Hiring Practices
Without quality employees, most businesses are doomed to fail. One the most important parts of business management are to understand the value of hiring and retaining excellent employees. Some tips to keep in mind when building your team:

• Hire experts. You may be the guru in your industry but that does not mean you know everything about running a business. Hire those that are experts in their fields to fill in the areas that are not your area of expertise.
• Friends and family. In most circumstances, hiring a friend or family member is not the best idea for business success. First of all, they are not always the most qualified applicants. Second, there is often personal turmoil that can follow. Tread carefully!
• Keep them happy. Once you find the right team, do your best to keep them happy. Job satisfaction is not just about wages and tangible benefits; employees that are challenged, appreciated and have autonomy in their positions are more likely to stay even if a better paying job is offered to them.

Decision Making
Business ownership and management is full of decisions that need to be made every day. There are small, every day decisions and large, company changing choices that are on your plate. How business managers and owners handle these decisions, large and small, can be the difference between success and failure.

• Keep emotions out of it. Business decisions are just that, business. Keeping an employee that you personally like but is not able to perform is a poor choice. Always think of what is best for the business over your personal preferences.
• Customers come first. Ultimately, most business decisions will affect your customers one way or another. Know your customer and keep them in the forefront of your mind when making decisions.
• Never make impulsive choices. Although sometimes a decision must be made quickly, never do it on impulse or without research. Business strategy should always be the priority. Sales people prey on business owners that are easily persuaded to commit to a purchase without taking the time to ensure that it is the best option available.

There are so many aspects of business management that can make or break a company. However, by keeping a good head on your shoulders and always thinking of the business needs first before you act, you will be on the right path to success.

Planning Ahead Of Time
In many scenarios, if a family member or adult child of the owner will be buying the family business, a negotiated price is set with payments spread out of a period of time to bolster the owners retirement. However, if this is the case, these payments will not be tax deductible and can add financial strain for the buyer. Instead of a straightforward purchase arrangement, there are other ways to ensure that the owner gets their purchase price and still gives a “family” discount in the way of tax savings.

Deferred Compensation
One way to do this is to set up deferred compensation to pay part of the original sale price in an exit plan. The benefit to the buyer is that instead of the entire purchase agreement being capital payments and not deductible, a reasonable portion can be set up as deferred compensation and largely deductible. However, the sales amount must still be an amount that is within the realm of the value of the business.

For example, if the owner wishes to sell the business for $500,000, selling it for too little may end up being considered a gift and then still be under scrutiny. The business can be sold for slightly less than the highest value though, say, for $400,000. This would be set up on a structured payment plan and paid over time as capital payments that are not deductible. The remaining $100,000 could be set up as deferred compensation and paid in $10,000 or $12,000 increments that are deductible if properly set up in the exit plan.

This can give a substantial reduction in taxes on the purchase price, while the original owner still gets the amount needed from the business for retirement. Another option is to set up the owner as a consultant, paying the balance in that manner. Both will allow for a tax break for the new business owner, however are very different in the way they are transpired. For either case, a competent tax professional that is familiar with business tax law will be needed to help put together the legal arrangement. It is a great way for both the retiree and the inheriting family member to both get what they want from the transferring of the business.

Using Your Time Wisely
Slow periods give you the opportunity to get some tasks accomplished that are difficult to do when business is booming. Instead of fretting over the lack of business, use the quiet time to get your business and staff more focused and ready to tackle the busy time that may be right around the corner.

• Training opportunities. Slow times are a great time to cross-train and do some reiterating of business practices with your staff. Use this extra time to expand the knowledge of your employees and make them a more efficient part of your team.
• Marketing. While many marketing plans cost money to implement, there are also many aspects that cost more time than money that can be utilized during a slow period. Focus on grass root aspects such as reviving old customers, social network options and internet marketing such as blogging.
• Network. Use your time to get more involved in the community and network with local business people and consumers. Fill your wallet with business cards and start mingling at social and community events.
• Organize. Take the opportunity to re-organize your business. Spend time getting taxes, record keeping and other tasks up to date so that it will save you time later when business picks up. Have a cleaning party and get the entire office organized.
• Be creative. Think of new ways to drive consumers to your door. Have a customer appreciation party or giveaway to draw new and old customers to your business. Use old products or gift certificates as giveaways, have free demonstrations and think of creative ways to use your time to drum up more business.

Business owners that can embrace the slow periods as an opportunity to get caught up and reboot their business will not only survive, but will be in a better place when the ebb is over and business begins to flow again. Instead of being stressed, use the time as a needed break to get caught up on all the minutia that can get tossed to the side when you are busy. By making the most of the slow times, they will be fewer and farther between and will be welcomed when they do arise.

Employees Versus Independent Contractors
Knowing the difference between an employee and an independent contractor is essential in declaring your taxes. While those who are employees are easily recognizable, sometimes those who are thought to be independent contractors can actually be considered employees in the IRS view. The penalties for not declaring someone as an employee and paying the applicable taxes are steep. Consider these rules:

• Length of service. Someone who performs routine work for you on a consistent or reoccurring basis may be considered an employee.
• Training. If you must train a contractor, this may be a sign that they are really considered an employee.
• Hours of work. Independent contractors that are required to work certain hours or at certain locations may be deemed employees.

There are many other elements that can define an independent contractor as a employee. Double-check all restrictions versus employees versus independent contractors through the IRS website or with your tax professional. By not withholding payroll taxes, businesses can be subject to a 100% payroll tax penalty that can add up to thousands of dollars.

Overestimating Deductions
Although there are many deductions that a small business can claim, overestimating or embellishing these expenses can lead to trouble. All expenses must be well documented and fall within certain rules to be used as a deduction. Common deductions that are misused are:

• Home office deduction. There are specific rules to using your home office as a deduction. Just using your home computer once in awhile to do business work does not qualify. Ensure that your home office meets all the requirements.
• Meals and entertainment. A common misused deduction is entertaining clients and for meals. Be careful that all items are documented and are not for personal use.
• Vehicle use. A vehicle used for business that is also used for personal use must have a detailed log of when it is used for each. Only mileage used for business can be deducted.

Most business owners would not purposely defraud the IRS but these mistakes, regardless of how they occurred can be costly. With all deductions it is imperative to ensure that all the requirements are being met and can be substantiated if put under the IRS microscope. To avoid these types of mistakes, make sure you discuss all tax deductions and the needed paper trail with your tax professional.

Commercial Business Insurance
Insurance that is used to cover your assets and liabilities as a business can protect you against such events as natural disasters, lawsuits and accidents. Not all businesses have the same needs for insurance. A brick and mortar storefront is much more likely have property or liability concerns then a freelancer or independent contractor that works out of their home. Some of the types of commercial business insurance that are offered are:

• Property liability. Commercial property liability insurance can cover your business property and income against fire, vandalism, theft and other events. For example, this insurance may cover your physical property losses in a fire and also the income losses while the business is closed.
• General liability. There are many legal concerns that can plague a business such as accidents, injuries and claims of negligence. General liability insurance can cover a business against lawsuits of this nature.
• Product liability. If a business manufactures and distributes a product, it is wise to protect against defective products that may cause harm. This is similar to general liability but it specifically for businesses that make a product.
• Professional liability. Another type of liability insurance covers businesses that provide a service from financial losses due to negligence or errors. Medical malpractice insurance is a prime example of this type of coverage.

Employer Insurance
For businesses that have employees, there are certain insurances that are required by law. Those who are adding employees or opening a business with employees will need to have these types of insurance to operate legally in their state.

• Unemployment insurance. As an employer, you will need to pay in to your states unemployment insurance program. You will need to be register with your state’s workforce agency and pay premiums as required by state law.
• Workers compensation. Employers must also have insurance to cover employees in case of injury on the job. Each state is different on what is required but it generally needs to be paid through a commercial carrier, a self-insured basis or through the state’s Worker Compensation program.
• Disability Insurance. In some states it is required to carry disability insurance. Check with your state requirements to see what provisions they have for this type of insurance.

It is a good idea to sit down with a business insurance agent and discuss the different types of insurance you may need for your business. As with any insurance, it can protect you from financial disaster to have the right coverage for your business but not all businesses need the same level or types of insurance. It may pay to shop around and find the best policy and price for your needs.

Types Of Employee Theft
Small businesses are just as susceptible to employee theft as large companies. A study performed by Association of Certified Fraud Examiners (ACFE) revealed that 38% of discovered fraud was in small businesses with less than 100 employees. It is estimated that the average amount of internal theft is 5-7% of businesses revenue. In other words, businesses with annual revenues of $1 million a year may be losing up to $70,000 in theft. Some of the different types of theft that contribute to these losses:

• Product or monetary theft. Product or money that is outright stolen.
• Payroll theft. Businesses paying for time not spent on the job.
• Asset misappropriation. Using money or property for personal use.

Employee Fraud Detection
Creating a work culture that embraces an honest work ethic is the first step in achieving an environment that dissuades theft and fraud. This comes from instilling and promoting ethical work practices. However, small business owners can easily be lured into a sense of security as they may personally know and like all their employees, making it hard to suspect them of stealing. By making fraud detection a priority, it can hinder otherwise good employees from going bad.

• Training. All employees should be aware of what to look to detect fraud, not just managers. The more eyes that are looking for fraud, the more likely it will be detected. This also lets employees know that they are being watched.
• Payroll. For businesses that pay hourly, having some type of time clock can help catch payroll theft. New systems include fingerprint analysis to clock in so that other workers cannot clock their friends in or out.
• Audits. Surprise audits internally and by external companies should be performed a few times a year. This keeps employees on their toes and makes sure that nothing is amiss.
• Job rotation. Many times fraud is not discovered until an employee leaves or is gone from work for an extended time. Rotating jobs or cross training can bring these issues to light sooner.

The key to employee theft or fraud detection is not to be accusatory but instead create an environment where it is openly dissuaded through training and audits. Businesses should also make it possible for employees to anonymously report fraud, as many are unwilling to be part of another employee losing their job. By staying vigilant and putting the proper safeguards in place, many times employee theft can be stopped before it ever starts.

Why To Use Job Costing
Job costing is more than just understanding your expenses versus revenue on a project. It is a way to track how much certain jobs cost and then monitor current jobs to ensure they are staying within the projected budget limits. For a contractor, this information can be the difference between making a profit and losing money. By tracking this information, adjustments can be made for increased costs and labor to ensure that the next job bid is profitable for the company.

Job costing is time consuming but the benefits for many high dollar service contracts are worth the effort. Learning to effectively use job costing can take time, patience and the right software, but it can lead to higher production and revenues.

• Productivity benefits. Increased productivity leads to higher profits but to improve any metric it must first be able to be measured. Job costing can help track the costs of labor as the job progresses and make adjustments when needed. If a job is only half completed yet 75% of the projected labor costs has been already used, job costing can alert the owner that there is a problem.
• Increasing profitability. Job costing reports make it easier to spot areas that can be opportunities for savings and in turn, higher profits. By itemizing every detail of a job and monitoring the costs, there can be changes made to increase revenue in current and future jobs.
• Accurate estimates. One of the best uses of job costing is knowing the correct amount to bid on future projects to be profitable. By keeping accurate reports on exactly what a job costs, companies and contractors can bid appropriately on future jobs to ensure that every project is turning a profit.

In any business the key to making money and staying profitable lies in knowing what to charge for your product or service to cover costs and still have money left over. While a retail outfit may sell thousands of items and can afford to take a low margin on items, trades that use job costing have a limited amount of projects they do. It is important that they make each one of these jobs profitable or they will not be in business long. By using job costing techniques, the business will know exactly where it stands on each project it is working on and be better prepared to bid on future work.

1. How are your services billed? Depending on how much work you are expecting your accountant to do, you will want to discuss how they bill for their services to make sure they offer a plan that accommodates your needs. Do they have a flat fee option that you pay monthly or do they bill per hour? Make sure to get a quote on what they think they will need to charge to handle your account.
2. What are your credentials? There are certified public accountants (CPA) and enrolled agents (EA) that both can work as accountants. While many prefer a CPA as they are state certified and have a wide training in bookkeeping and financial issues, an EA can be beneficial if you are looking more for just tax advice. An EA is more tax based and many formerly worked for the IRS. Depending on your needs for your business, one may be better for you than the other.
3. Who will be handling my account? Many accountants or firms may hire out some of their work to freelancers or third parties. Although a common practice, if that is the case, it is best to know up front. If questions arise, your accountant may not have a working knowledge of your books directly and it may be frustrating to get answers if a third party has been doing the work.
4. Is your office open year round? Some tax accountants only open their doors for tax season and are available by a scheduled appointment the rest of the year. For business purposes, many prefer an accountant that stays open year round for tax and financial advise. It is also good to get an idea on what to expect on response times for questions and concerns.
5. What types of businesses do you handle? Although many tax codes apply to all businesses, some industries have more intricate tax needs than others. Knowing that your accountant is already familiar with your industry can be assuring that they are well versed in the tax issues that you face.

The final determination is not really a question but how comfortable you are with the accountant. Even if all the questions are answered to your liking, if you still are hesitant, move on. This person or firm will be handling one of the most important parts of your business and it is imperative that you trust them.

• Home office deductions. Many business owners use the home office deduction and have a legitimate claim. However, the IRS also knows that many of these “home offices” may not qualify under the specific rules of exclusivity. Make sure that if you are claiming this deduction that it qualifies and is worth the risk of being flagged for an audit. Keep your expenses for your home office realistic.
• Business vehicle deductions. Many business owners will deduct the use of a vehicle for business. While it is common to deduct business use for a vehicle, vehicles that are listed as used 100% for business may draw up a red flag for the IRS. Unless you have a fleet of vehicles for business use, be careful to ensure that any personal use of the vehicle is not included in the mileage being deducted.
• Cash transactions. Cash is always a big red flag for the IRS. Whether it is the use of cash to make large purchases or you are depositing large amounts of cash into your account, it may throw up a flag at the IRS. Cash can be a sign that there may be unreported income lurking about and banks may report suspicious cash transactions to the IRS.
• Travel expenses. Although there are deductions allowed for meals, entertainment and travel for business, the IRS also knows that many of these expenses are often more pleasure than business. While you should deduct any legitimate business expenses, make sure you are not taking advantage of this and claiming personal entertainment as business. High deductions in this category are going to gain attention.

Unfortunately, some of the red flags that may cause an audit are business expenses that you have every right to deduct on your taxes. If this is the case, it is even more important to keep your records as accurate as possible so that if you are audited, you will be able to prove your deductions are justifiable. As long as you have done your due diligence in your bookkeeping, an IRS audit will be no more than an inconvenience.

1. Personal relationships. Almost every business owner has had a friend or family member ask if they have a position for someone they know. While helping out your niece or your neighbor’s brother-in-law may seem noble, it is not a good reason to add another employee. Unless you are already hiring and the person is the best candidate for the job, hiring for personal reasons is never a good idea for your business.
2. Poor quality work. If your current employees are producing substandard work, you need to look at whether it is due to them being overloaded or if they are just not doing their job. Before adding employees, it may be time to consider that you do not need more help, but instead just need to replace those who are not performing.
3. Covering absent employees. All employees will need time off for illness, vacation and other reasons. However, as a business owner, you need to be able to stagger time off and adding more employees may be a bad decision. If there is a need to cover more shifts, first look at adding more hours to those who are working less than full-time or changing schedules to cover those shifts before adding costly employees.
4. Specialized tasks. As a business grows, they may find that they are in need of specialized talent, such as marketing or bookkeeping. While many businesses may hire a people to do these jobs, for many small businesses it can be too much, too soon. If there is not a need for a full-time employee for the task, consider outsourcing these jobs instead to save on costs of having another employee on the books.
5. Convenience. It is nice to have ample employees around “just in case” to make the workday go smooth. However, unless your revenues can justify adding more employees, those funds could probably be used elsewhere to grow your business and eventually have the need for more employees.

Having the correct balance between revenue, workload and employees can be tricky in any business. A successful business needs to justify adding the expense of new employees just like it would for purchasing new equipment or any other improvement. Before putting out that want ad or hiring for the benefit of someone else, make sure that it is what is best for the business so that your current employees will have a job for years to come.