Administrator

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So far Administrator has created 175 blog entries.

Saving For Retirement in an Uncertain Market

Q: In these uncertain times it’s a little hard to know how to manage our retirement savings. Is there anything that we should be doing different? If so, what do we change?

A: In August and September of 2011, there were some episodes of volatility present in the stock market; the likes of which we haven’t seen since 2008/2009. These were, for a large part, due to three specific events: the European debt crisis (which just doesn’t seem to want to go away), the political issues that surrounded the debt ceiling and finally the downgrade of the U.S. debt.

These bouts of volatility are often followed by a rash of media coverage. This is often accompanied by your average investor wondering what they should do, if anything. Some people will begin to shift their portfolios while others will simply stay the course. Which action is correct? To help determine the answer, let’s take a look at four topics.

Perception vs. Reality The media often makes it appear as if during turbulent times, investors are entirely selling out of one area and jumping into another. While there may be individual investors reacting and moving out of equities and into fixed income or money markets, when we look at the statistics and data, we see that the vast majority of investors stay the course.

Behavioral Finance This field of study combines psychology and economics in an attempt to explain why and how investors act and to analyze how that behavior affects the markets. Behavioral finance theorists point to the market phenomenon of hot stocks and bubbles to validate their position that market prices can be affected by the irrational behavior of investors. What this means in short is, when the markets move around or act in an irrational manner (read volatile), individuals tend to respond accordingly. This may not be the right course of action, but it happens.

Maintain A Sense Of Balance One of the best things to do in volatile times is to maintain a balanced portfolio. Sounds too simple right? The reality is that it works. According to Fran Kinniry of the Vanguard Investment Strategy Group “even from the peak of the market, a balanced investor is still positive. And when I say, “balanced,” I mean someone who has a combination of equity investments and fixed income investments.”

For those who struggle with this from an individual standpoint, let’s take a look at it from the market perspective. Let’s say you have $1,000 that represents all of the investment money in the economy. Then there are three pails on a set of scales, which represent the sectors that can be invested in (stocks, bonds and cash instruments). We can put the money into any pail we choose, but the equilibrium between the others will change. What this means is that one area will make money while another loses it. Yet one thing will remain unchanged, the amount of money in the market.

Thus, ones best bet is to spread the money around so that when you lose a little in one area, you’ll gain it back in another (and as a whole you shouldn’t be impacted too much). The problems arise when all of your eggs are in one basket, such as when you are nearing retirement. If everything you have is in stocks or bonds and the market goes through a prolonged period of adjustment, you may not be able to react fast enough to save your nest egg from severe losses. Thus, a little asset reallocation may give you that level of protection that you need.

Calculated Market Exploitation Maintaining a balanced portfolio doesn’t mean that you ignore trends or where the money is being made. However, what an investor should strive to do is indentify the trends, but don’t attempt to bet the house and ride a wave. By the time an investor decides to jump into an area that is “hot” or appears to be making money, the reality is that all of the “real” money has been made. What will remain are the speculators and more often than not, these will be the people who get burned when the market can no longer sustain the inflated prices.

A slightly more realistic approach would be to take a portion of your portfolio (that you won’t miss if things go south) and put it into a general area that encompasses the trend. For example, gas prices don’t look to be falling anytime soon. With that said, investing in an exchange-traded fund (ETF) that deals with energy might be a nice hedge in your portfolio. Energy will probably always make some money and we all know that these companies tend to pay out dividends. So while you’re not betting on a specific company or stock, you are inadvertently benefiting from investor and market trends.

By Administrator|2012-03-02T12:08:37-06:00March 2, 2012|Categories: Accounting Talk|Tags: retirement saving, saving for retirement, saving for retirement in uncertainty|Comments Off

Business Plan Essentials

Q: I’m attempting to seek funding for my venture and I’ve been told that I need a business plan. I was told there were some key things to include if I was going to make it “investment-grade.” Could you tell me what specifically this refers to?

A: We have assisted people with their business plans for many years. It’s common for individuals to ask us if they really need ANY business plan unless they are looking for an outside investor. Our response is that a business plan is needed primarily by the individual and secondarily by investors. For an individual, your business plan serves as the blueprint for your company, a way to gauge progress and a communication tool for your idea. For an investor it serves as an evaluation tool to determine if the venture is worth their time and money. So what do investors want to know? The following 10 items will give you some food for thought.

What’s the problem? Every plan must start with the problem you’re solving. Explain it in terms your Mom would understand and quantify the “cost-of-pain” in dollars or time. Statements like “every customer needs this” and “next generation platform” should be avoided as they are too vague. Be very specific in what the issue is because investors want to know what the need is. If you can’t define the problem you may scare away those who can fund your concept. No investor wants to wait years for their payback or fund the time it takes for you to figure out the market need.

How do you solve said problem? This is where you give an explanation of how and why your concept works, including a customer-centric quantification of the benefits. Skip the technical jargon but do describe your intellectual property and “secret recipe” in this section. Clearly define the customer, channel, and revenue model associated with the solution.

How big is the industry and market? Start with the evolution of the overall industry, market segmentation, market dynamics, and customer landscape. Remember that investors like industries that have a billion dollar opportunity, and a double-digit growth rate. Data from accredited market research groups is required for credibility. Also, don’t fall into the typical trap that most entrepreneurs make. Don’t define the market opportunity so broadly in one breath and then in the next assess your competition narrowly or nonexistent. Investors aren’t impressed by claims that everyone on the planet needs one but no one else has exactly the right features to compete with you.

What’s the business model? Tell people how you will make money, who pays you and what your gross margins will be. Be passionate, but realistic, about revenues, profits and volume growth. Try to avoid generalizations such as “all our concept has to do is get 1% of the market.” There are two issues with a statement such as this. First, no investor is interested in a company that is only looking to get 1% of a market. Remember, they want to fund something that will earn them a return on investment (ROI) and a substantial one at that. Second, that first 1% is the toughest part of any market to capture so you’ll look naïve implying it’s easy to get.

What’s your competition and sustainable advantage? Tell investors just who your competition is (both direct and indirect) and make sure to include customer alternatives (i.e. complementary products). Asserting you have no competition is about as credible as the Easter Bunny and will get you laughed out of a room faster than you want. Make sure you detail out your sustainable competitive advantage and highlight any barriers to entry that will keep your competitors at bay.

Another common mistake that entrepreneurs make is that they downplay big competitors as being “too big/slow to be a threat.” The reality is that big companies are often not a threat when the market is small. However, investors know that sleeping giants wake up the moment your company shows traction in the market place. Competing with PepsiCo, Microsoft, P&G and other large companies should never be minimized.

What’s the plan for marketing, sales and strategic partners? Describe your market penetration strategy, sales channels, pricing, and strategic partnerships. This is also a good place to include a rollout timeline with key milestones. Convince investors that you have lined up sales channels, strategic partners, and a viable marketing strategy.

Who’s calling the shots? Investors invest in people, not just ideas. Convince investors that your team is experienced and have great expertise in the selected business concept or industry. If all the members have no experience in the area where the concept will exist, highlight the expertise of the board of directors, advisory members or other strategic partners. If you are brining someone in from the outside, be careful with statements like “A world-class CEO will be joining us after funding.” Rest assured that potential investors will ask for names, and place some calls. Soft responses from your candidates will definitely kill your credibility.

How much money do you want? This is where you want to show how you calculated the funding requirements and how you plan to use the funds. Quantify existing skin-in-the-game from insiders and outsiders, including sweat equity and capital. If available, include a current valuation estimate as third party analysis always goes a long way in establishing viability. If you are doing your funding estimate, follow this simplistic approach: model the volume, cost, and pricing parameters based on what you believe is achievable and note where your cashflow bottoms out. If it bottoms out at negative $600K the first year, add a 25% buffer and ask for $750K funding.

What do the financials look like? Project both revenues and expense totals for next five years, and past three years, if relevant. Show breakeven and growth assumptions. Details should be available in a separate financial model, but do not need to be included in this particular section (i.e within the Appendix). Remember that investors are looking for large, scalable, high-growth opportunities. Attractive deals show double-digit positive growth per year and revenues that are projected to $20M or more within five years.

How do we get our money back? This section outlines your exit strategy and is only really required when you expect outside investors. Investors want to know that you are thinking about a liquidity event (e.g. IPO) and when/how they’ll get their money out (with a hefty ROI of course). For a family business it isn’t necessary to project an exit, but you should always think of what your “end game” is for a business. Most business owners don’t make a ton of money when the own the concept, but see the return when they sell it off, take it public, etc.

In summary, an investment-grade business plan is a professionally prepared document, preferably about 20 pages, to satisfy both angel investors and venture capitalists. In preparing it, try to look at your project through the investors eyes. If your plan is missing one or more of the above elements, it will likely be deemed not “fundable” and rejected. The best plans are not usually the fanciest or the longest. They are not measured by the quantity of impressive graphics or the size of the revenue projections. Investment-grade ones attempt to answer every question an investor could possibly ask, except maybe “where do I sign?”

By Administrator|2012-02-25T13:19:01-06:00February 25, 2012|Categories: Business Talk|Tags: business plan essential elements, business plan essentials|Comments Off

A Day In The Life of a Small Business CEO

So what’s it like to be the CEO of a small or developing business? The answers are probably as varied as the individuals that head these organizations. Yet the one common thread which I’m sure we all have in common is this; you’re responsible for everything. Let me elaborate.

When I worked a “corporate” job, there were all types of functions to take care of various tasks. The folks in Marketing made all those fancy advertisements. Sales guys and gals made sure the money keep flowing in. Legal dotted the I’s and crossed the t’s and made sure no one did anything to get us in a bind. IT kept all the systems humming along and fixed them when they went down. Security kept the riff raff out of the building. Maintenance made sure that the lights worked right and when something broke it got fixed. The list goes on and on.

Now when you are the CEO of a small business, you assume all those roles and functions simultaneously. I remember recently a good colleague of mine saw my title change on LinkedIn (to CEO) and sent me an email congratulating me. I jokingly responded, don’t be fooled by the title, CEO really just means Chief Everything Officer! So what is a “typical” day in my life like now that I’m at the helm? Let’s take a look and see.

5:20AM Time to get up and get ready to go. My wife travels a good deal of the time so that often means I have to drop our daughter off at day care. We’re out the house at 5:40AM and I’m typically back at 6:20AM. From there it’s time to get ready for my commute (I bike to work) and get headed over to the office. The biking to work serves two purposes. One, it allows me to save on gas and conserve that every dwindling savings of mine. Two, it allows me to get my race “training” in as I often don’t have the time to do full workouts (hey, you make do with what you can get done and move on).

8:00AM I’m typically walking in the office around this time. First task is to get all the computers and printers going while I get cleaned up and changed into my “office duds.” Once I’m ready to go, I have to get our “Uncle Sam Air Dancer” up on the roof so that passing drivers will notice that we’re even there. Yeah, the office has signage, but you’d be surprised at how much you drive by places a thousand times and never realize that they even exist.

8:30AM Doors are open, neon signs are on and it’s time to go to work. The first two hours of the day typically involve me responding to customer emails, returning calls, scheduling the work load for the day, sending out prospecting calls/emails, etc. This is a bunch of administrative stuff that has to get done, but unfortunately I can’t focus on it for too long because I have to eventually do the work that brings in the checks.

Noon Maybe I stop and cram some food in my face. Maybe I keep working on cranking out the work. Maybe I am talking face-to-face with a customer. Eventually I will get to eat something, but there really is no such thing as a “lunch break” anymore.

6:30PM Time to close up shop. The day is typically too short and there is always something left to do. I try to table it until the next day UNLESS it involves a customer. Customer service is essential to building a good brand name and it happens with each and every client interaction. Mess up once and you’ll pay for it more than you even want to imagine.

7:30PM If my wife is home then this marks the time when I can begin family time. If she’s gone then I have to go and pick up the kid first. Either way it goes, from now until about 10PM it’s me getting my daughter and I ready for the next day, getting food on the table, getting ready for bed and then eventually falling asleep by “accident” as I put my daughter to bed.

Now, if you read above, no where will you read that I talked to my friends, checked my personal email, checked my Twitter timeline, yada, yada, yada. Is that because it didn’t happen? Nope. It’s because it didn’t happen while I was AT work. When I get home, I get a few minutes here and there to do those things. But when I’m at work, if it’s not a revenue generating task, it gets to wait. Like the old adage goes, nothing happens in business until you make a sale. That’s why in corporate America you typically work in a “cost center” as opposed to a “profit center.” This is also why the sales folks often get paid a boatload of money, because they actually make the business happen.

Lessons Learned?

So what has this transition taught me so far? Well, I’ve had plenty of “Ah ha” moments and I’ve also gained an appreciation for many things. But it I had to pick a few of my best lessons, I would say:

There’s Never Enough Time The day goes by too quickly and there is ALWAYS something to do. Most of this “something” has nothing to do with making money, but it never goes away and if you stop doing it, you more than likely will run out of or lose your customers.

You’re Emotions Are Always On From the time I get up to the time I go to sleep, I am always thinking of the business. Things go right, things go bad and in the middle of it all, there I stand. I often don’t have time to relish in the moment of anything that happens. But what I will say is that no matter what’s going on, I’m always feeling it until the minute I go to sleep.

You Don’t Know Jack Yeah, you know how to make the product you sell or deliver the service you offer. You might be good with computers, but there will be a time when something goes wrong and you will have to fix it (or call someone to). With that said, you are always learning. No matter how much you know about each function, you will always be learning more about it. And even if you do know about the function, you will always be learning about tasks. For example, you may know marketing, but it may take you a few attempts to “learn” which ad actually drives traffic through your door.

It’s Always An Adventure For those of you who like change, then this job is definitely for you. No two days are exactly the same. Every day you will be pushed to your limits in terms of learning, flexibility, time, skills, etc. It’s both fun and scary at the exact same time. There is no “Oh, I’ve learned everything in this role and now I’m board. When is my next rotation or promotion?” Instead there is “Wow, how do I figure this one out? And once I do, what’s around the bend?” But this is what makes being a CEO one of the most rewarding roles out of all the ones I’ve previously had.

Until next time.

By Administrator|2012-02-23T12:09:47-06:00February 23, 2012|Categories: Who's The Boss?|Tags: small business ceo, small business ceo life, the daily life of a ceo, the life of a ceo, the life of a small business owner|Comments Off

Is It Ever Too Late To Start Saving For Retirement?

Q: I’m 37 years old and really want to start focusing on my retirement planning but feel it may be a little too late. What should I do?

A: It’s never too late to start planning for retirement. The key is to not waste any more time once you make up your mind it’s what you want to do. In short – get on the ball now so you make up for some of the lost time and retirement dollars you’ve been missing out on. The following will provide you with the financial steps you should take according to your age and possible allocations you could have in your investment portfolio. If you find that you’re past a certain stage, work on getting caught up with the goals of the previous timeframe and get back to your stage goals as soon as possible.

20 to 29 – You’re young; you’re starting your career; you’re broke.

Start your 401(k) at work. Contribute at least up to the company match, if any.
Start a Roth IRA if you don’t have a 401(k) – or if you have a 401(k) and can afford a Roth, too. You can tap your Roth for a first-time home purchase, if needed and you can withdraw principal penalty-free.
Start an emergency fund – six months of take home salary being the minimum. If you don’t have money saved for a rainy day, you’ll have to go into debt for emergencies — or tap your retirement fund.
Make a living will so your family will know your wishes in case of a health emergency. You’ll need one when you retire, but you never know what will happen in the meantime.
Your Portfolio – Standard & Poor’s 500 stock index fund 50%, Small-cap core stock fund 25%, International stock fund 25%

30 to 39 – You’re still young; you’re starting a family; you’re in debt up to your eyeballs.

Don’t reduce your retirement savings to save for the kiddies college fund. You can finance college with student loans and scholarships; you can’t finance retirement.
Use your 401(k) to help you save and pay less income tax. A 401(k) lets you save money before taxes. Suppose you’re in the 25% tax bracket, earn $50,000 a year, and want to save $3,000 a year. Because of the tax savings, that $3,000 would reduce your take-home pay just $2,225 and cause you to owe less income taxes because your tax base will be reduced.
Don’t confuse whole life insurance with a retirement plan, says Peggy Ruhlin, a Columbus, Ohio, financial planner. “Life insurance is good, and you need it to protect your family. But it’s not for retirement savings.”
Write your will. You never know.
Your Portfolio – Standard & Poor’s 500 stock index fund 50%, International stock fund 20%, Small-cap core stock fund 15%, Mid-cap growth stock fund 15%

40 to 49 – You’re middle-aged; you’re doing OK; you’re starting to get worried.

If you’re not contributing the maximum to your 401(k), this is the time to do it.
Your rainy-day fund should now include cash and less liquid/higher yield assets such as CDs, mutual funds, etc.
If you plan to remain in your current home, refinance to make sure your mortgage will end when you stop working or sooner.
If you’ve previously funded a Roth IRA, you should be in good shape. Otherwise, look at alternatives for retirement savings plans, such as tax-efficient mutual funds.
Update your living will and make sure someone has power of attorney. You never know.
Your Portfolio – Standard & Poor’s 500 stock index fund 40%, International stock fund 15%, Small-cap value stock fund 15%, Mid-cap growth stock fund 15%, Bond funds 15%.

50 to 59 – You’re nearing retirement; you’re at the peak of your career; you’re terrified.

If the kids are out of college, consider reducing your life insurance and increasing your savings.
Take advantage of the catch-up provisions for 401(k)s and IRAs, which let you contribute more each year.
At 55, start reviewing your Social Security benefits estimate every year and get estimates for any pensions you might receive. See how much your savings will have to be tapped to meet your expenses.
Update your will. You never know.
Standard & Poor’s 500 stock index fund 30%, Bond funds 30%, Small-cap value stock fund 10%, Mid-cap growth stock fund 10%, Mid-cap blend stock fund 10%, International stock fund 10%

By Administrator|2012-02-17T20:16:55-06:00February 17, 2012|Categories: Accounting Talk|Tags: is 30 too late to start saving, never to late to start saving, saving for retirement in 30s, saving for retirement in 40s, saving for retirement in 50s, too late to start saving for retirement|Comments Off

Tax Preparer Fraud – The Real Deal

When our office gets a “takeover client” there are a series of steps that we perform. In addition to the normal verification of identity, organizer completion and client interview, we also request a copy of the prior year return for review. We do this to obtain a glimpse into the clients history, but we also look to see if potential mistakes were made. Occasionally we find something that should be changed. Hey, tax preparers are human too and sometimes mistakes are made. But then, there are people like these who aren’t making mistakes, but are out to make a quick buck.

So, most people think of tax fraud as fudging the numbers a little. But the reality is it often involves the calculated manipulation of the entire return to generate a false refund. Okay, so what is the benefit to the tax preparer in doing this? The short answer is they get to charge a larger fee for their services and there will be less likelihood of the client balking because of the magnitude of the refund. This is particularly true if the preparer has a banking relationship that allows them to withhold their fees from the refund proceeds. So let’s look at the mechanics of how this works.

Client comes in and wants their return prepared. Let’s say they are also one of those 1) I need my money yesterday and 2) I am looking for a big refund. Okay, fair enough. Now let’s say that the preparer is one of those 1) we can get your money fast and 2) we’ll get you the biggest refund you’ve ever seen. Now this is where the interaction gets a little dangerous. Why? Because the scene is set for the preparer to potentially do things they shouldn’t and the client to turn a blind eye to things that they really should not ignore.

So what does the preparer do? The options are numerous. They could create fictions losses on Schedule C to reduce wage income to acceptable levels to claim the Earned Income Credit (EIC). They could create fictitious income on Schedule C to give a client who doesn’t work income so they can claim the EIC. Wage income could be reduced by bogus stock losses, falsely generated unreimbursed business expenses, nonexistent charitable contributions, etc.

So what is the end result? The client is often presented with a return where they are “guided” to the refund amount. The client is happy with what they are getting right? Typically, thus the reason they are okay with paying a fee that represents 4-10% of the refund. The disheartening aspect of this is that a $450 fee for a person who is getting a $4,500 refund is nowhere near warranted nor realistic. A $450 fee is one that is mostly associated with “complex” returns; meaning those that take a few days to work on and involve a lot of leg work.

So what’s the point of all this? Well, it’s twofold. Firstly, we all need to be aware that there are fraudulent tax preparers out there. Some will perform the above to keep a client while others will do it to get a nice check. If you figure that your average retail tax office does about 400 returns per season, if they are charging $450 for each of them, that makes for a nice $180K season. Secondly, if you encounter one of these preparers, you need to know that the responsibility for your return ultimately lays with you the taxpayer. While the IRS and Department of Justice will typically lock up a fraudulent preparer, they will come to you to get their money back. Furthermore, like we always say, the US Government never loses so it’s best to just do the right thing at the outset.

Until next time.

By Administrator|2012-02-04T23:13:33-06:00February 4, 2012|Categories: Tax Talk|Tags: eic fraud, fraudulently claiming eic, tax preparer fraud, tax return fraud|Comments Off

Emotions In Business? Getting Over The Fear of Failure.

So, my corporate career officially ended on January 13^th 2012. During the time leading up to this date (as well as this first week out at the retail office) I had the opportunity to talk to lots of people about my transition. One of the recurring comments I encountered was how admirable it was to strike out on my own. This was often followed up with a statement surrounding how it must take guts to do it, or how that individual wishes they could take the leap. Because this topic came up on numerous occasions, I figured I would share my thoughts on just how I got to the point of walking out the door.

The History

My corporate career spanned over 12 years, 4 companies, numerous positions and a host of experiences. I enjoyed what I did and I would gladly do it all again. However, I can remember that even when I was young, I always envisioned running my own company. This dream remained squelched for most of my corporate career, but when I hit the 5-10 year mark, the voices in my head started getting louder and louder. If I was going to be true to myself, I owed it to myself to at least evaluate the option.

The Decision

Wilson Rogers & Company was founded back in 2005 as a side project. It grew over the years, but reached a point at which the growth became inhibited. This was largely due to the fact that the company had no full time operations nor did it have substantial market visibility. If the company was going to move into the next phase of existence, it was going to take full time dedication. Given the desire to move forward, it was decided that someone would need to take a more commanding reign of the helm.

Are You Crazy?

So it was decided that I would be the one to assume the driver’s seat. But just what was I doing? I was going to give up my “secure” corporate job in the midst of a recession to try and make a company work? I was going to “throw away” 12 years of corporate education to run a shop that takes little to no credentials to start? I was going to “waste” the money spent obtaining my BS in Accounting and MBA in Finance to work on a start up? Really? This is what I had spent all these years building my career for? To go and risk it on some unproven, unknown commodity that could potentially fail and leave me and my family in shambles?

The Rationalization

If I were to say that I didn’t doubt myself, I’d be lying one of the biggest lies in my life. Of course I doubted myself. Here I was about to strike out into the unknown and I worried if it would work. But through many encounters with people, reading lots of articles and books and just thinking through things, I got to a point where I said that I was the only one who was really standing in my way. But what about all those “are you crazy” questions? Here’s how I worked through them all:

While we all think our corporate jobs are secure, we all know that the reality is far different. Ask those who worked for Lehman Brothers, General Motors, Tyco, Enron or Arthur Andersen. At any given moment, you can walk into the office one morning and be told your career is over. What I was giving up was not security but predictability. If I showed up to work every day and didn’t do something to get me canned, I could expect a nice direct deposit into my bank account every two weeks. Now, the checks come based on how hard I work and the flow is completely uneven. But if I can work hard for someone else, shouldn’t I be able to do it for myself?
What about the recession? Being in the finance function of a company allows you to see how business is performing. Yes, the economy has been slow, but plenty of companies are actually GROWING during this time. There were 144 million individual tax returns filed in 2010. With that said, I figured that the market had plenty of space for a small company to come in and try to get just an inkling of the market. I mean, someone out there has to be looking for a new tax preparer or accountant right?
Was I really throwing away my corporate education? No. It was my corporate education that in actuality prepared me to make this move. Additionally, I had 12+ years of knowledge in my possession. If worse comes to worse, I feel pretty confident that I can go back to counting someone’s money. It might not be the company I want to work for, and it may take a little time to happen, but I’m pretty sure my skills are worth something to someone out there.
Yeah, anyone can start a tax preparation business. Someone with a High School diploma can start a bookkeeping business. But it takes someone with some skill to start an accounting, tax, consulting and personal finance company. The fear that I really had was what would people think of me (with all my credentials) starting what just about anyone on the street could do as well? In the end, it doesn’t matter what others think. What matters is what you think of yourself, and I figured that all of that education and credentials were just making me better prepared to strike out on this venture (vs. someone who didn’t).

The Fear of Failure

In business we are expected to act in the absence of emotions. However, the reality is that businesses are run by humans and we humans are emotional beings. Fear is a pretty powerful emotion, as it should be. The fear of falling is what keeps most infants from killing themselves. The fear of fire keeps all of us from burning ourselves. These are rational fears; those that are grounded in reality and pretty proven consequences. However, we all must be careful from allowing fear to hinder our possible growth, especially irrational fears.

When most people think of starting a business, the two biggest fears are 1) failing in their endeavor and 2) not being able to provide for themselves. At the onset, these are very rational fears. However, we tend to make the unknown bigger, badder and far scarier than it is in reality. Thus the fear of failing morphs into what will people think if I fail, what if I can never get another job, what if I’m no good? The fear of not being able to provide for yourself becomes what if no one buys our product, what if I run out of money, what if we go bankrupt, what if we wind up homeless?

Irrational fears are those that will keep you parked on the sideline of the best dance in the world. They’ll keep you from experiencing things that you have a passion for. They’ll even cause you to let life pass you by and leave you wondering “what if” in your dying days. But the reality is, irrational fears are just that, irrational. What if no one buys your product? True, this could happen. But how many people get their taxes done again? What if you fail? Tomorrow brings you 24 new hours to redeem yourself. What if you can never get another job? Really? Last time I looked I thought all burger joints were still hiring.

The point is this, yes, the possibility for failure exist in just about everything we do. And while a healthy dose of fear is good (especially to make sure you don’t run off unprepared or living in a vision that isn’t based on reality) we shouldn’t let it paralyze us. So get out there and try something new. Take a stab at following your dreams. Talk to that one person you’ve had your eye on but were too afraid to approach. The worst thing that can happen is that you fail, while the best thing? Who knows, but we owe it to ourselves to find out!

Until next time.

By Administrator|2012-01-22T15:31:28-06:00January 22, 2012|Categories: Who's The Boss?|Tags: emotions in business, fear of failure in business, fear of failure in the workplace, the fear of failure|Comments Off

Is Married Filing Separately (MFS) Right For You?

Q: So I’m married but I’m not sure if I should file my taxes with my spouse. I’ve heard that I can file separately, but is there anything I should consider before doing so?

A: Most married folks just assume they should always file their taxes together. While this is normally the case (we typically advise married individuals to file together), there are some instances when it’s beneficial to file separately. If you are considering going the separate route, just know that it’s not necessarily equal.

Who Qualifies?

The MFS filing status is available only to those who are, well, married. But for those who tied the knot in 2011 (meaning those who were both single and married last year), this can be a little confusing. If you were married at the beginning of last year, you generally retain that tax status for the whole year unless you were divorced or separated under a decree of separate maintenance (same thing as divorced under the tax rules) as of Dec. 31, 2011. If you married during the year and were still hitched on December 31^st, your options are generally limited to filing jointly with your spouse or using the MFS status.

Isn’t Filing Jointly Better?

Assuming you were in fact married at the end of last year, you may think filing jointly for 2011 as opposed to using MFS status is the no-brainer choice. Generally, the biggest reason to file jointly is because it eliminates the need to track and report each spouse’s income and deductions. Additionally, using the MFS status makes filers ineligible for several popular tax breaks that could save them dough if they file jointly (more on this later).

Filing jointly usually does lower the tax bill when one spouse earns a healthy amount of income while the other has little or none. That’s because the joint-filer tax brackets are exactly twice as wide as the MFS brackets. For example, the 28% federal income-tax bracket for joint filers starts at taxable income of $139,351 for 2011. In contrast, the 28% bracket for MFS filers starts at $69,676 of taxable income.

Using an example to illustrate, let’s say that Joseph and Mary earn a combined $100,000. Joseph earns $90,000 at his job and Mary earns $10,000 as she primarily works as a stay at home mother. If Joseph and Mary file together, their combined income puts them in the 25% bracket and their tax bill is $17,250. If they file separately, Joseph gets pushed into the 28% bracket and has to pay $19,235 while Mary is in the 15% bracket and has to pay $1,075. The result is the couple will pay $3,060 more in taxes by filing separately. So when one spouse earns quite a bit and the other not so much, filing jointly will usually cut their tax bill.

When to File Separate Returns

It’s generally advantageous to file separately when 1) both you and your spouse have taxable income, and 2) at least one of you (preferably the person with the lower income) has significant itemized deductions that are limited by adjusted gross income (AGI).

The three most common itemized write-offs that are limited by your AGI level are:

Medical expenses, which you can deduct only to the extent they exceed 7.5% of AGI.
Uninsured personal-casualty losses (like hurricane damage to your home), which you can deduct only to the extent they exceed 10% of AGI.
Miscellaneous itemized expenses (usually nonreimbursed employee business expenses and investment expenses), which you can only deduct to the extent they exceed 2% of AGI.

When you have these types of expenses, filing separately can lead to tax-saving results, because the AGI numbers on your separate returns will be lower. Therefore, deductions that are limited by your AGI may be considerably higher when you file separately.

What You’ll Lose By Filing Separately

If you do decide to file separately, just know that the IRS is going to penalize you. With that said, you can’t claim any of the following if you use MFS:

You can’t claim the child and dependent-care tax credit
You can’t claim the deduction for college tuition and related expenses
You can’t claim the American Opportunity/Hope Scholarship or Lifetime Learning tax credits for higher education expenses
You can’t claim the student loan interest deduction
You can’t deduct more than $1,500 of capital losses against ordinary income (compared to $3,000 if you file jointly)
You can’t make a Roth IRA contribution if your AGI exceeds $10,000 unless the spouses lived apart all year
You can’t convert a traditional IRA into a Roth account (prior to 2011)
You must itemize deductions if your spouse itemizes (you can’t claim the standard deduction)

This list is far from exhaustive, which is why you should always have your tax preparer “run the numbers” to evaluate whether the MFS status might be beneficial.

It’s Never Too Late

If you discover that filing separately would cut your 2011 tax bill, it’s not too late to change your filing status even if you’ve already filed a joint return for 2011. Just file an amended return that substitutes two MFS returns for your original joint return. However, make sure you get the job done before the April 17^th 2012 (due to the DC holiday) filing deadline. The IRS doesn’t allow you to file an amended return switching from joint to MFS status after the due date.

By Administrator|2012-01-22T13:58:12-06:00January 22, 2012|Categories: Tax Talk|Tags: married filing jointly, married filing separately, married filing separately vs jointly, MFS|Comments Off

Is Retail/Professional Tax Preparation Dead?

So a few days ago we came across this year-end tax tips video from the fine folks who make TurboTax. However, what caught our eye occurs around the 2:40 mark. New for 2012, TurboTax will be offering free live tax assistance via Enrolled Agents, Tax Attorneys and CPAs. So what’s so significant about this? Well, before there is any speculation, you have to know the back story.

For many years, if you were preparing your taxes you either paid someone to do it or you would get the forms and do it yourself. Many of you will remember grabbing that pencil/eraser and spending hours filling out forms until you couldn’t stand it anymore. And if you don’t remember that, you sure remember your parents doing it! Well, with the proliferation and acceptance of the PC, the rise of tax preparation software began soon afterward. Now if you wanted to do your taxes on your own, you no longer had to spend countless hours to do so.

Gradually over the past 10 years or so, there has been a steady rise in the number of “digitally prepared” returns. The initial assumption is often that the increase is due to a market shift from retail to online preparation. However, Internal Revenue Service statistics show that the growth in digital preparation, which has overwhelmingly benefitted TurboTax, has largely been at the expense of pen-and-paper preparation. Assisted preparation has remained about 60 percent of the market for the past decade, while do-it-yourself has stayed at roughly 40 percent.

So if the market share has remained unchanged, why does it seem like retail preparers have been struggling? Well the short answer is through the loss of certain complimentary bank products (e.g. the Refund Anticipation Loan or RAL), retail preparers have seen revenues decline. Combine that with the fact that the sluggish economy means stagnant job growth (which translates into stagnant tax return growth) and the result is flat to declining performance at your local tax shop. Thus the performance declines of the Blocks and Jackson Hewitt’s of the world really isn’t a result of customer shifts, but more so poor product performance.

So back to the original question, why is Intuits move to hire tax professionals significant? Well, we believe the answer is twofold. Firstly, if the market has always been heavily skewed to assisted or retail preparation, then those customers have been conditioned. When that customer switches to a digital DIY solution and encounters a problem, what is the result? They’ll either call customer service, the IRS or a friend in search of an answer, and in extreme circumstances they may give up on the product and go back to assisted preparation. Thus, we believe that Intuit is trying to address these facts so that converts to their product have a positive experience and will become repeat customers.

The second part of the answer is a little more speculative so it needs to be taken in that context. Over the years, technology has become more integrated into our lives. With that, the ability for the customer to service themselves from any and everywhere has also increased. This has resulted in the decline of the explicit need/desire of customers to venture to a brick and mortar location. Retail tax preparation has lagged on addressing this and hasn’t been quick to embrace “online” service solutions for delivering their product. With that said we believe Intuit is trying to secure market share in what may be the next emerging tax preparation distribution channel; online assisted preparation.

Will this become the “future” in terms of how individuals have their returns prepared? Who knows, but if history is any indication, the retail channel probably won’t retain its prominence in the years to come. While there will always be a need for certain individuals to visit a physical site (e.g. individuals without access to technology, small businesses, etc.), ultimately you will probably see an increased shift towards some hybrid model. Thus the answer to this posts question, we don’t think retail/professional tax preparation is dead, we just think it’s evolving.

By Administrator|2012-01-06T16:30:01-06:00January 6, 2012|Categories: Tax Talk|Tags: is retail tax preparation business profitable, is tax preparation a good business|Comments Off

The Gauntlet

Well, back on December 1^st we were meeting with the leasing company inking all the paperwork for our new retail location. No sooner than the ink dried, we then realized that we had just about 30 days to get the space ready. This would be no problem for a company with deep pockets, or one that had a development team for that matter. Our reality, on the other hand, was that we had limited resources; no matter what the item, we were limited in it. So with that said, we began our quest to outfit our office!

We already had a budget outlined and knew just about everything that needed to be purchased. So during the first two weeks, it was simply a matter of scouring the internet for the items and driving around to tons of places. The good thing is that there were plenty of people offering items, so we didn’t have a problem finding what we wanted (and at good prices too). The disheartening thing is that many of the items were from businesses that were folding. The bright spot for us is that we knew we would be putting the items to good use in our office, so they would get to serve their intended purpose.

Then there was the phone installation. This went relatively smoothly and thus set us up for all of our technology installations. Yet, that’s when we had two minor setbacks.

The first issue was with the security system. Now, we didn’t have a problem with the actual install. However, when we budgeted for the service, we failed to budget for the equipment charge. Whoops! Looks like we need to cut some items from our budget if we’re going to stay on track. So here is lesson number one for anyone starting a business – make sure your budget and figures are double and triple checked (preferably by someone other than the person who prepared it).

The second issue was more of a technicality that we forgot about, but it could have pushed back our computer set up. You see, when you electronically file returns with the IRS, you have to have an EFIN. Check. For each location. Dang it! So the fix is to go to the E Services site and fill out a new application. Check. But your account hasn’t been used in a while so it’s inactive. Drats! No worries, you just need to reactivate it. Check. But then you need to confirm it with a code that the IRS will send in the mail between 1-28 business days. Come on!

Well, needless to say, we got everything squared away with the IRS and got a new EFIN so that we could transmit returns from the new office. We still needed to get some things updated with our software providers accounting department, but that was minor in comparison to the above. So lesson number two for anyone starting a business, build a little cushion into the start up timeline. There will always be something unexpected that comes up; luckily for us it just cost us time, but for some it actually costs them money.

So after a month of hard work, this is what we have to show for it:

The office will have weekend hours between now and January 15^th, but moves to a full time schedule starting Monday January 16^th. We’re sure there will be other “set up” items that will come up during the tax season, but we’re happy this chapter of our existence is now squarely behind us. Next? Day-To-Day Operations! Until next time.

By Administrator|2012-01-02T22:11:45-06:00January 2, 2012|Categories: General Ramblings|Tags: challenges of setting up a business, setting up a business|Comments Off

Hole In My Pocket

Q: I have to admit that I am a person who tends to let my money burn a hole in my pocket. Sometimes it gets down to the wire and I find that I have to pray that I have enough to pay my bills. I’d really like to stop living like this but have no idea where to begin. Any suggestions?

A: Living paycheck to paycheck is by no means fun. Yet the simple practice of budgeting can help one get their finances in line and stop the endless cycle of waiting for that next check to come. In a day and age where it appears that even the government can’t budget correctly, the following tips will help ensure that you get it right.

Adopt the correct attitude toward budgeting. Understand that you are trying to free up your time from paying bills and worrying about money. A budget isn’t a straightjacket for your finances. It’s a tool that will allow you to see where your money is going, where it could be used more effectively, and alert you to when all is not well. Using a budget will help you get your financial life under control and begin to realize some of the dreams that you have. It will take discipline to stay within the guidelines of any budget. However, if you take the attitude that a budget is a waste of time or some type of constraint, you will more than likely not stick to it.

Build your budget. Some people take the approach of building what is referred to as an expense side budget; one that only looks at what one spends. A more realistic budget is one that encompasses both income and expenses. This budget allows a person to see how much they bring in and spend during the same period. If you see that you are overspending routinely you can be sure that you are either eating up your savings or you are creating debt. If you see that you are spending less than you earn you should be able to see the results in your bank account or in the form of assets that you’ve purchased. Either way, an income and expense budget will allow you to adequately adjust your spending habits based on the trends you see.

To start you will have to summarize your sources of income and expenses. The things that should be included in income include your after-tax take home pay, interest and dividends, social security benefits, and any other sources that provide you with funds. Your expenses should include things like your housing cost, utilities, insurance, savings, food and personal items, transportation, entertainment, and charitable contributions. Once you’ve listed your income and expense items you should subtotal each category and see where you stand. The budget may indicate that you have a lot more money available than you tend to feel you do. So what’s the problem?

Perform the reality check. Illustrated below is an average expense side budget. The percentages indicate how much each category makes up of the total money spent in a given month.

Personal Savings 10%

Housing expenses, utilities, and food 30-35%

Installment debt and credit cards 15%

Transportation and vehicle maintenance 10%

Charitable organizations 10%

Insurance 5%

Entertainment 5%

Personal care and clothing 5%

Investments 5%

TOTAL 100%

Compare your budget to the one above to see where there are differences. You may see that you are spending more on housing than the average person or that a majority of your money goes to a category that isn’t even listed above. Whatever the case may be, wherever your budget is out of line could indicate the source of your money problems. It is also important to note that you could just be overspending the money that you should be saving. If this is the case, start a savings plan to keep more of your money with you and of the pockets of the big corporations.

Periodically review and adjust your budget. Did you recently receive a promotion that translated into a bigger paycheck? Did you finally pay off that car note? Just get married or bring a new child into this world? All of the above are good reasons to revisit your budget and make adjustments. None of us remain the same for too long and neither should your budget. Whenever there is a change you should assess the area(s) that will be impacted and make the necessary changes to your income, spending, or both. For instance, if you were making $2,000 a month you may have been socking away $200 a month into your personal savings. With your new promotion you now make $2,500 a month and that means that you should be saving $250 a month. Just because your income changes doesn’t mean that you have to change your budget. Yet to make sure you are staying in line and well on your way to where you want to go, it’s advisable that you do.

By Administrator|2011-12-27T20:28:50-06:00December 27, 2011|Categories: Accounting Talk|Tags: how to stop spending money, spending too much money|Comments Off

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