn what that consists of).

If you hire a business plan writer (who may write well but does not have a great deal of business experience), be sure not to just accept what they give you as being the best for you. Make sure it answers the five most important things (we’re getting to them shortly) that investors and funding sources look for … no more … no less.

What to leave out of your business plan is just as important as what to put in!

• With business plans, telling them you graduated from John Smith high school, love cats and your hobbies are snorkeling and bear wrestling do not matter.
• Telling about your dream to own your own business does not matter.
• Telling them any thing not directly related to the business or your capability to run that business, does not matter – leave it out. Let that simple rule govern what you put into your plan.

You get the idea without me having to add more bullet points (see … less is more!).

What does matter?

I’ll get to that in my next post, because if your business plan does not have what matters most – and you’ve filled it with things that don’t – you have wasted your time and more importantly someone else’s time (and from the all important point of attracting an investor or funding source that is a death blow).

You get one shot at a first impression. Don’t blow it!

Be sure to watch for:

The 5 Most Important Things Your Business Plan Should Contain (that investors want to read about)

Until then best wishes and good fortune to you (and fortune favors the prepared),

Dennis Lowery
Adducent, Inc.