Business Best Practices

When you start a business, there are endless decisions to make. Among the most important is how to structure your business. Why is it so significant? Because the structure you choose will affect how your business is taxed and the degree to which you (and other owners) can be held personally liable. Here’s an overview of the various structures.

Sole Proprietorship

This is a popular structure for single-owner businesses. No separate business entity is formed, although the business may have a name (often referred to as a DBA, short for “doing business as”). A sole proprietorship does not limit liability, but insurance may be purchased.

You report your business income and expenses on Schedule C, an attachment to your personal income tax return (Form 1040). Net earnings the business generates are subject to both self-employment taxes and income taxes. Sole proprietors may have employees but don’t take paychecks themselves.

Limited Liability Company

If you want protection for your personal assets in the event your business is sued, you might prefer a limited liability company (LLC). An LLC is a separate legal entity that can have one or more owners (called “members”). Usually, income is taxed to the owners individually, and earnings are subject to self-employment taxes.

Note: It’s not unusual for lenders to require a small LLC’s owners to personally guarantee any business loans.

Corporation

A corporation is a separate legal entity that can transact business in its own name and files corporate income tax returns. Like an LLC, a corporation can have one or more owners (shareholders). Shareholders generally are protected from personal liability but can be held responsible for repaying any business debts they’ve personally guaranteed.

If you make a “Subchapter S” election, shareholders will be taxed individually on their share of corporate income. This structure generally avoids federal income taxes at the corporate level.

Partnership

In certain respects, a partnership is similar to an LLC or an S corporation. However, partnerships must have at least one general partner who is personally liable for the partnership’s debts and obligations. Profits and losses are divided among the partners and taxed to them individually.

Incorporating your small business the right way can bring tax benefits and protect your personal assets. Read on to learn more about what incorporation is, why you might want to incorporate, and how an accountant can help you navigate the questions that come with selecting the right business structure.

What is Incorporation?

When discussing “incorporation” in terms of a business, the term denotes how the business is organized or structured.

Regardless of the structure you choose for your business, incorporation is a legal process that brings your business into existence. The following are business structures commonly used in a small business.

Sole proprietorship

If you conduct business as an individual and do not register as any other type of business, you are a sole proprietor. With this business structure, your personal and business assets and liabilities are not separate. Sole proprietorships are relatively simple structures and a good choice for low-risk businesses or entrepreneurs testing a business idea. However, this business structure does not offer liability protection, so the owner is personally responsible for business debts and obligations. Another drawback is that it can be more challenging to get bank financing and business credit with this structure.

Partnership

When two or more individuals own a business together, the simplest structure is the partnership. There are limited partnerships (LP) and limited liability partnerships (LLP). LPs consist of a general partner with unlimited liability; the remaining partners have limited liability and limited control in the business. The partner without limited liability pays self-employment taxes. In LLPs, every owner has limited liability, protecting them from business debts and the actions of the other partners.

Partnerships can be a good choice for multiple-owned businesses and professional groups like physicians, attorneys, and veterinarians.

C-corp

Sometimes called a C-corp, a corporation is a separate legal entity from the business owner(s). The benefit of a corporation is that they offer the most robust protection for owners from personal liability; however, it costs more to form a corporation than it does to establish other business structures, and business profits are taxed at the personal and corporate level. Further, the record-keeping, operations, and reporting are more involved for a corporation. This structure is usually best for higher-risk businesses or those that raise money or plan to become publicly traded in the stock market.

S-corp

An S-corporation, or S-corp, is designed to avoid the double-taxation of a C-corp. This avoidance is possible because, in an S-corp, profits and some losses go through the owner’s personal income to avoid corporate taxes. S-corps are taxed differently in different states, so it is essential to have your accountant help you understand the guidelines and laws in your state.

LLC

A limited liability company (LLC) has the benefits of a corporation and a partnership. The owner is protected from personal liability in situations like bankruptcy or lawsuits and can avoid corporate taxes because profits and losses can pass through their personal income. However, there are self-employment taxes and Medicare and Social Security contributions since LLC members are considered self-employed.

An LLC is an option for owners with significant assets that need protection and who want the benefit of a lower tax rate than a corporation pays.

How to Incorporate

When you’re ready to incorporate your business, consult your trusted CPA or accountant so that you have a full view of what incorporating will mean for you and your business initially and for years to come.

 

REFRESHER: What is the Paycheck Protection Program?

The Paycheck Protection Program (PPP) is a Small Business Association (SBA)-backed loan to help businesses retain employees during the Coronavirus (COVID-19) pandemic enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Funds can be used for payroll expenses and benefits and some non-payroll related expenses such as mortgage interest, rent, and utilities.

There are first and second-draw PPP loans. First-draw loans are available for first-time applicants, and second-draw loans are for businesses who already took advantage of a first-draw PPP loan.

PPP Loan Forgiveness

PPP loans can be forgiven if the following criteria are met:

• employee retention and compensation rates must be maintained
• loan funds must be spent according to the loan terms
• no less than 60 percent of loan funds are spent on payroll

When Congress passed the new spending bill at the end of 2020, the covered period for PPP loans was extended through March 31, 2021. With this extension, the SBA released new guidance for these loans and loan forgiveness.

Expanded PPP Loan Forgiveness

Eligible Forgivable Non-Payroll Expenses

Under these new guidelines, the number of eligible “forgivable” non-payroll expenses were expanded to cover payments for:

• software and cloud computing services
• property damage costs related to vandalism or looting not covered by insurance
• supplier costs for contracted goods (including perishable goods) ordered before taking out the loan
• expenses related to compliance with federal, state, or local health and safety guidelines related to the pandemic from March 1, 2020, until the national emergency declaration expiration

Covered Period for Forgiveness

The covered period for PPP loans is when a recipient can spend the funds and still qualify for loan forgiveness. The covered period was either eight or 24 weeks; however, recipients can choose when the covered period ends under the new guidelines. They can choose a date between 8 and 24 weeks after their loan origination date.

Simplified Loan Forgiveness Application

For loans under $150,000, a simplified forgiveness application is available. For borrowers who submit a signed certification under one page in length to the lender, loans are forgiven in full. The certification must include:

• the total loan amount
• an estimate of the total loan amount spent on payroll costs
• the number of employees the employer retained as a result of receiving their PPP loan

Applying for PPP Loan Forgiveness

Borrowers must wait until all PPP loan funds are used before applying for forgiveness. Forgiveness can be applied up to the maturity date of the loan. Forgiveness must be applied for within ten months after the last day of the covered period of the loan, or payments will no longer be deferred, and borrowers must begin repayment of the loan.

The appropriate loan form with all documentation for payroll and non-payroll expenses along with the forgiveness documentation should be submitted to the borrower’s lender to start the forgiveness process.

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For more help with PPP loans, contact your accounting professional.

Running a small business isn’t easy. You probably wouldn’t have it any other way. The ability to survive and thrive is a source of great pride for small business owners. So when a competitor moves in — especially a big one — it can feel like battle lines have been drawn.

Sharpen Your Edge

Before you do anything, accept the fact that you can’t compete on the same level as a large national chain. But that doesn’t mean you can’t win the battle. Study what the competition does and how they do it. Then use that information to define — and sharpen — your company’s competitive edge.

A large competitor will almost certainly have lower prices and a deeper inventory. But you can connect with customers in ways the competition can’t. You can add value to every customer interaction by being attentive and providing expertise and personalized service.

Perhaps your biggest edge is your size. Being small means you can respond to market trends and customer requests more quickly. You can also change and adapt policies and procedures faster.

Rally the Troops

You have another big advantage; you have an established customer base and you know what they need. Establish a timeline to reach out to your customers directly via snail mail or e-mail (or both) with special offers. If you have a loyalty program, consider doubling rewards for a period of time that overlaps with the competition’s opening.

Look for Advantages

Having a big competitor move in may have some unexpected benefits. The new company validates the need for what your business offers and may do a fair amount of advertising. If your marketing budget allows, this could be a good time to do some strategic advertising of your own.

The competition also may create some unexpected opportunities in the future. The new company will change the dynamics of the marketplace, which may lead you to steer your business in a new direction.

Don’t get left behind. Contact us today to discover how we can help you keep your business on the right track. Don’t wait, give us a call today.

Increasing your profits requires selling more and/or spending less. While building up your sales may require an extended effort, business costs are often very ripe for a quick trimming. Here are some possibilities.

Supplies and Other Purchases

Usually, in any business, relatively few items represent a very large share of all outlays. The first step in cutting expenses is, therefore, to identify your highest costs. You may be able to trim many of these costs by making sure you always bid out significant purchases or by more actively seeking less expensive alternatives.

For many companies, inventory carrying costs are a very significant expense. Focusing on matching your inventory quantities more closely to your short-term needs could result in significant savings.

Telecommunications and Other Services

The ongoing services you buy may also offer the potential for cost savings. Revisit your choice of telecommunications vendor and your usage.

Look carefully at your costs for financial services. If you borrow or maintain a line of credit, always compare the rates from more than one financing source before you commit. Make sure you are not paying higher-than-necessary fees for your company’s checking and deposit services.

Cash Management

To control cash outlays, take advantage of discounts for early payment whenever possible. And look to delay payments for as long as you can without giving up discounts.

On the receiving side, deposit all receipts daily. And always actively pursue collection of any invoices that are past due. To help control your working capital needs and, therefore, your credit costs, try to match any new liabilities to your anticipated cash flow.

Fixed Expenses

One other category worth examining is fixed expenses that are long-term commitments. While you usually can’t change these quickly, be aware of when a window for change will open and prepare well in advance by considering lower cost alternatives.

To learn more ways to control your business costs give us a call today. Our trained staff of professionals is always available to answer any questions you may have.

We offer a FREE initial consultation to individuals and businesses in Roswell, GA and surrounding areas. Call us today at 214-361-1400 to help you choose the right structure and ensure that you minimize your taxes.

For businesses that haven’t traditionally embraced remote employees, it may be difficult to get up to full speed with the current turn of events.  To make the inevitable transition less overwhelming, we assembled a handy checklist of actions to consider while adjusting to the new workplace reality.

Organization

• Access your staff members and/or roles that are able to work remotely, those that can’t work remotely, and those where remote work may be possible with some modifications.
• Conduct an employee survey to determine the availability of computers that can be used for working remotely, as well as availability to high-speed internet access.
• Create company guidelines covering remote employees, including inappropriate use of company assets and security guidelines.
• Develop and conduct work-at-home- training for using remote access, remote tools, and best practices.
• Select a video-conferencing platform for services, such as Zoom, Cisco WebEx, or Go To Meeting.
• Develop a communications plan to involve remote employees in the daily activities of the organization.

 Security

• Create and implement a company security policy that applies to remote employees, including actions such as locking computers when not in use.
• Implement two-factor authentication for highly-sensitive portals.
• If needed, confirm all remote employees have access to and can use a business-grade VPN, and that you have enough licenses for all employees working remotely.

Staff

• Institute a transparency policy with your staff and communicate frequently.
• Check in on your staff, daily if possible, to confirm they are comfortable with working from home. Find and address any problems they may be experiencing.
• Make certain each staff member has reliable voice communications, even if this results in adding a business-quality voice over IP service.
• Don’t attempt to micro-manage your staff. Remember their working conditions at home won’t be ideal, and they will need to work out their own work patterns and schedules.
• Create a phone number and email address where staff members can communicate their concerns about the firm, working at home, or even the status of COVID-19.

Infrastructure

• Ensure that you have ample bandwidth coming in to your company to handle all of the new remote traffic.
• Make sure you have backups of your services so your staff is able to keep working in the event extra traffic causes your primary service to go down.

You may need to adjust or expand this list to match the specific needs of your firm and the conditions affecting your organization.  Use this list to get you started and to help guide you through the process.

We offer a FREE initial consultation to individuals and businesses in Roswell, Sandy Springs, GA and surrounding areas. Call us today at 214-361-1400 to discuss your specific needs.