What to Do Before the End of the Year to Reduce Your Business’ Tax Burden

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What To Do Before the End of the Year to Reduce Your Business Tax BurdenTaxes are part of the business landscape. Although they are often considered one of the few things that are certain in life, what’s not certain is how much your company will have to pay in taxes. It’s is possible to legally reduce your company’s tax burden by making a few strategic moves. To reduce the amount of tax your business is likely to owe come April 15, there are a number of things you can do before the end of the year.

Take Advantage of Health Insurance Deductions

Certain types of small business can lower their tax burden by taking advantage of health insurance deductions. If your company employs fewer than 25 people, pays at least half of employees’ health insurance costs, and has an average wage of less than $50,000 per employee, you can claim a tax credit on the amount of insurance you paid, as long as the insurance is purchased through the SHOP marketplace. You’re able to claim up to 50% of the premiums you paid as a tax credit.

Increase Benefits Instead of Compensation

Another way businesses can reduce the amount of taxes they need to pay is to offer employees certain benefits instead of an increase in income. If your company offers its employees a raise of a few hundred dollars per month, the company has to pay FICA and Medicare taxes on the extra few hundred dollars, as well as additional unemployment tax. The employees also have to pay more in taxes, in the form of federal, state and local income tax, plus their share of Medicare and Social Security tax.

But, if the company puts that extra few hundred dollars per month towards the employee’s health insurance or retirement accounts, neither company nor employee needs to pay additional taxes on it. The employee is still getting additional compensation, just in a different form.

Consider Charitable Donations

If your business makes donations to legitimate charities during the year, those donations can be deducted from your income. There are limits to the amount you can deduct and rules about how you can claim the deduction. Generally, you are able to deduct donations that are up to 50% of your income.

Where you claim the deduction depends on the type of corporation you own. If you have an S-Corp or LLC, you need to deduct the donations on Schedule A, which means you need to itemize your deductions to take advantage of it. If you work in partnership with one or more people, the amount of the donation you can deduct depends on how much of the company you own. For example, if you own 50% of a business, you can deduct 50% of the donation on your tax return.

Purchase Needed Equipment

Thanks to Section 179 of the tax code, your company is able to deduct the full cost of equipment you purchase one year, as long as you use the equipment in your business more than half of the time. Deducting the purchase amount in the year of purchase can significantly lower your tax bill, compared to depreciating the equipment and deducting a small amount over a period of years.

Take a Look At Your Business Structure

Depending on how your business is structured, changing that structure can result in tax savings. If your company is an LLC, switching to an S-corporation might mean that you pay less in employment taxes, since you pay tax only on the amount that goes to the owner and employees on as salary. Another option might be to split your company into two separate entities to maximize the tax advantages offered by each type of corporation.

The team at New Direction Capital is committed to helping your business save money, including on taxes. To learn more about how you can reduce your business’ tax burden, contact us today. We offer personalized financial consulting to help your company save as much money as possible.

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Image courtesy of KROMKRATHOG at FreeDigitalPhotos.netWhat separates a great business plan from a good business plan? A strong financial section. The financial section of your business plan lets a potential lender or investor see where your company currently stands in terms of revenue and expenses. It also shows a potential lender or investor where you plan on going financially and how you plan on taking your company there.

The financial part of your business plan isn’t just for potential funders. It can also guide you as you make decisions for your company and as you decide what the next steps to take are. Our tips will help you put together an accurate and useful financial section.

The Goal of the Financial Section

Typically, the financial section of a business plan contains a best-estimate guess as to where your company is headed financially. You can use your business’ past financial information and accounting to project where your company is headed and where it will be within a certain amount of time. Since the financial part of a business plan is largely hypothetical, you don’t need to be terribly exact. For example, you don’t necessarily have to state that you expect to bring in X dollars on May 15 or that your company will earn Y dollars on June 1.

The goal of the financial projection section is usually to demonstrate to investors that your company has the capability to increase sales and that there is a plan for growth in the works. In the case of investors, they will also want to see that there is an exit strategy in place, so that they can recoup what they put into your business, plus a profit. In the case of lenders, the bank will usually want proof that you will be able to repay your loan.

What Goes Into the Financial Section

The financial part of a business plan usually consists of at least three sections. They are:

  • The income statement
  • The balance sheet
  • The cash flow statement

The income statement shows that your company is bringing in money and how much money it typically brings in or expects to bring in. It’s also sometimes known as an earnings statement or a profit and loss statement. To put together your income statement, you’ll need to know your tax rate information, your gross revenue and your expenses.

A balance sheet compares what your company is bringing in in terms of revenue to what it owes and to what it owns. It gives an investor or lender an idea of the total worth of your company. It lets you see at a glance whether the business’ liabilities are more than its assets and helps you and any potential funders see if your company’s net worth is positive or negative.

Finally, the cash flow statement shows how much cash your company has on hand at a given time and provides a picture of the flow of cash into and out of your company. You can use historical financial data from your business to put together the cash flow statement, looking at your balance sheets and income statements from previous months or years. The cash flow statement gives you an idea of where your funds are coming from and how your company is putting those funds to work.

Reviewing the Financial Section

Your company’s business plan isn’t static. It should change and evolve as your company’s goals and needs evolve. For that reason, it’s essential that your review your financial section from time to time and adjust it as your business’ goals change or as your business’ financial needs change.

To keep the financial part of your business plan accurate, it’s a good idea to look it over and make changes to it on a quarterly, if not monthly basis. You’ll be able to put in actual numbers from the past month or quarter, then use those numbers to more accurately shape your financial projections and statements.

The virtual chief financial officer team at New Direction Capital is available to work one on one with you and your business to help you put together a plan that stands out. Whether you need help with financial section of your business plan or with putting the entire plan together, our team is here to help. Contact us today to learn more!

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Image courtesy of jk1991 at FreeDigitalPhotos.netEvery  business needs a plan. And every plan needs an executive summary. The executive summary is the first section of any business plan, so it needs to be the most attention-grabbing. A poor executive summary can cause an investor, lender or other potential business partner to pass over your plan or your business. Since getting the summary right is so important, there are a number of things you need to understand before you sit down to write one.

What is the Executive Summary?

An executive summary is often described as the elevator pitch of a business plan. In the summary, you have a chance to highlight the mission of your company, why it exists and what it does differently from your competitors. A well-crafted executive summary helps you define your goals. It gives the reader an idea of what the rest of the business plan contains and what your company is trying to do.

What is in the Summary

Exactly what your business’ summary will contain depends in part on the stage your business is in and the goal of your business plan. Generally, the executive summary gives the reader an idea of what your company does, what product it sells or produces or what services it offers. It provides a summary of your company’s objectives or mission statement and gives a short overview of your company’s history, such as when it was founded, by whom, and why.

The executive summary should also give the reader a clear idea of the market you are in, how that market is doing and what your competitors are up to. It should also demonstrate to the reader how viable your company is or outline a plan to keep your company viable. It should review your company’s finances and sales projections. Finally, the plan should lay out a plan for growth and review any funding needs your business has.

How to Write an Executive Summary

At this point, you are probably wondering how you’ll be able to fit all the information needed into a one or two page executive summary. The key is to keep things as brief as possible. The fewer words you need to use to describe your business, its goals and its needs, the better.

Start by introducing the company, then state the goal of the business plan. In the next paragraph, you can highlight any important points or pieces of information about your company. Think about what an investor or lender would be most interested in knowing about your business and include those details. An investor might be interested in learning about your company’s growth over the past few years. A lender or bank might be most interested in learning about how you repaid previous debts.

When you are writing the summary, make it easy to read. Stick to short paragraphs and use subheadings to divide up the text. People looking at the summary and your business’ plan will be skimming. You want to write in a way that helps them find the information they  need as quickly as possible.

When to Write the Summary

There are two schools of thought when it comes to when to write your executive summary. Some argue that you should write it first, before the rest of the plan. Others argue that you should write the summary last.

If you write the summary first, you can use it to shape the rest of your business plan. The summary can act as an outline for the plan. It organizes your thoughts for you, allowing you to provide further detail as you move through writing your business plan.

Those that argue in favor of writing the summary last believe that saving it for the end allows you to see exactly what belongs in the summary and what’s just filler. If you choose to save the summary for last, it might be quicker and easier to write, since you can clearly see what needs to be included.

You don’t have to go it along when creating a business plan and executive summary. The virtual chief financial officer services offered by New Direction Capital can help you through every stage of the business plan process. Contact us today to learn more.

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Image courtesy of suphakit73 at FreeDigitalPhotos.netWhy does an investor decide to fund one company and not another? What can you do to make sure your business gets an investor’s interest and funding? You can’t read investors’ minds, but that doesn’t mean you can’t get a good sense of what they are looking for when deciding whether or not to invest in a company.

Solid Finances

Although different types of investors look at different areas of a company’s financial picture, the fact remains that healthy, solid finances are a must for any business seeking funding. A bank might look for a history of strong financial performance while a venture capitalist might be more interested in a company capable of producing high returns.

A clear statement of your company’s financial state will help you attract and convince investors to fund you. If your company has debt, investors want to see that you also have enough assets to cover the amount of the debt. They also usually want to see a concrete plan for repaying any debts and will usually ask you about your plans for the company’s growth.

Along with presenting a picture of your company’s financial health, it helps to show how your business model paves the way for growth and for an increase in your business’ value. The business model you show investors should illustrate how your company will turn a profit.

Industry Know-How

You might be running your first company ever. But investors are still going to want to see some demonstration of expertise. One way to demonstrate industry know-how and expertise is to have a management team with years of experience in your particular industry. If you’re new to the industry, it’s particularly important to have an experience team standing behind you.

Investors are also more likely to work with companies in industries they are personally familiar with. Picking a market or industry they know helps investors reduce their risk. It also helps them develop a rapport with the businesses they  invest in. When looking for potential investors to pitch, it helps to look at their background and experience. You want to make sure you’re a match before you approach a potential investor.

A Decent Market

While there is always room for particularly niche products and services, a company that can reach a larger market or that has the potential for having a wide customer base is often going to be more likely to catch the attention of an investor. The ability to grow is one of things investors look for in a business. A very small niche company has limited options for growth, at least when it comes to market share. Meanwhile, a company that can reach a wider audience can seem to have unlimited growth potential.

Before approaching an investor, look at the product your company offers and its current audience. Are there ways you can easily expand your product offerings or your audience reach? If so, investors want to hear about them.

Fewer Possessions

Some of the more popular and successful companies around today  share one thing in common: they are largely digital companies or companies that don’t require a lot of raw materials or resources. A study conducted by the Harvard Business Review found that owning fewer physical assets was often a way for businesses to get the attention of investors.

The study looked at what investors valued companies at compared to the actual revenue of those companies. The businesses with the highest multiple, or highest investor value compared to actual revenue, also happened to be the companies with fewest assets.

Companies that have fewer possessions can often scale more quickly and grow more rapidly than companies that require a considerable amount of physical resources. Obviously, some businesses need to rely on physical assets to function. But those businesses that don’t might have an easier time attracting investors.

Knowing what investors want to see is just part of the process of obtaining funding from them. New Direction Capital’s virtual chief financial officer services can help your company determine what mix of funding will work best for it and how to go about getting that funding. To learn more, contact us today.

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Image courtesy of fantasista at FreeDigitalPhotos.netAlthough no one wants it to, going over budget happens. There are a  wide range of reasons why your company’s budget might not line up with reality. Some of those reasons might be beyond the control of anyone in your business. Others might be a direct result of decisions made by your or your employees. If you’ve exceeded your budget or get the sense that you are about to go over budget, here’s what you can do.

Review Your Budget

The first step to getting back on track if your business has gone over budget is to take a close look and figure out why it’s happened. Examine your company’s estimated expenses and projected revenue and compare them to your actual numbers. You should be able to see where there’s a difference between the projections and your reality.

Once you’ve spotted the areas of discrepancy, figure out what caused the overage. For example, if you’ve spent more than expected on utilities, ask yourself why. It might be that your electric or gas company increased its rates, which you didn’t expect. It could be that the winter was colder than expected or the summer was much hotter, so your business needed to use more heating or air conditioning.

Going over in certain categories can also point to an issue that needs to be fixed. If your electric regularly costs more than anticipated, your company can think of ways to reduce its energy use. That can mean powering down all computers and lights in the evenings or switching to more energy-efficient devices.

Although it’s possible that you went over budget because of too much spending, another issue might be that your company didn’t earn as much as it anticipated. Take a close look at your revenue to determine why your numbers might be lower than expected. It could be that your sales team isn’t as strong as you thought or that demand for your product has dropped. It might just be that you were too optimistic about your company’s earnings potential and that reality isn’t lining up with your hopes.

Once you’ve spotted where the issue in your budget is, it’s important to figure out if it is a one-time problem or something that will recur. For example, if the electric company has raised its rate, that’s a recurring budgetary issue. If the higher electric bill one month was due to excessive air conditioning use, you can make adjustments to avoid a similar problem in the future.

Put Together a New, Improved Budget

After you’re carefully reviewed your current budget and its issues, the next step is to assemble a new budget. You don’t want to completely discard your previous budget though. It might be that some parts of it are still usable. Plus, you need the information on your original budget to help you shape your new one.

Figure what you’ll do to compensate for going over budget in any one category. If you need to allocate more of your company’s funds to utilities, for example, look to see if there is a category where you under spent and pull funds from that. For example, you might budget $1000 per month for petty cash, but find that your team only ever uses $100 per month. In that case, you can pull some funds from that budget category over into the utilities category.

If your company goes over budget because it’s not earning enough to cover its expenses, you’ll want to figure out a way to increase revenue or adjust your budget to take into account a lower amount of income. Finding ways to increase revenue, such as by hiring a more experienced salesperson or by expanding your market, can also increase costs, which you’ll need to include in your budget.

If going over budget is a regular occurrence for your business, it might be time to get some extra help. Working with a virtual chief financial officer can help your company see where it’s going over and what changes it needs to make to reach its goals and to avoid busting its budget. Contact the team at New Direction Capital to learn more about how we can help you get your budget on track.

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