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What’s a Small Business for Tax Rules?

By BarbaraWeltman, Guest Blogger
Published: February 28, 2013

The SBA uses a number of definitions for “small business,” depending on the industry. So, too, does the tax law, which has various definitions of “small business” for different tax breaks. These definitions are based on employees, revenues, expenditures and assets. Confusing? You bet! Here’s a list to help you.

Employee-based definitions

  • DbK retirement plan. This type of qualified retirement plan, which has yet to be utilized because of lack of IRS guidance, combines a pension with a contributory element (like a 401(k) plan). It is limited to companies with 500 or fewer employees.
  • Disabled access credit. A tax credit of 50% of costs between $250 and $10,250 (maximum credit of $5,000) can be claimed for the cost of making a company more accessible to the disabled. The company can have no more than 30 full-time employees during the preceding year; there is also a gross receipts (revenue) test explained later.
  • Employer wage differential credit for activated reservists. Employers with fewer than 50 employees can claim a tax credit for continuing to pay wages to employees called to active duty.
  • Retirement plan start-up credit. A tax credit of up to $500 for the administrative costs of starting a qualified retirement plan can be claimed by a company with no more than 100 employees who have compensation over $5,000 in the preceding year.
  • Savings incentive match plans for employees (SIMPLE) plans. These are retirement plans to which employees and employers both contribute. SIMPLE plans can be used by a business with 100 or fewer employees who received compensation over $5,000 in the preceding year.
  • Simple cafeteria plans. Cafeteria plans are used to offer a menu of fringe benefits to employees. A simple version, which avoids the need for testing for discrimination, can be used for a company with 100 or fewer employees on business days during either of the two preceding years.
  • Small employer health insurance credit. A credit of up to 35% of premiums paid in 2013 by employers can be claimed by a company with no more than 25 full-time equivalent employees (FTEs) with average wages of less than $50,000. The full credit applies for up to 10 FTEs; a reduced credit is allowed for 11 to 25 FTEs.

Revenue-based definitions

  • Accrual method exception for small inventory-based businesses. While, most firms with inventory must use the accrual method of accounting to report their income and expenses, “small” firms can use the cash method. Small firms are those with average annual gross receipts of no more than $10 million in the three prior years (fewer years if the company hasn’t been in business for three years).
  • Bad debts deduction. Small businesses performing services in certain fields (e.g., law, accounting) can write off bad debts on the non-accrual experience method, which means they don’t accrue service-related income expected to be uncollectible. This accounting rule applies only to companies with average annual gross receipts for the three prior years of no more than $5 million.
  • Corporate AMT exemption. Small C corporations are exempt from the alternative minimum tax. This exemption applies only to those with average annual gross receipts of no more than $7 million ($5 million for the first three-year period).
  • Disabled access credit. The credit described earlier can be claimed by a company with gross receipts of no more than $1 million in the preceding year (see the employee definition above).
  • Late filing penalties for certain information returns. Businesses must report certain payments to the IRS by set dates. Reduced penalties for the failure to meet this obligation apply to companies with average annual gross receipts of no more than $5 million for a three-year period.
  • UNICAP rules. These rules impact when expenses can be deducted. There is a small reseller exception for property acquired for resale; the exception applies to companies with average annual gross receipts of no more than $10 million for a three-year period. There is a simplified dollar value last-in, first out (LIFO) method for applying the UNICAP rules; the method applies only to companies with average annual gross receipts of no more than $5 million for a three-year period.

Expenditure-related definition

  • First-year expensing. The cost of machinery and equipment can be deducted upfront rather than depreciated over a number of years if total annual investments in these assets do not exceed a dollar limit. For 2013, the full expensing deduction of up to $500,000 can be claimed as long as purchases don’t exceed $2 million. This dollar limit is reduced for excess purchases; no deduction applies once purchases for the year exceed $2.5 million.

Asset-related definitions

  • Shifting the burden of proof to the IRS. Whether a worker is an employee or an independent contractor or whether compensation is “reasonable” can be shifted to the IRS for a business with a net worth not in excess of $7 million.
  • Small business stock. Gain on the sale of qualified small business stock in certain C corporations acquired after September 27, 2010, and before January 1, 2014, is not taxable if the stock is held more than five years (a partial break applies for stock acquired before or after these dates). The stock is “qualified” only if the corporation’s gross assets do not exceed $50 million when the stock is issued and immediately thereafter.

Conclusion

There are many tax breaks exclusively for small companies. Knowing whether you are eligible for a particular one depends on the tax law’s definition. If you’re unsure, talk with your tax advisor.

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

7 Quick Tips for Better Business Communications

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

It used to be that most of the business world understood that simple, clear business writing was a powerful skill. We needed to communicate, explain and convince people in memos, proposals, plans and reports. Simple sentences worked better. Clear and concise worked better.

Maybe I care more about writing than the next person because I’ve spent so much of my career dealing with business plans: writing them for years, then getting them funded and, more recently, reading them. I read more than 100 business plans a year. They’re shorter than they used to be, for sure; but the qualities that make something readable—including good writing, spelling and grammar, are as important as ever.

But writing has been diluted, for sure, with the forward march of email, websites—and now Facebook and Twitter and text and rushed communications with two thumbs while trying not to bonk the other people sharing the sidewalk. So writing, spelling and grammar seem out of style; but still, some writing comes up all the time. The business plan is just the most obvious example. Beyond that:

  1. In email
  2. In blog posts
  3. In comments to blog posts
  4. In social media updates
  5. Plans, memos, reports
  6. In text or sms messages? I’m not sure about that one. What do you think? The obvious abbreviations are so tempting ... but does that have to spread into the rest of our writing. I forgive “idk” in a text but not in a memo (it stands for I don’t know). 

So here are some of my suggestions for minding the writing without ignoring that it’s relegated to many kinds of in-between and compromise contexts, like text and on smartphones. And with business plans too, of course.

  1. Use short simple sentences. Use periods more often to end sentences. Separate your points into shorter sentences.
  2. Get to the point fast. Put the headline first—then explain. People skim emails and memos. Don’t bury the main point in a dumpling-like mass of explanations.
  3. Stop using apostrophes to show plural. Apostrophes are for contraction (don’t) or possession (Ralph’s or Mary’s opinion). Stop putting an apostrophe every time you have a plural noun. It’s balls and bats, not ball’s and bat’s.
  4. Then and than have different meanings. Then is time and sequence, as in first we do this and then that. Than is comparison, like more than and less than.
  5. Simple words are better. Avoid jargon and buzzwords. Don’t incentivize people when you can motivate or encourage them instead. Use things; don’t utilize them. The phrase “outside the box” is inside the box. Are we really all engaging all the time?
  6. Although it does take an extra effort to hold down two fingers at once or add a keystroke to capitalize words, it looks better. Capitalize your words like you learned in second grade.
  7. Don’t write long emails with multiple topics and points. Make each email have its own topic and subject line. Your recipients will get your point faster and better than way.

While it’s apparently true that we live in a world of video, and books and print media are in a decline, technology has also put writing into almost every obscure corner and extra little piece of time in our lives. Not just for business plans. In all cases, let’s do it well.

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 .

How to Break Through 5 Common Barriers to Small Business Growth

By Caron_Beesley, Contributor
Published: February 21, 2013

Trying to grow your business, but thwarted at every turn by problems within your own organization or by external factors such as broken supply chains?

For many businesses, the biggest obstacle to growth isn’t poor sales, financing or tough competition; it’s often the business itself!

So, if you find yourself operationally ill prepared to grow, what can you do about it? Here are some strategies that can help you break through some of the common barriers to growth that many small businesses experience.

1. Watch the indicators for growth

Before you embark on any growth strategy, step back and take a look at some key business indicators to help you decide whether you are actually ready for growth!

Are you successful in a current market and want to open a new location? Are you about to clinch a big sales deal? Is your sales pipeline full? Is product development success opening the door to new opportunities?

These are all important indicators that will drive growth and should be constantly monitored to ensure you are able to effectively prepare for that growth. Study your pipeline, conversion rates and market trends in dashboard form every day.

2. Keep one eye on your competition, but always think big picture

Underpinning any growth strategy should be a deep knowledge of where you stand against your competition. A simple SWOT analysis, reviewed quarterly, can help you determine where you fit in relation to your competitors and areas of opportunity to exploit your strengths and their weaknesses. Likewise, it will give you a good view of any threats to your growth and guide you towards developing a plan to fix or compensate for these.

Then take a look at your market – your potential customers. Do some market analysis to find out how your customers view your business and what they see in the competition that would make them buy from them instead of you.

Look for ways to differentiate yourself – how does your competition position itself in the marketplace relative to your business? How does your business/product/service contrast with theirs? Why would a customer buy from you and not them? The answers to these questions will help you see your strengths, exploit market opportunities, and execute a tactical plan to get ahead in areas that you don’t measure up to the competition.

3. Always be recruiting talent

Setting the stage for growth has to involve superstar employees. Even if you can’t afford to right now – keep looking for talent and bring them on part-time or on a contract or hourly basis. Another option that can help guide your growth is to work with an organization like SCORE. SCORE provides free business mentoring services and can partner you with someone with business management experience to help you steer your business on a path to growth. Whether you need help across the entire business, or are looking for help with functions such as business planning or marketing, SCORE can pair you with a mentor for free.

Get more tips in 6 Options for Staffing your Growing Business.

4. Constantly assess risk

If there’s one thing being a manager or business owner teaches us all, it’s that we must always anticipate and manage risk. Look ahead—what variables could occur that might compromise or damage your growth plans? These could be supply chain issues, hiring and training problems, competitive activity, cash flow, or patent infringements. Include these in your SWOT analysis and develop a plan to prevent or manage any issues.

5. The bottom line

If there’s a common thread here, it’s the importance of being prepared. This, of course, means having a plan. Never embark on a growth strategy without a plan. It doesn’t have to be encyclopedic, but it should contain the key elements discussed above.  Break your plan down into chunks – have one strategic plan that contains your market findings and helps inform where you are and where you want to be. Then assemble smaller plans. For example, have a day-to-day operations plan, a hiring plan and a marketing plan, each of which lay out the tactics for using your business resources to accomplish your strategy.

If you don’t have a business plan, check out SBA’s Build your Business Plan Tool. This step-by-step online tool guides you through the process of creating an actionable plan.

 

About the Author:

Caron_Beesley
Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

3 Simple Ways To Improve Customer Satisfaction Today

By Caron_Beesley, Contributor
Published: February 14, 2013

As business owners, we’d all like to think of ourselves as providers of great customer service. As small business owners in particular, it’s quite possibly your biggest differentiator. After all, how often is it that you walk into a national chain restaurant and are greeted by name, handed your favorite drink and made to feel like part of the family?

But great customer service is also about knowing how to handle problems, responding to and resolving issues—something at which agile small businesses can often excel.

If customer satisfaction is your goal, then great customer service will get you there.

Here are three simple things you can do to embed customer service into your business philosophy and day-to-day operations:

Listen and Learn

Listening is key to effective customer service and it can also help boost your profitability. Here are two ways to prove to your customers that you are listening–and tips on how to make it count:

  • Everyday Customer Interaction – Show you are listening to your customers by taking notes or repeating back what your customer has said. Listen to their words and tone. Observe their body language. Provide them clear and concise communication. Ask clarifying questions to gain understanding before you provide a response. If you can’t respond immediately, be sure to provide a timeline for response and make a note in your calendar to do so. Follow up, confirm the resolution and check for customer satisfaction and completion.
  • Facilitating Feedback – If you don’t have a reason for face-to-face interaction with a customer, look for ways to stay in touch and show you are listening and eager to keep the lines of communication open. For example, follow up with a customer after a sale to prove to your customers that you want to hear from them. Hand out in-store or post-sale surveys to find out what they’d like to see from your brand—and stay active on social media (more on this below). Customer service is, after all, about meeting the needs and expectations of the customer as defined by the customer. By soliciting feedback and using that information to inform your business you will find new ways to ensure your business is relevant to them and hopefully open new lines of profitable opportunity.

In order to have effective customer service, you must know what your customers want, provide it to them on a consistent basis and ask them how you are doing.

Look For Ways to Treat Customers As You Would Like To Be Treated

Remember, how you and your staff communicate with your customers is just as important as what you communicate. Remember that your customer wants to see the sunny side of you and your business, so have your filter on and put yourself in their shoes.

A good way to instill this attitude among your staff is to do some simple role play in which they act out a few scenarios that involve both easy-going and difficult customers. Observe how they handle the situation and coach them on areas to improve.

For example:

  • How are customers being greeted? — Put them at ease and make them feel comfortable!  This sets the tone for the rest of the transaction.
  • Demonstrate that your customers are valued Let them know you think they are important.  Your sincerity makes them feel good about you and the organization.
  • Ask how to help your customers Find out what they want. It is important that each customer encounter makes them feel satisfied.
  • Don’t challenge disgruntled customers — Listen, reassure them that you’ll escalate or act on their complaint and follow through until resolution.
  • Help customers Help them get what they want. Make it easy for customers to locate or obtain the information they need. Answer their questions in a timely manner.

Carry Customer Service Across All Your Customer Touch Points

Remember to carry through on your customer service goals wherever your business has a presence. This means both online and offline. More than ever, social media is a systematic part of your customer service model, so if you have a presence on sites like Facebook, Twitter, Yelp, and so on, be sure you are actively listening, engaging, monitoring and responding to your customers online. This blog offers some tips that can help: How to Use Social Media to Do a Better Job of Customer Service.

About the Author:

Caron_Beesley
Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

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