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Summary of Tax Law Changes for Businesses

Posted on January 7th, 2019

Business owners are wondering about the new tax law. Here are some highlights:

First, the corporate tax rate is now flat 21 percent. That includes anyone filing an 1120 tax return including personal service corporations. Now, the next question is, well, how does this affect everybody else all the pass-through entities such as S corporations and partnerships? Well, not only S corporations and partnerships but those filing a 1040 Schedule C such as a sole proprietor or an LLC that’s a disregarded entity all now get what’s called a 20% qualified business income deduction. It goes on page 2 of the 1040 as a deduction after adjusted gross income. Now, there are many limitations to that deduction so if you want to know more, please contact us.

Another area to be aware of is entertainment expenses. They are no longer deductible. Meals provided onsite at the convenience of the employer are only 50% deductible whereas in the past they were a 100% deductible. Bonus depreciation is now 100% as of September 27th, 2017. Don’t ask me why they chose that date, however, from that day forward it’s a 100% which is good for businesses. Section 179 depreciation is up to one million dollars, and it phases out starting at 2.5 million dollars.

Now, those who give transportation fringe benefits to their employees such as bus passes or parking it is now tax-free to the employee as a fringe benefit, but it is not deductible as a business expense on your tax return so be aware of that.

If you have any questions, please schedule an appointment and we can discuss your situation in more detail.

Four Ways to Grow Your Business

Posted on January 4th, 2019

For those of you who would like to grow your business, here are four ways to accomplish this.  Although simple, they have exponential value in increasing your profit. Learn how to get more customers, increase your return rate, receive more value out of each sale, and improve your processes to decrease your overhead.

The first way to grow your business is to increase the number of customers of the type you would like to have.  First off you need to think of your ideal customers.  Who are they? Are there any attributes that stand out?  Perhaps they are friendly, pay timely, and have other similar attributes.  Make a list of your best clients or customers and ask them why they come to you for their business.  You can benefit from their feedback and ability to refer new business. Another useful tip is to contact someone who specializes in marketing. They will be able to advise you in appealing to your target audience.

The second way is to increase your customers return rate.  How do you get your customers to come back more often?  Remember Peter Drucker’s adage, “What you can’t measure you can’t manage” so first, you need to measure how many times your customers come to you and then look for ways to encourage them to return.  Some of the examples we see almost daily in our lives are the loyalty programs; whether it’s a loyalty card for a free coffee or sandwich after so many visits, airline mileage programs, or discounts on future purchases.

The third way to grow your business is to increase the average value of each sale.  Do you just raise your prices? Not necessarily.  One example is the way fast food chains started to offer meal deals and supersizes; “Would you like to make it a meal?”   Amazon uses profiling to offer discounts with additional purchases. When you go to buy a gallon of milk, do you find it in the front aisle? No, it’s all the way in the back of the store.  Then when you come back to pay, all sorts of impulsive buys are at the cash register while you stand in line. When people hand you a cart as you enter the market are they just being nice or are they encouraging you to buy more?  You can apply some of these examples to figure out how you can increase your average transaction value.

You will notice that the first three ways have to do with revenue (or sales).  These all affect the top line of your profit and loss statement.  It is key for your company growth to improve both the top line (revenue, income, or sales) and improve the bottom line (profit).  Reducing, maintaining or increasing expenses at a smaller rate of growth than revenue will help improve your bottom line.  Your can show each of these three ways numerically. Numbers don’t lie when correctly recorded.

The fourth way to grow your business is to improve the effectiveness of each business process. First off, you need to look at your processes and see if you can remove any redundancy.  Are you processing in batches or doing things one at a time? Look at overall expenses and see what you can reduce.  You want to work smarter not harder. Do you want one person at the cash register and one person preparing the food?  Processes are really important in reducing overhead and remaining competitive. Would you rather eat a burger from your local diner or McDonalds? Who has the best tasting burger and who sells the most?  Processes can make the difference and increase your profit.

As you increase the effectiveness of your processes, the cost of each transaction will reduce and, in turn, your overhead will come down.  Seek out an expert to help you set up and document processes. Again, by focusing on all four ways to improve your business;

In summary, the best ways to improve your business come in four steps.

  1. Increasing the number of customers of the type you want
  2. Increasing the number of times customers come back
  3. Increasing the average value of each sale
  4. And by increasing the effectiveness of each process in the business

The result produced by just a slight improvement in all four categories is amazing!  One example to illustrate this is showing a 480% increase in profit through a slight improvement of just 1% in each of the four areas.   Many companies focus on just one of these four ways and miss out on the huge profit and growth opportunities. By applying all four ways to your business, you will achieve a synergy where the whole is greater than the sum of its parts and, most importantly, increase your profit.

Now it’s your turn! What are some of your business tactics? Which method of increasing profit has worked the best for your business? I would love to hear all about it!

Chuck Mulberg, CPA, MBA, CGMA

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