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How Dismissing Business Planning Can Hurt Your Business

By Tim Berry, Guest Blogger
Published: November 27, 2013

If you’re still thinking of a business plan as a formal, static document, then you’re sadly out of date and you’re missing out on real business planning, which is a management process that makes your business better.

That old-fashioned business plan document was not uncommon about a generation ago. It is now. Back in the 1980s, as the personal computer industry took off, the big business plan document was a common part of the typical high-tech startup’s efforts to raise capital as risk investment. Venture capitalists and angel investors expected it. But as the rise of online changed the business landscape, time frames and attention spans shortened, physical locations became more frequently virtual cyber locations, real business planning evolved.

Business planning today is not a document; it’s a process. It’s part of managing a business by steering, with a route and directions set, but course corrections to keep things moving towards goals as situations change. Business planning starts with a short, streamlined “just big enough” business plan that covers only what your specific business case needs to move ahead. Usually that’s some brief reminders of overall strategy, plus specific dates and deadlines for activities, plus projected business numbers aimed at managing cash flow. And it’s an efficient, economical effort because everybody understands that each version of the business plan is good for a few weeks at best and was built to change. A business plan is not ever finished and left alone, because business assumptions change quickly. To be useful requires regular plan review and course corrections.

So what’s the value of business planning?

I start with what is not the value of business planning. The value of planning is not guessing the future correctly. It is not having a static document you have to stick to. It is not having step-by-step instructions laid out a year in advance so you don’t have to think. And, except for those rare cases – one in thousands in which a business plan is used to inform outsiders – it is not describing your business. And it is not text or formatting.

What is the value of business planning? It drives business decisions, reduces uncertainty, manages change and optimizes management. Here are some of the ways it does that:

  1. The business planning explores the interdependencies between different business activities, such as sales, product development, marketing and administration. For example, business planning relates to spending on marketing to the expected sales that result from marketing. Business planning makes the difference between fixed costs and discretionary costs more visible. Business planning focuses on drivers of sales and traffic, and spending to generate sales and traffic.
  2. The business plan sets down dates and deadlines and budgets for activities, which becomes an extremely useful tool for managing execution. It’s the perfect format for watching performance compared to expectations.
  3. Business planning manages change. For example, if sales should suddenly increase, the business plan is an immediate link to related marketing expenses to help you invest more in what’s working. Regular monthly plan vs. actual analysis helps managers identify changing assumptions and develop changing plans to deal with changing assumptions.
  4. Business planning helps you manage to keep long-term objectives in mind while at the same time frequently refreshing short-term activities. It’s looking at the horizon while minding the details at your hands and feet.

The misunderstanding of what business planning has become – the stubborn myth of the formal static document ¬¬– stands between a lot of people in business getting the benefit of good business planning. It’s a process, not a document.

About the Author:

Tim Berry
Tim Berry

Guest Blogger

Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, blogging at timberry.bplans.com. His collected posts are at blog.timberry.com. Stanford MBA. Married 46 years, father of 5. Author of business plan software Business Plan Pro and www.liveplan.com and books including his latest, 'Lean Business Planning,' 2015, Motivational Press. Contents of that book are available for web browsing free at leanplan.com .

5 Tax Rules for Year-End Bonuses

By BarbaraWeltman, Guest Blogger
Published: November 21, 2013

If 2013 has been a profitable year for your business, you may want to share your good fortune with your staff. Typically this is done by giving year-end bonuses. Before you cut a check, understand what these bonuses mean to your business and your employees as well as some alternatives to cash bonuses. The following points apply if December 31 is the end of your business year.

Timing of payments

Your company can pay bonuses before the end of the year and deduct them in 2013. If your business is on the accrual basis, you can declare the bonuses this year, pay them next year, but get a deduction this year as long as the payment is made to an unrelated person (not an owner or someone in the owner’s immediate family).  Make sure corporate minutes or other company records reflect the bonus declaration.

0.9% additional Medicare tax

Employees with substantial compensation should be apprised of the new 0.9% additional Medicare tax that applies to earned income (wages, commissions, tips, taxable fringe benefits, and other taxable compensation) over a threshold amount for their filing status ($200,000 for singles; $250,000 for joint filers). Thus, if a manager who is single has a salary of $180,000 and you want to pay a $50,000 year-end bonus, $30,000 of his earnings for the year will be subject to the additional Medicare tax.

Note: As an employer, you must start to withhold this 0.9% tax once earnings exceed $200,000, regardless of the employee’s filing status. Employees can request additional income tax withholding to be applied for this Medicare tax when they file their personal income tax returns.

FICA on deferred compensation

You and other high-earning employees may want to defer compensation to the future, presumably to be received in retirement when tax rates will be lower because income will be less. Strict rules apply to deferred compensation to prevent the earner from tapping the money at will.

For FICA tax purposes, deferred compensation usually is taxable in the year in which it is earned, not the year in which it is received. For example, deferring a 2013 year-end bonus means that bonus is subject to FICA tax this year and not in 2017 when the employee retires and receives the funds. This is advantageous because many high earners have already maxed out on the Social Security portion of FICA; the wage base limit for 2013 is $113,700, so earnings above this threshold are not subject to any additional Social Security tax. Of course, there is no cap on the Medicare portion of FICA.

Using qualified retirement plans

Instead of giving cash, you can use profits to fund a qualified retirement plan, such as a profit-sharing plan. The law restricts how much you can add each year and requires contributions to be nondiscriminatory (they can’t favor owners and managers).

  • The good news: You have until the extended due date of the return to fund the plan, so if you obtain a filing extension, you have until October 15, 2014, to make 2013 contributions.
  • The bad news: You must sign the paperwork to set up the plan by December 31, 2013, if you want a profit-sharing plan or certain other plans. If you miss this deadline, however, you can still use a SEP plan because this can be set up and funded by the extended due date of the return for the year.

Find details about qualified retirement plans in IRS Publication 560 (watch for an update to this publication for 2013).

Giving stock instead of cash

If you are willing to share a bit of ownership with your staff, you can give stock in your corporation. Without your giving them tax advice, you may want to tell them about a Sec. 83(b) election to report the stock as compensation now so that any future appreciation will be taxed to them at capital gains rates.

If your company is a C corporation that meets the definition of a qualified small business, you can issue the stock to employees as compensation. If they hold shares for more than five years, all of their gain will be tax free. Note that stock issued after 2013 will give owners only a 50% exclusion unless Congress extends the current 100% exclusion.

Conclusion

Make sure your year-end bonus plans factor in cash flow considerations. Discuss your options with your tax advisor now so you can take action before the end of the year. And tell employees to talk with their tax advisors as well.

 

About the Author:

BarbaraWeltman
Barbara Weltman

Guest Blogger

Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser's Small Business Taxes, J.K. Lasser's Guide to Self-Employment, and Smooth Failing as well as a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for three years in a row. Follow her on Twitter: @BigIdeas4SB or at www.BigIdeasforSmallBusiness.com

How to Move Your Sole Proprietorship, LLC or Corporation to a New State

By kmurray, Contributor and Moderator
Published: October 31, 2013 Updated: September 20, 2016

Are you moving to a new state and wondering how to re-establish your business there? Wondering how to make a seamless transition for your sole proprietorship, LLC or corporation in a new location? Here’s some essential information about relocating your business.

Sole Proprietorships

It’s pretty straightforward to move a sole proprietorship (or partnership) to a new state. You’re required to register your new business using the “Doing Business As” (DBA) registration process in your new state at which point you’ll discontinue your old one. Depending on the location of your business, you’ll either register at your county clerk’s office or with the state government. You can read more about DBA names here.

Limited Liability Companies (LLCs)

There are a few choices to consider when you move your LLC to a new state, so it’s wise to consult an attorney for expert guidance on the particulars of your business situation. Here are your options:

  1. Continue your LLC in the previous state. Register as a foreign (out-of-state) LLC in your new state. This translates into more paperwork for you because you’ll need to file duplicate annual reports and it may complicate your taxes. Things get more complex if you’re reporting for a multi-member LLC.
  2. Dissolve your LLC in the previous state. Establish a new LLC in your new state. There aren’t any tax consequences if you take this route.
  3. Register a new LLC in your new state. Each member transfers membership interest. When you register a new LLC, have each member transfer his or her percent ownership from the previous LLC to the new one.
  4. Register a new LLC in your new state. Merge your previous LLC into your new LLC. You can continue with your existing EIN because the IRS views this as a continuation of the previous LLC. If all LLC members still have a 50-percent interest in the capital and profits of the new LLC, you won’t face any tax consequences.

Corporations

Moving a corporation to a new state mirrors the process for an LLC. As always, it’s best to talk to an attorney about any tax consequences, reporting requirements and any specific requirements in your previous state about dissolving a corporation. Here’s what you can consider when relocating your corporation:

  1. Continue your corporation in the previous state. Register as a foreign corporation in your new state. Again, this translates into increased paperwork and the chance that you’ll incur fees in both states.
  2. Dissolve your corporation in the previous state. Establish a new corporation in your new state. Be aware that there may be costly tax consequences associated with this option and may have implications on employee benefits (such as retirement plans).
  3. Register a new corporation in your new state. Merge your previous corporation into your new one. This eliminates the need to pay fees in two states and allows for a tax-free reorganization.

After Your Move – Licenses, Permits and Taxes

Don’t forget your post-move steps for your small business, including applying for all the necessary licenses and permits (which vary by state). And keep in mind local zoning laws as they apply to your new location.

You’ll also want to be sure to take care of your tax obligations. Because you’re moving out of state, you’ll need to close out your tax year in your old state (often as simple as checking the “Final Return” box on your state return). Every business is unique, so talk to a tax expert for an understanding of your business tax responsibilities in the first year of your move. You can also deduct or capitalize the costs incurred during business relocation (including moving costs, relocation site scouting trips, travel and meeting costs). Get more guidance on small business expenses and tax deductions here.

Related Article

About the Author:

kmurray
Katie Murray

Contributor and Moderator

I am an author and moderator for the the SBA.gov Community. I'll share useful information for your entrepreneurial endeavors and help point you in the right direction to find other resources for your small business needs. Thanks for joining our online community here at SBA.gov!

Do an End-of-Year Planning Refresh

By Tim Berry, Guest Blogger
Published: October 29, 2013 Updated: October 29, 2013

It’s that time of year: changing colors, chill air, thoughts of holidays coming, the shock of another year ending. Does your business slow down during December, like my business planning software business always does, and so many other do? If so, then this becomes a good time for a planning refresh.

My business has always had slowdowns in the end of November and December. We recognized the pattern years ago and started to work with it. December became our time for pulling away from the business, looking out at the horizon, talking to customers and potential customers, evaluating potential new products, checking in with major clients, and so forth. We called it a planning refresh.

Here are some important elements of a good planning refresh:

1.  First, your long-term goals: Review your definition of success. That could be fame and fortune, or maybe just independence and peace of mind, or time for other things. Has it changed? Are you making progress? Have you forgotten where you’re trying to go?

2.  Second, your SWOT: Review strengths, weaknesses, opportunities and threats. Have they changed in the last year? Does your strategy reflect your SWOT? Is it time to revise strategy, or stick to the same thing?

3.  Third, your target market: Are you still focused well and on the right potential buyers? Have market developments changed the strategic value of one segment over another? Does your market focus match the opportunities and your business offering?

This is an especially good time to refresh your sense of the customers. How often do you talk to them? Are you in touch with what customers are thinking and saying about your business? Has it changed? One of the best things you can do is talk to a few random customers, in depth, provided of course that you can find customers to talk to you. Market knowledge is critical to business success, and it’s too easy to get lost in the routine and not realize that the situation has changed. 

4.  Fourth, review your competition. Think broadly about competition, looking not just for the competition you know, but also for new competition that you don’t realize is out there. Maybe customers are discovering new ways to solve the problems and fill the need that your business offering is supposed to – and you haven’t realized it. Just as an example, competition for business plan software includes courses, classes, books, magazine articles, television shows and consultants – not just other business plan software.

When it’s about autumn leaves, snow, spring blossoms, or summer heat, we call it the change of seasons. When it’s business, we call it seasonality. The two are not too different from each other. Both can be used as automatic reminders of change and cycles.

About the Author:

Tim Berry
Tim Berry

Guest Blogger

Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, blogging at timberry.bplans.com. His collected posts are at blog.timberry.com. Stanford MBA. Married 46 years, father of 5. Author of business plan software Business Plan Pro and www.liveplan.com and books including his latest, 'Lean Business Planning,' 2015, Motivational Press. Contents of that book are available for web browsing free at leanplan.com .

Use ‘Em or Lose ‘Em: 5 Tax Breaks Set to Expire This Year

By BarbaraWeltman, Guest Blogger
Published: October 24, 2013

Dozens of federal tax breaks are scheduled to end on December 31 unless Congress extends them. No one knows for sure which ones, if any, will apply next year, so business owners should explore expiring rules and take advantage of them while they can. Here are some expiring breaks that may appeal to you:

Break 1: Faster write-offs for buying needed equipment

Need to upgrade your computers? Provide staff with tablets and smartphones? Add new machinery? You have two better ways to deduct your costs this year than merely depreciating the costs over a number of years:

  • Deduct up to $500,000 of the cost of qualified equipment (whether new or pre-owned) this year as long as you’re profitable. Next year, the deduction limit is scheduled to be $25,000.
  • Deduct 50% of the cost of new qualified equipment, even if it adds to or creates a business loss. Next year, this deduction is set to disappear entirely.

Note: You can use either break even if you finance your purchase in whole or in part.

Break 2: Faster write-offs for improving your facilities

Usually when you make capital improvements to your workspace, the cost can only be depreciated over a period of 39 years. However, for improvements to leaseholds (by the lessor, lessee, or subleasee), restaurants, and retail establishments, you can use any or all of the following rules as long as the improvements are completed before the end of this year:

  • $250,000 first-year expensing for eligible improvements
  • 50% bonus depreciation for eligible improvements
  • 15-year amortization period for any costs not deducted with first-year expensing or bonus depreciation

Find details about write-offs for qualified property in IRS Publication 946.

Break 3: Tax credits for hiring certain workers

If you need more employees on your payroll and have projected the cost of this hiring after factoring in future health care obligations, think about hiring from certain targeted groups. Doing this may entitle you to a tax credit that can be used to offset your tax bill:

  • Work opportunity credit for hiring certain disadvantaged workers, including certain veterans. Make sure that you timely submit IRS Form 8850 to your state work force agency to get eligible workers certified as entitling you to the credit.
  • Indian employment credit if you hire an enrolled member, or spouse of an enrolled member, of an Indian tribe who performs services within an Indian reservation.
  • Empowerment employment credit if your business is located within a federally-designated empowerment zone.

The amount of each credit and eligibility rules vary, but each requires that you hire an eligible employee before the end of this year.

Break 4: Exclusion for gain on certain stock

If your business is a C corporation involved in technology, manufacturing, retail, or wholesale and is seeking new investors, consider issuing new stock before the end of the year. If the stock meets the definition of qualified small business stock and investors hold it for more than five years, then all of their gain will be tax free. Stock issued next year will give investors only a 50% exclusion for their gain unless the current 100% exclusion is extended.

Note: You can issue qualified small business stock to employees as payment for services (i.e., year-end bonuses) to enable them to reap tax-free returns.

Break 5: Tax credit for doing research

If your company does research to create a new product, you may be eligible for a tax credit of up to 20% of increased research expenses. This credit is set to expire at the end of this year unless Congress extends it. While an extension is probable—the research credit has been extended 14 times since its inception in 1981—it’s still smart to use the credit while you can.

The credit is not limited to research to create products for sale. It also applies to research for internal processes (e.g., internal use software) that improve your business operations. For more details see the instructions to IRS Form 6765.

Conclusion

A bi-partisan Congressional budget committee is supposed to decide by December 13, 2013, what measures (including tax rules) will apply for the future. By that time, it may be too late for certain actions that would otherwise be helpful for your business and tax savings this year. Meet with your tax advisor to explore which of these or other expiring tax breaks you may want to use before the end of the year, and what steps you need to take to nail them down now.

About the Author:

BarbaraWeltman
Barbara Weltman

Guest Blogger

Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser's Small Business Taxes, J.K. Lasser's Guide to Self-Employment, and Smooth Failing as well as a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for three years in a row. Follow her on Twitter: @BigIdeas4SB or at www.BigIdeasforSmallBusiness.com

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