Clairmont, Paciello & Co., P.C.



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How to Create a Useful Budget for the New Year

Entrepreneurs rarely find anything enjoyable about devising a budget for the year ahead. Consequently, the budgeting exercise is commonly neglected. Yet budgets offer advantages by facilitating planning, guiding cash management, and providing comparison to actual results.

Of course, professionals reap these benefits only if the budget is useful. Giving attention to a forecast that results in gross inaccuracies and misjudgments is even worse than no budget at all. The key to making the budget process easy and accurate is to focus on six basic factors.

Expense Limits, Revenue Timing, and Capital Goods

Always begin your budget with projections of expenses. Fixed expenses are the simplest to address. These are recurring items such as telephone and internet service, office rent, professional liability insurance, and licensing or certification fees.

Next, examine variable costs, which fluctuate with revenue. After paying fixed expenses, you have limited cash available for variable costs, such as inventory, materials, and staff needed to complete sales. Your revenue is then based on your markup of these variable costs.

An additional factor to consider is how long it takes to get paid for sales. This could happen immediately, as in the case of a retailer, or a few months after project completion, if you provide billed services. Be sure to place your revenue collections in the appropriate periods of your forecast. You might need to pay another month of expenses before receiving the income from sales a month prior. And the initial months in next year’s budget may have incoming funds from jobs in your pipeline that you complete this year.

Don’t forget to include expenditures for capital goods such as machinery, equipment, and computers. For example, rising sales may at some point necessitate adding both a new worker and a new piece of equipment.

Substantiating, Duplicating, and Assessing

Verify your budget accuracy by comparing the numbers to the facts. These are crucial elements such as the number of potential customers in your market and how likely you are to connect with them based on your marketing costs. Identify how many potential customers turn into buyers. Determine the average purchase size. Overall, your aim is to ensure that your sales goal is realistic.

Turning optimism into pragmatism is achieved by forecasting multiple growth scenarios. The numerous factors at play are easily manipulated in a spreadsheet application on your computer. One scenario might modify the overall growth rate for next year. Another could change the pace at which your business grows. That is, you might end the future year at your optimistic sales level but get there more slowly.

Constant reassessment of your budget is vital. Maintain your forecast in a spreadsheet that allows you to recalculate upcoming projections as you enter each month’s actual results. Follow up each entry with a re-evaluation of the approaching period. Modify the forecast with a revised projected growth rate to match your recent activity. Change variable expenses and capital goods costs accordingly.

Lastly, review whether sales are rising faster or slower than expected. Based on this trend, consider whether you should expand or slash the fixed costs over which you have control. These adjustments will help keep your budget balanced and keep your business on track for success.

So, please don’t hesitate, CALL US NOW!!! We want to hear from you whenever there is any change in your life or you want to head in a new direction. We’ll do our best to be YOUR travel guide through your financial adventures.

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ENTREPRENEURS

Secrets to a Successful

Start-up

Before launching a small business, it is important to develop a sound business plan laying out how you will structure, operate, and grow your business. You’ll need it to convince people to invest in and work for your company, as well as to keep the firm on track as you grow. Here are some winning tips to develop this plan:

A simple, one-page business plan should include a vision statement, a mission statement, objectives and goals, basic operational strategies, a proposed budget, a preliminary marketing plan, and a simple action plan.

Be realistic about how much capital you’ll need to fund your business and determine where/how you will acquire it. Draft a preliminary budget and open a business bank account.

Decide on a business structure. The legal structure you choose for your business will impact your business registration requirements, your tax liability, and your personal liability. Register your business, obtain federal and state tax IDs, and apply for necessary licenses and permits to make your business legally compliant.

Do some market research on trends and competitors in your sector. Both brick-and-mortar and online businesses need a website, an SEO strategy, and a marketing plan.

If yours is a service-based business, get involved with the local chamber of commerce or small-business chapter and take advantage of opportunities to present your business to the community. Make presentations, speak at local events, or provide distributable marketing materials. Network with potential customers and capitalize on every opportunity to turn your idea into a successful business.

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December 2018

FINANCE

Not All Surprises Are Good: Know What to Expect on Your Tax Bill

It’s virtually unavoidable. When your business makes a profit, you pay income tax.

Some of your business earnings automatically belong to the government, which means you get to hold on to that money only for a limited period before handing it over to the tax collection authority. But you don’t have to be surprised by this bill. Plan ahead and use careful accounting to avoid unexpected tax bills.

Examine your business balance sheet regularly. This statement should have a liability account for accrued taxes. Consequently, the true amount of funds available for spending in your bank balance is the total minus the tax liability you must eventually pay.

Since most small businesses operate with cash-basis accounting, accrued liabilities on the balance sheet are not technically correct. Cash-basis expenses are counted only when they’re paid, not when they accrue. To keep your books in order, move the reserves for income tax into an entirely separate bank account. In your bookkeeping, you will transfer funds from one asset bank account to another.

This provides the advantage of having government cash out of the business operating account. Instead of an accrued liability for taxes appearing on the balance sheet, the funds available for business functions are simply the bank operating account on the balance sheet. Tax payments are remitted from the tax account.

The optimal amount of money to save for taxes is a subject to discuss with your tax accountant at the end of every year so you can appropriately plan the next year’s reserves.

Talent wins games, but teamwork and intelligence win championships. Michael Jordan

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GOSSIP!

[pic] Today a lot of communication is through email. Please make sure we have your correct email address. You can email lisa@

[pic]In case you missed the tax reform seminar and would like a handout or a link to view the seminar Call or email Lisa at Lisa@ or 610-265-4122.

[pic]Its getting to be that time! Check your mail later this month for those tax organizers and in January for your appointment letters!

[pic]Partner Rick Clairmont, CPA was recently a judge at the DECA Districts for aspiring young accountants currently in high school.

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Welcome New Clients and Thank you for Referring

We love giving recognition to our new friends and our wonderful existing clients who are kind enough to refer their friends and relatives to us! We are all helping each other, which is the whole point.

In the last month we were fortunate to welcome 24 new tax clients and 8 new business clients. They became members of our firm’s accounting and financial planning family. We’d like to welcome them and thank all the people who have referred business to us.

As you may know, marketing for new clients costs a great deal of money, time and energy. We, like any business, need to get new clients to stay in business. Over the years, we have found that marketing takes away from the time we would rather be spending with you. We have learned that by encouraging you to refer your friends and relatives to us works for all of us. We help you, and you help us. Thank you.

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In today’s 24/7 world, companies depend on remote workers, diverse markets, and global interactions.

Many of us find ourselves frequently teaming with different people, coordinating and collaborating across geographic, disciplinary, linguistic, sectoral, and societal boundaries.

Consider that a typical hospitalized patient is seen by some 60 different providers over the course of a stay. These professionals may come from different specialties, different backgrounds, and different areas of expertise. They may not even know one another, but they work as a team to provide appropriate, timely patient care.

Members of such fluid teams may not have fixed roles or even fixed deliverables. They often come together to deal with urgent, complex, unpredictable issues.

They may be individuals from different professions, different organizations, even different nations, who find themselves working together in the face of a natural disaster, a health emergency, a complicated rescue, a refugee crisis, or some other situation. Despite language barriers, cultural differences, professional egos, and myriad physical challenges, these pseudo teams often produce remarkable results.

So, what does successful teaming require? What’s the secret sauce? Researchers point to “true grit” characteristics such as dedication, perseverance, and goal orientation.

Of course, leadership is important, too, but here there is a caveat. Experts note that teaming leaders must exhibit extraordinary situational humility and a willingness to defer to others. They must develop a mind-set of inclusivity rather than competition.

Solutions and ideas can come from anywhere, so leaders must be curious, humble, willing to listen, willing to take risks, and open to trying different approaches.

HOT BIZ TRENDS

Teamwork on the Fly: Learning to Collaborate with Just about Anyone

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Have you made any New Year’s resolutions? These year-end declarations are often more whimsical than winning.

To set goals that will truly impact your business in 2019, tap into these resources:

Not sure how to get started with goal setting? Here are four simple steps: .

For many, goal setting isn’t an issue. It’s the motivation and action to complete them that pose a challenge. Find out how to overcome these obstacles: .

Do your goals look far enough into the future? Learn the secrets to long-term goals: .

Are you following bad goal-setting advice? This article debunks some common myths: .

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LINKS YOU CAN USE NOW

This Month—Goal Setting

Why do entrepreneurs own and operate businesses? To make money. But the amount a company makes is not measured by revenue alone.

A business also has expenses. Looking solely at the profit amount doesn’t reveal the whole truth. True earnings are what remain after the owner pays for expenses. The foundation for proper income assessment is an examination of the percentage of revenue you retain as profit. This is your profit margin.

Calculating Profit Margin

Profit margin is the ratio of profit to sales, expressed as a percentage. Wise small-business owners maintain judicious scrutiny over both gross profit margin and operating profit margin.

Gross margin is your profit after paying all the direct costs for completing sales, which is typically called cost of goods sold. Numerous factors may be considered in identifying cost of goods sold. A retail operation has costs for the merchandise it sells. A service organization has costs for labor and perhaps some materials or parts. Regardless of the nature of your business, it has some cost of goods sold.

Still, even a sole proprietor with no employees or inventory may determine a gross margin. This is accomplished by subtracting reasonable compensation as an “employee” of the business from the amount of revenue, then dividing the result by the revenue. For example, a bookkeeper may want to earn $35 per hour for work performed because that’s the cost for hiring someone with the necessary skills to provide the effort. If the business receives revenue of $50 for a one-hour project, the gross margin is 30% because only $15 of gross profit remains (15/50 = 0.3 or 30%).

Of course, business owners are responsible for paying general operating expenses, too. The profit remaining after all these overhead expenses are paid is divided by revenue to calculate the operating profit margin.

Analyzing Profit Margin

These calculations should guide business owners in operational decisions. An examination of gross profit margin can lead to smart reforms in pricing and costs. The most knowledge can be gained by calculating gross margins for various types of sales.

Attaining this degree of detailed information requires a bookkeeping system that tracks revenue and direct costs for each product line or type of business. Some companies identify gross margin by territory or for each sales representative. As long as revenue is paired with its associated costs, the data present a straightforward determination of profit margin.

Low gross margins are improved by raising prices, finding lower cost inputs, or even discontinuing an entire line of business. Operating profit margins are stabilized or increased by effectively controlling expenses. Conversely, a fall in operating profit margin is an indication of unsound expense management.

Businesses with strong profit margins maximize the available cash to grow the company by hiring more staff, increasing space, or expanding marketing efforts. Alternatively, operations may use funds from higher profit margins to reduce debt or pay larger distributions to owners.

By contrast, falling profit margins impose burdens on the business. Slashing expenses and downsizing become the byproduct of lower profit margins…along with reduced compensation to ownership. Ultimately, profit margin is foundational to business success. Close monitoring of this indicator is a key strategy for business owners to optimize resources for a prosperous future.

BIZ ANALYSIS

Unraveling the Mystery of Profit Margin Analysis

Quick Quiz

Each month I’ll give you a new question.

Just email me at Lisa@ or call 610-265-4122 for the answer.

This month’s question:

What was the most popular dog name for 2018?

Unity is strength…when there is teamwork and collaboration, wonderful things can be achieved.

Mattie Stepanek

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This newsletter and any information contained herein are intended for general informational purposes only and should not be construed as legal, financial or medical advice. The publisher makes every effort to ensure the accuracy of information contained in this newsletter. However, we will not be responsible at any time for any errors or omissions or any damages, howsoever caused, that result from its use. Seek competent professional advice and/or legal counsel with respect to any matter discussed or published in this newsletter.

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Share the experience!

If you would like any of your friends, co-workers, relatives, business acquaintances, etc., to receive a FREE subscription to this newsletter, call or email Lisa. Why not share it with people you know, with no hassle for you!

Please add a FREE subscription to our newsletter. I understand you will send them a note explaining you suggested they get this FREE subscription, and that all they have to do is contact us if they wish to cancel or email Lisa with their address lisa@

Inside This Month

• Secrets to a Successful Start-up

• Not All Surprises Are Good: Know What to Expect on Your Tax Bill

• Teamwork on the Fly: Learning to Collaborate with Just About Anyone

• Unraveling the Mystery of Profit Margin Analysis

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MARKETING

Not Just for Fortune 500s:

AI for the Little Guy

Building artificial intelligence (AI) applications is a complicated and costly endeavor, but you don’t have to master AI technology to utilize it in your small business. Small-business owners can leverage AI and machine learning (ML) through affordable applications that are widely available and relatively simple to implement.

There are ready-made solutions that harness the power of AI/ML technology for purposes of marketing, logistics, operations, customer service, data security, and fraud detection. Many of these applications are out of the box and easily customizable for any business owner.

Why should you bother?

AI solutions can help you identify prospects that are most likely to buy your goods or services. They can enable you to personalize your marketing efforts by providing rich information about individual customers’ purchasing behaviors and preferences.

In fact, you may already be using AI/ML if you advertise on Facebook or Google. Both of these advertising platforms use sophisticated AI and ML algorithms to put ads in front of the people who are most likely to respond to them.

In addition to marketing, a good place for a small business to reap value and return on investment from AI is through chatbots that interact with customers, respond to basic questions, and route inquiries appropriately. Chatbots even enable small to midsize enterprises to provide 24/7 call center support that they could not otherwise afford.

There are also turnkey AI/ML interactive training and tech support solutions that help employees work smarter, faster, and more efficiently, as well as money transfer and payment processing applications that use adaptive ML to detect fraud.

With off-the-shelf tools that enable everything from data analytics to logistics management to communications, AI/ML allows small businesses to dedicate resources efficiently while increasing customer engagement and satisfaction.

When employees join executives in truly owning the responsibility for business success, an exciting new sense of teamwork takes hold.

Punit Renjen

Brought to you by:

Clairmont, Paciello & Co., PC

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