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The New York Times Has Some Helpful Suggestions For Non-Accounting Nerd Business Owners

And you guys had the nerve to talk smack about me trying to give inheritance advice yesterday. Pfft.

In a recent article entitled Basics of Accounting Are Vital to Survival for Entrepreneurs, the New York Times tells the tale of Bart Justice, an industrial engineer-turned-business owner who decided to start a mobile document shredding business in 2004 after a rash of new security laws. Justice got a loan from the bank, bought a mobile shredding truck, hired a driver and opened a shop in Huntsville, AL called Secure Destruction Service. Sounds good, no?

In its first year, the company had $70,000 in sales. Within four years, the company had annual revenue of $500,000, six employees and two offices. Again, that sounds great but revenue is not the same as equity or net worth, even a non-accounting nerd like me knows that much.

When he wanted to add another shredding truck, Justice went back to the bank and borrowed more money. The bigger he got, the more money he needed to borrow. Somehow, he didn’t understand that this borrowed money was not actually revenue and was, in fact, a liability as he had to pay it back at some point.

“I knew how to print a financial statement from QuickBooks, but I couldn’t tell you what it meant,” he said.

Fast-forward to 2008, when Justice joined a peer group for Christian business owners. “They would ask me questions about my numbers, and I didn’t know how to answer them,” he said. “They told me my business was going to fail unless I got a handle on paying down my debt.”

No shit, Sherlock, did you need a financial professional to tell you that?

Here’s the gist of the article: if small business owners don’t get number-crunching, put the money out and hire someone who does. What the NYT does not have the balls to suggest is that small business owners should stop saying “I hate accounting” because they think it’s still cute and go out and take an introductory accounting class or two. No one expects business owners to be able to pull analytics out of their asses but it can’t hurt to maybe at least understand that you want liabilities to be less than assets to stay alive.

Survey Says: Accountants and Small Businesses are Optimistic About the Future

It must be survey season so since you kids received the last one so well (surely I jest), we humbly present this latest survey of 1,217 Intuit small business and 1,200 Intuit accountant customers between Oct. 15 – 20, 2010. Thanks, Intuit!

The good news is that there really is no good news but that hasn’t put a damper on survey respondents’ view of things to come. It’s sort of exceptional, in our opinion, that 75 – 80% of respondents feel today’s economic climate is just fair or poor but more than that feel optimistic about opportunities in the future.

In a considerable showing of resilience, 65 percent of accounting professionals and 54 percent of small business owners said their companies grew in the last 12 months. Despite this growth, 75 percent of accounting professionals and 80 percent of small business owners rate today’s economic climate as “just fair” or “poor.”

Both groups expressed optimism for the future, with 94 percent of accounting professionals and 87 percent of small business owners seeing opportunities to grow their businesses in today’s economy.

Well if there are going to be new opportunities once things look up, where are they going to come from? According to respondents, news and technology are the key:

77 percent of accounting professionals said “access to industry news and/or trends” is the most important; “investing in new technology” ranked second.

73 percent of small business owners placed “marketing and/or advertising” as the most important; 57 percent said they plan to focus on “expanding their range of offerings.”

Funny, Sage just asked 533 accountants and IT professionals what keeps them up at night and they responded with getting new clients and regulatory compliance. For Intuit’s respondents, however, client retention ranked higher than finding new ones.

When asked what keeps them up at night, 32 percent of accounting professionals said “keeping clients happy.” For 26 percent of small businesses, “paying bills” is their number one concern.

Fine, so what does all this mean?

“Accounting professionals and small business owners are extremely adaptable and flexible individuals,” said Shawn McMorrough, lead research manager of Intuit’s Accounting Professionals Division. “Despite feeling the pinch in this challenging economic environment, they are optimistic and continue to weather the rapidly shifting business environment. Their unrelenting passion for serving their customers helps accounting professionals and small businesses succeed in the face of any challenge the market presents them.”

Should the rest of the world take that as a good sign that things aren’t as bad as Jr Deputy Accountant, Michael Panzner and the Mogambo Guru might make it seem? It looks that way, though the doomsayers are still in business for the foreseeable future. Yay?

Here’s More Evidence That Complying with Federal Regulations Is a Pain in the A$$ for Small Businesses

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

If you’ve suspected that complying with federal regulations is particularly onerous for small businesses, a new report from none other than the US Small Business Administration will provide you with plenty of new ammunition.

The report, called the Impact of Regulatory Costs on Small Firms and written by the SBA’s Office of Advocacy, estimates just how much it costs very small, smallish and big companies to follow the rules. The conclusion is that businesses with under 20 employees pay the most per worker–$10,585 per employee each year. The cost for businesses with 20 to 499 employees is $7,454 and for firms with 500 and more employees, $7,755.

The reason, of course, is the matter of fixed costs. A small business incurs about the same expense as a larger one. But the big guys can spread the expenses over more revenue, output, and employees, resulting in lower costs per unit of output.

The report, which looked at data from 2008, found that small businesses with under 20 employees pay the most to comply with environmental, tax, and occupational safety and health and homeland security regulations. Most notably, the cost per employee for environmental compliance is $4,101 compared to $883 for the biggest companies.


Clearly the unequal burden of regulatory compliance makes life a lot harder for small businesses and, in fact, serves to undercut their ability to compete. “This potentially causes inefficiencies in the structure of American enterprise, and the relocation of production facilities to less regulated countries, and adversely affects the international competitiveness of domestically produced American products and services,” says the report. “All of these effects, of course, would have negative consequences for the US labor market and national income.”

Still the report didn’t comment on the benefits of regulations. That’s another issue entirely. In fact, just because they cost a lot doesn’t therefore mean the rules shouldn’t exist. It does, however, indicate that something is very wrong with the way they’re applied–and that, for small companies to thrive, change is imperative.

According to the report, economic regulations, which include things like rules related to tariffs, are the only area where large firms have the highest cost. That is due, in part, to the Regulatory Flexibility Act, which requires agencies “to assess the effect of regulations on small businesses and to mitigate undue burdens, including exemptions and relaxed phase-in schedules.” The RFA, says the report, has been particularly effective in shielding small businesses from the cost of complying with the Sarbanes-Oxley Act.

Seems there should be a significantly more concerted effort to exempt small businesses from certain regulations or, at least, to help with compliance efforts. Some 89 percent of all companies in the US employ fewer than 20 people. If the cost of complying with regulations is really egregiously high for the vast majority of companies simply due to their size, it’s incumbent upon the rule-makers to do something about it.

John Boehner: What Have You Done for American Families and Small Business Lately, Mr. President?

“If the President really wants to help small businesses, he should insist that Congress not leave town without cutting spending and stopping his tax hike to help create jobs – particularly small business jobs. By failing to act, the President is turning his back on American families and small businesses.”

~ The House Minority Leader, in a statement, nanoseconds after The President signed The Small Business Jobs and Credit Act of 2010 into law.

Small Business Legislation Could Be a Boon for Small CPA Firms

The following post is republished from AccountingWEB, a source of accounting news, information, tips, tools, resources and insight–everything you need to help you prosper and enjoy the accounting profession.

Included in the Small Business Jobs and Credit Act of 2010 – passed by the House of Representatives September 23 and the Senate September 16 – is the creation of a $30 billion lending fund that will utilize healthy cconduit to increase lending to small businesses – a provision that will generate $1 billion for the treasury, according to officials.

The fund also will provide $1.5 billion in grants to support at least $15 billion in new small-business lending through already successful state-run programs.

Among the $12 billion in tax breaks are a 100-percent exclusion of capital-gains tax on small-business investments made in 2010 and an increase in the maximum deduction for start-up expenditures in 2010 and 2011 – from $5,000 to $10,000.


“Naturally, any change in tax law stimulates our business in that we must provide the analysis of the bill and relay that information to our clients who may be affected,” Perry C. Barnett, CPA, partner responsible for business services for Gainesville, GA-based Rushton & Co. LLC, told AccountingWEB.

Douglas C. Smith, CPA, CVA, a partner with Lawrenceville, NJ-based Bartolomei Pucciarelli LLC, told AccountingWEB that he anticipates a significant increase in tax planning this year due to the provisions outlined in the bill, as well as modest improvement in the business of many of the firm’s clients.

“Almost any new tax legislation is a benefit to our firm, but fortunately, many of the provisions of the bill will benefit our clients, as well,” he added. “Since we are advocates of advanced planning, this bill provides us with the opportunity to make our clients aware of the upcoming changes and perform tax-planning engagements to guide them in implementation.”

While he does not see any significant changes in the firm’s accounting or auditing services as a result of the new legislation, Smith stated there will be consideration of additional accruals of penalties assessed on timely filing of information returns, as well as some impact on deferred taxes as it relates to the accelerated bonus depreciation provision.

The bonus depreciation provision is the most expensive tax break in the bill, weighing in at $5.4 billion over 10 years, but carrying an initial cost of $38 billion in its first two years, according to an analysis conducted by CCH Inc., a Wolters Kluwer business based in Riverwoods, IL, that provides tax, accounting, and auditing software and services.

The bill extends – through December 31, 2010 – 50-percent first-year bonus depreciation that had expired at the end of 2009. The extension is retroactive to January 1, 2010. The bill also extends through 2011 bonus depreciation allowed for property with a recovery period of 10 years or longer, such as personal property used to transport people or other property.

Small businesses will be allowed to write off up to $500,000 in capital expenditures in tax years 2010 and 2011. Under current law, the maximum deduction for tax years beginning in 2010 is $250,000.

Two other provisions in the bill that Smith believes will benefit his firm’s clients are: self-employed taxpayers will be allowed to deduct health-care costs for payroll tax purposes on 2010 returns, and participants in 401(k), 403(b), and 457 governmental plans will be permitted to roll over pretax account balances into a Roth account.

If an amount is rolled over in 2010, the amount is included ratably in income over a two-year period beginning with tax year 2011, according to the CCH analysis. The legislation also allows participants in state and governmental 457 plans to contribute deferred amounts to designated Roth accounts, effective for tax years beginning after 2010.

“Whenever we as CPAs are presented with the opportunity to educate our clients, it is a good thing,” Smith said. “There are many planning opportunities contained in the bill – ranging from the timing of a sale of small business stock, to planning the acquisitions of new equipment to take advantage of the expanded depreciation provisions, to planning the start of a new business that takes advantage of increased deductions for start-up expenses.

“Additionally, with benefits such as the deduction for health insurance when calculating self-employment income, out clients should be able to put a little extra money in their pockets, too,” Smith added.

Barnett agreed that the start-up expenses and the self-employed health insurance changes will benefit his firm’s clients, as well. However, he added that the continual increase in reporting requirements, especially the new requirement for filing Form 1099 scheduled to begin for 2011, could burden some small businesses.

“Based on this law and those in the works, each client will have to maintain a huge database of all vendor payments,” Barnett said. “We see this as a giant logjam for both the business and the IRS.

“The greatest impediment to business moving forward is being confident of what the tax laws are going to be in the future,” he continued. “Until Congress realizes that their indecision in estate taxes and personal income taxes is one of the greatest concerns of everyone, they will not get the economy on track.”

The House approved the bill in a 237-187 vote, while the Senate passed the bill by a 61-38 margin after Republican senators George LeMieux of Florida and George Voinovich of Ohio crossed party lines to support the legislation.

“This is about helping small business owners grow their operations, hire more workers, and help improve our economy,” LeMieux said in a statement. “Small business is the backbone of our economy, creating two out of every three jobs in our country. They need tax relief; they need access to capital. This bill will help achieve those goals and will not raise taxes or add to the national debt.”

Automatic IRA Act Will Be a Boon for Financial Services Companies; Small Business…Not So Much

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

There’s pending legislation in the Senate to require even tiny businesses that don’t already have a retirement plan to create an IRA for employees. Whether or not it will do much to help people save for their retirement in a meaningful way is debatable.

The bill, the Automatic IRA Act of 2010, introduced by Senator Jeff Bingaman (D-New Mexico) mandates that businesses establish individual IRA accounts for all employees. Contributions would come from payroll deductions, so employers wouldn’t have to cough up any money themselves, and employees would be able to opt out. Accounts would be managed by banks, mutual funds, and insurance companies that already manage this type of account.


Also employers would have no ERISA fiduciary liability as long as they used a provider on a government-approved list. And there’s a default investment structure: a principal preservation fund for balances of less than $5,000 and a lifecycle fund for bigger accounts.

Seems reasonable, until you drill down further. First there’s the infinitesimal default deferral rate. That’s 3 percent. As a result, since employers aren’t even allowed a match, it’s unlikely employees will be able to save a whole lot. Also employers get a measly $250 tax credit to cover administrative costs.

Mostly this bill will be a potential goldmine for financial services companies, at least those on the official government list of approved providers. While each account will be small in aggregate, the amount will come to quite an attractive proposition for these businesses.

If there were any doubt about just what a windfall this could be, consider the provision for a gradual phase-in of the law. For example, in the first year, the bill will apply only to businesses with 100 or more employees. It won’t cover companies with less than 10 employees until year four.

But that provision wasn’t put there with the company owner in mind. Instead it’s all about the retirement services providers to help them “prepare for a significant expansion in the number of IRA accounts.”

To be sure, something needs to be done to boost the retirement savings rate in this country. With this bill, however, the real beneficiaries will be the usual suspects–big financial services companies.

Why Your Firm Needs a Social Media Policy

If you work for a larger firm, chances are you’ve already got a social media policy that encompasses everything your firm does not want you to do online. For smaller firms and private practices, a social media policy can be the very last thing management considers implementing, assuming you will use your better judgment when conducting yourself online and don’t need the rules laid out. Oftentimes this mentality comes more from management’s unfamiliarity with social media than anything else. If they don’t use Twitter, how can they tell you how to conduct yourself on it?

But your online social life isn’t the same as a cocktail party at which you are representing your firm. Should you be able to say whatever you want on Twitter after hours? Can you post pictures of yourself getting wasted on Facebook?


The line is cut and dry when you are at a firm event or at a client but are you expected to represent your firm even when tweeting on your own time? If your firm does not have a social media policy, the answer is you have no way to know until it’s too late and you’ve pissed off the boss.

For firms, not having a social media policy can open the company up to all sorts of tricky trouble. Without knowing exactly what is expected of them, employees are forced to use their own judgment when it comes to their online behavior. Most are smart enough not to bash the boss in 140 characters or post embarrassing holiday party photos on Facebook but what’s to stop them from starting a blog that management finds offensive or keep them from tweeting about their work life in general? Absolutely nothing.

With hyper-connected Gen Y more than established in the workplace, a social media policy makes even more sense. Very few us get through a day without a Facebook update or a tweet and for some of us, our online persona can be a point of contention with management. Case in point, yours truly and Jr Deputy Accountant. Working in the industry meant that I had to be careful not to needlessly bash firm failures (like PwC and Satyam), lest I ruffle any feathers that could connect my site to my employer. Sometimes a disclaimer is helpful – something along the lines of “my opinion is my own and independent of any personal or professional affiliations” – but without having clear lines drawn between how you behave at work and how you behave on your own time in front of the entire Internet, it can be difficult to know what’s appropriate and what is not.

Last week we gave you some tips to keep your online life safe in the event that you don’t have a social media policy but that doesn’t mean your boss gets a pass. A social media policy is always a good idea and in this day and age there’s no getting around it, it’s necessary.

Regulatory Uncertainty Leaves Small Businesses Reluctant to Hire

I know of only one small business owner who has confidently added staff throughout the recession and that’s only because A) he’s really cocky (in the best way, of course) and B) he absolutely needed to in order to survive. Lucky for him he ended up in a fairly recession-proof business and in fact, the recession has been kind as it has driven all sorts of new business to him as the unemployed and jaded look for new career options. But he’s a fluke success and not all small business owners can say they’ve weathered the last two years as well as he has.

Dallas Fed President Richard Fisher and former St Louis Fed President William Poole both feel the hiring problem is based not on the fact that businesses can’t afford it but because business owners are too unsure of the regulatory environment to confidently add staff. I am going to have to agree with them on this one.


Said Fisher in a recent speech:

For some time now in internal discussions with my colleagues at the Fed, I have ascribed the economy’s slow growth pathology to what I call “random refereeing”—the current predilection of government to rewrite the rules in the middle of the game of recovery. Businesses and consumers are being confronted with so many potential changes in the taxes and regulations that govern their behavior that they are uncertain about how to proceed downfield. Awaiting clearer signals from the referees that are the nation’s fiscal authorities and regulators, they have gone into a defensive crouch.

Case in point, Obamacare’s insidious 1099 requirement that we’ve covered plenty up to this point and will continue to cover so long as it threatens to cripple businesses with unnecessary busywork. The House had a chance to kick the requirement in the balls last with with the Small Business Paperwork Mandate Elimination Act (H.R.5141) but failed to pass it, leaving us right back where we were*.

Business owners – and small business owners in particular as they tend to have less capital and fewer chances to “warehouse” out their employee insurance needs in bulk – are understandably reluctant to plug more money into the economy if they are unsure as to how much it’s going to cost just to hire on new staff. Many businesses could hire at this point but have chosen not to simply because they have no idea what sort of financial impact hiring will have on them in the future once new rules are fully written out and implemented.

Seems a bit counterproductive when we’re trying to claw our way out a recession, doesn’t it?

*Full Disclosure: JDA is long Caterpillar at this point in anticipation of the number of bulldozers that will be required just to keep up with the 1099 goodness. How is this helping the economy heal again?

Willing But Not Always Able: The Latest on Small Business Lending

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

We hear a lot from small businesses about how hard it is to get a loan and a lot from bankers that demand from credit-worthy borrowers is down. Now a new study provides insights into the situation, by exploring the top reasons why banks are turning down applicants, along with plenty of other data. And because it includes asset-based lenders and other funding sources, it offers a wider view of just what’s going on in the financing landscape.

The study, from researchers at Pepperdine University, surveyed 1,430 borrowers, lenders and investors, looking at changes over the past six months. Since the most detailed analysis focused on banks and asset-based lenders, here’s a look at the most salient points:


Banks – Demand certainly does seem to be down, judging from responses from the 56 banks studied. About 11 percent reported an increase in applications over the past six months compared to 77.2 percent who had a decrease. But the quality of borrowers is up, according to 55.6 percent of those surveyed. That’s compared to 22 percent who reported a drop. And the number of approvals? That’s gone through the roof. About 76.5 percent reported an increase.
What are the reasons for turning down applicants? Top on the list is quality of cash flow. Almost 25 percent cited that as the reason. And 20.8 percent pointed to quality of earnings.

Asset-based lenders – The 52 asset-based lenders reported the mirror opposite, at least when it comes to demand. Sixty percent had an increase in applications vs. 8.7 percent who experienced a decline. Also while more lenders reported a drop in the credit quality of applicants, a majority saw an increase in the quality of borrowers who were approved.

As you might expect, the top reason for rejecting an application was insufficient collateral (30 percent). “In the weak economic environment, the valuation of collateral is going down,” John Paglia, an associate professor at Pepperdine and author of the study, said to me. Second on the list was quality of earnings (15.8 percent).

What’s it all mean? For one thing, asset-based lenders are attracting more interest from prospective borrowers, but the economy has done a number on their most important criteria, collateral. As for bankers, it seems they’re on the level when they say they want to make loans, but they can’t find suitable prospects.

Apparently when they do get a live one, bankers are more than ready to lend.