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Business Growth

Business Growth, Business Tax Planning

Why Should San Francisco Bay Area Businesses Care About FASB and GAAP?

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Yes, inflation isn’t slowing down, even here in San Francisco Bay Area. Though it’s not the main thing I’ll be writing about today, I did want to point out this economic elephant in the room for my San Jose business owner readers and clients, and not just speed on by and into my accounting geekery. One thing is clear … SMB’s are feeling the pinch. But each situation will require a different prescription, and one thing I do NOT want to do during this craziness is to provide blanket advice to cover all of my San Francisco Bay Area area business owner clients and friends. I will, of course, continue to offer you these weekly notes … but I can’t get as specific with your situation as I’d like to in them. So if you want to talk through your particular landscape, ONeill & Bergado is in your corner, right here: Patti (408) 775-7790 Gale 408-775-7800 Now … for San Jose businesses of a certain growth rate (or of a particular model), the move from “cash accounting” to “accrual accounting” is an important step in the journey. I just covered that recently. And we know about the role of the IRS in all of these matters. (Speaking of which: reminder that second quarter estimated taxes are due next week on 6/15/22.) But there’s ANOTHER organization that you should, at the very least, be educated about as you grow. So I’m putting on my teacher hat today… Why Should San Francisco Bay Area Businesses Care About FASB and GAAP?“Standards are always out of date. That’s what makes them standards.” – Alan Bennett If the last 20 years of the economy’s highs and lows, downturns and headlines taught us anything about business, it’s that complete and transparent accounting is in everyone’s best interest.  One independent organization working to keep companies’ books clear and honest is the Financial Accountant Standards Board. You’ve probably heard of FASB – but what do they do and how could they have an impact on you and your small business?  In general, if your San Francisco Bay Area business is small enough, not much for now. But as your business grows, you should know about the Board. Let’s take a look.  What FASB is FASB, based in Norwalk, Connecticut, is an independent, private sector organization that establishes accounting standards for financial reporting in the U.S. It was started some 50 years ago as a successor to the Accounting Principles Board.  Today, FASB is part of a structure that also contains the Financial Accounting Foundation, the Financial Accounting Standards Advisory Council, the Governmental Accounting Standards Advisory Council and the Governmental Accounting Standards Board (that last sets rules for state and local governments). FASB also coordinates with the International Accounting Standards Board, which is responsible for standards of international financial reporting.  FASB works to improve financial reporting within the U.S. and globally while educating stakeholders on understanding accounting standards – specifically, in this country, generally accepted accounting principles (GAAP).  That’s where FASB is likely to make the most impact on your business.  Standard setter FASB’s work is key to the economy. A few of the organization’s functions: Reporting standards. In what is widely considered the major function of the Board, FASB ensures that accountants and other intermediaries who deal with financial information create accurate and factual reports for stakeholders, reports that follow clear guidelines and schedules.  Improved standards. Investors need clear information on a company’s profits and losses, and FASB updates and tweaks accounting principles (sometimes raising as many questions as they initially answer, as we’ll see). Principles. FASB oversees new principles designed to improve accounting and reporting. One example is the recent disclosure principle, which gives a company the right to publicize its details and structure of costs incurred in the year. Education. FASB continually educates and updates its accountants and other professionals. One recent example is an overview of the intersection of environmental, social and governance (ESG) matters with financial accounting standards.   GAAP. FASB has the authority to establish and interpret GAAP in the United States for public and private companies and nonprofits. These principles allow stakeholders and investors to interpret a company’s financial position and condition through the financial statements – and allow comparisons with other companies.  Other users of GAAP include creditors, employees and regulators like state accounting boards, the American Institute of CPAs and the Securities and Exchange Commission.  FASB frequently posts updates to the codification of GAAP on various hot topics. The Board recently issued guidance on how companies need to disclosure and account for pandemic-relief money from the government, for instance. Many are now calling for FASB to finally issue guidance on cryptocurrency. Sometimes FASB guidance just ignites questions at first, as with its “going concern” standard a few years ago.  How FASB impacts San Francisco Bay Area businesses Clearly FASB exercises pull over how companies conduct business. Though it might seem to be just another regulator sticking its nose into how your company operates, FASB can help even a small business move ahead.  The right accounting method, for instance, gives a more accurate and complete picture of your company’s income and cash flow – and that can only help you make better-informed strategic decisions about expansion or streamlining. For large and growing companies, the FASB-developed GAAP is required, and GAAP in turn requires you to use the accrual method of accounting (where income and expenses are recognized as they occur, not as they’re collected or paid out). Remember, GAAP is recognized as the standard by stakeholders, investors and lenders.  Small businesses don’t interact with FASB. But even small companies not yet required to use GAAP can benefit from switching to accrual from cash accounting.  It all depends on your goals for your business and how you foresee your growth.   And again … if your San Francisco Bay Area business isn’t at the stage to care about this, it’s still good to know how it all works. But if it is … well, we should definitely talk: Patti (408) 775-7790 Gale 408-775-7800 Or just

Business Growth

An Accounting Methods Rundown for San Francisco Bay Area Businesses

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Before I get into accounting methods basics today (a subject near to my heart) … I hope you were able to get in on some Memorial Day activities this past weekend (though I know some San Francisco Bay Area business owners are in the thick of things during this commemorative weekend).  Each year as I enjoy the backyard barbecue, I find I am increasingly more and more grateful to those who gave up so much (even their lives) for my freedoms. With so much cultural tossing and economic tension, it seems more important than ever that we as a nation chart a path forward that truly honors what those honorable men and women died to preserve.  With what occurred in Uvalde last week, may we all renew a courageous spirit that would address the broken ones in our midst … and do what it takes to come against evil acts. Now, if you were one of those in the full swing of business while the rest of us were firing up the grill, I want to ask… How is business going for you? Are you faring the storm of inflation and *possible* recession well?  I’m always ready to hear an update on where things are at in your business … Let me know how things went this weekend or where your business is at in general.  I’d also enjoy hearing if there’s another way my team and I here at ONeill & Bergado could serve you and your business. Are there any decisions looming that we could help provide insight into? We’re here for more than just “books” and taxes: (408) 775-7790  But speaking of those books, let’s continue our series on business finance basics with a dive into the two basic accounting methods so you can determine (or adjust into?) the right method for your San Francisco Bay Area business. An Accounting Methods Rundown for San Francisco Bay Area Businesses“Accounting is the language of business.” – Warren Buffett How you keep your books is one of the most important decisions you’ll ever make about your business, and there are two methods to do it. Each comes with entirely different requirements and benefits.  So… cash method or accrual method: Which of these accounting methods is right for your company?  In the hand or in the future Fundamentally, the difference between cash and accrual methods of accounting is in the timing of the recognition of revenue and expenses. The cash method immediately recognizes them. The accrual method recognizes anticipated revenue and expenses.  As a practical example, let’s say you’re declaring that you’ve got a hundred dollars. With the cash method, this means somebody just gave you five twenties. With the accrual method, it means somebody has promised to give you five twenties.  Accrual accounting generally provides a more accurate view of how a company is doing over time; it’s the method more commonly used by large companies and those that are publicly traded. The cash method, on the other hand, is often used by sole proprietors and smaller businesses.  Both have advantages and disadvantages.  Pros and cons of accrual accounting The accrual method records accounts receivables and payables (A/R and A/P) and can give you – and others interested in your company – a long-term picture of how your company is doing. This is especially true if your business often has less-frequent but large influxes of revenue.  Time balances out the revenue and the expenses in a way that paints a clearer picture of how the company is doing overall than the cash method would. Over time, insights gleaned from the accrual method help can you make better strategic decisions about your business.  Investors (and lenders) also like accrual accounting: The method is usually for companies that file audited financial statements and is used under generally accepted accounting principles or GAAP (more on this in a future article).  Accrual does not track cash flow, though, meaning that a major immediate cash shortage might not stand out in your books. Accrual is also generally more complicated to use since it might account for such things as unearned revenue and prepaid expenses. That complexity can mean you need more in-house personnel or pay more for outsourced services (though a lot of standard business software can help with accrual accounting).  To handle day-to-day and month-to-month regular expenses, you account for cash separately under this method. In an accrual system, you can also sometimes record income in a tax-advantaged way. (We’re happy to tell you more about this).  Pros and cons of cash accounting Cash accounting (as you can guess from the name) puts cash flow front and center and is much simpler to use than accrual – you don’t record A/R or A/P, for instance. The cash method is so simple it’s been compared with systems used to track personal finances.  But in a sense, cash accounting shows the results of work done in previous periods, potentially giving you a false sense of your company’s profitability. In other words, you might have cash on hand just because you haven’t paid a bill yet. Simplicity has its drawbacks, too: No full record of A/R or A/P can create problems if your company isn’t paid timely or has an unusual number of outstanding bills. And again, you have no GAAP if your company grows. According to GAAP, you must use accrual if you exceed 25 million dollars in annual revenue (though you can use it, under the Tax Cuts and Jobs Act of 2017, if your business makes less.) Some businesses employ hybrid methods, using accrual accounting to make strategic decisions and apply for loans and cash accounting to simplify taxes. A lot of software claims to be able to handle this, too, but hybrid accounting is tricky and restricted in terms of which businesses can use it. Check with us on this.   Which is better for you? Accrual accounting is by far more popular for most businesses for its holistic view, scalability, and usefulness in making long-term decisions for a company.

Business Growth, Business Tax Planning

Alleviating Cash Flow Management Pains for San Francisco Bay Area Businesses

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[1] Because we’re talking cash flow management today… with a recession looming on the horizon and the effects of inflation being felt so hard in everyday life, it’s difficult not to freak out over what lies ahead for your San Francisco Bay Area small business.  But, some think a recession might not be all that bad for small businesses… even helpful. While that remains to be seen, one thing I can say is, don’t panic. There is a way forward – when you have a plan and good advice along the way. If you’re not able to see the path forward through the muck of it all, or you just need a little more support and guidance — I suggest grabbing a time with us and our team. That’s what we’re here for.Patti (408) 775-7790   Gale 408-775-7800 Now, one thing that you want to pay extra close attention to when lows strike is what’s happening within your cash flow. Knowing where it’s at, plus figuring out how to make it last, especially if you’re in a seasonal business (we understand that kind of reality), well, this sometimes takes some specially-devoted effort and planning. Many business owners avoid this and prefer to “wing it” … and occasionally to disastrous results. So that’s what I want to jump into today…  Alleviating Cash Flow Management Pains for San Francisco Bay Area Businesses“Standards are always out of date. That’s what makes them standards.” – Alan Bennett You love your business and you love when cash flow management goes smoothly. Who doesn’t? But if your company is seasonable, a steady income can be hard to come by.  Boy, we hear you. We’re accountants, and the weeks after Tax Day can be slow. I remember feeling horrible that my family suffered so much because my industry happened to trail off for a while after people finished filing their taxes.  As a San Francisco Bay Area business owner, financial lows usually hit you the most. You probably dig into your profit and take-home pay to make sure your employees and operations don’t hurt (especially these days). That’s only natural – and responsible of you.  But you can fight the unpredictability of seasonal cash flow, smoothing out those highs and lows. We can help you ease the pain. Here’s how.   Your initial questions Cash flow management is all about details. You know more about tackling this problem than you think. You’ve got three good tools right off: your company’s records, your experience in your industry, and your common sense.  Even if you don’t have an official profit-and-loss statement, you probably have a trove of recorded info about your business. Look at your past few seasonable ups and downs. Any stand out? What happened in those periods? That could give you a good idea of what to repeat – or avoid.  What are the cycles of your company and industry? What factors like weather or the local economy impact your business? What can you predict is coming down the pike? This can give you a better idea of how much to budget and how far out to plan.  Are your income sources sustainable? During your busy season, make sure you get paid as fast as possible: Send double-checked invoices to clients as soon as you’ve completed the work, don’t be shy about reminders, and give them a clear deadline for payment – smoothing year-round cash flow is one thing, but you don’t want customers’ unpaid bills spilling into your off-season.  Look at your expenses, too. Are your biggest ones justified? Are there ways to reduce them? Regarding biz real estate, some landlords might be open to you paying more rent in the busy season and less in the slow times. If you own your business property, can you rent it out during the off-season?  Year-round strategies We all know about saving for a rainy day. Your off-season isn’t rainy, exactly, but it’s close enough. Set aside a percentage of your high-season profits for the downtimes – and be disciplined about it. (We’d be happy to talk you through more details of this idea.)  Try off-season work that dovetails with your primary business. Accountants offer financial advising, for example, during those months when people aren’t filing tax returns. Let’s say you’re a landscaper or a pool maintenance company working hard in the warm months. Consider snow removal or a similar winter business to bring in a little cash and keep your name in front of customers.  While we’re on the subject, smart and constant marketing is the best way to keep the pipeline flowing. Do your competitors hibernate off-season? Then market when they don’t. Work up a list of your anchor clients and pitch them with deals for early registration for your high-season services. Offer them this year’s price on a few items if they register early for next year – in the middle of our terrible inflation, they’re sure to notice that. Upsell them on other items if you have to, and constantly ask for referrals. In accounting, we use social media and e-newsletters off-season a lot. Give us a buzz and we can talk about this strategy.  Prep work A lot of businesses would love to have a slow time to work carefully on improving their operation and bottom line. This breather has landed in your lap. Go over those budgeting items we mentioned, then go over them again.  Take time to study your business and the money that makes it go. What procedures have you always wanted to improve? Satisfied that you take all the payment methods you need (these evolve all the time, you know …)?  One huge part of prepping for your busy season is finding the right workers (some accounting firms start looking for tax-time help the fallbefore). You’ve got time to look for the right people – again, don’t forget referrals – and to fine-tune or expand your training.  If you’ve got a solid bank of temporary staffers from the previous season, think about honing them. Who deserves a

Business Growth

The Word on Payment Methods for San Francisco Bay Area Businesses

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…payment methods! Try to come up with one thing that’s more important to your San Francisco Bay Area business than taking in revenue smoothly. Yeah, I couldn’t, either. And making sure that revenue is coming in becomes almost an obsession when you’re feeling the squeeze of inflation on your profit margins. Though talk of recession is hanging in the air, it doesn’t mean you have to passively wait for its effects. You can make a plan to survive it and even give your profit margins a boost. Want help planning for the future of your business? That’s why my team at ONeill & Bergado is here. Schedule a time with us to get the ball rolling:Patti (408) 775-7790  408-775-7800 When it comes to getting paid, opening every channel seems like the best plan. But make sure you know what each channel involves before you do – like fees, rules, taxes. Let’s take a look…  The Word on Payment Methods for San Francisco Bay Area Businesses“Do something for somebody every day for which you do not get paid.” – Albert Schweitzer There are more ways than ever for your company to get paid with each choice having good points and bad for convenience, speed, and security. Let’s look at the options and see if you’re using the best payment methods for you.   Is cash king? Maybe, maybe not. You get your payment on the spot, there are no sneaky fees (as with many other payment methods), and with diligent recordkeeping, you won’t get into tax trouble. If you sell relatively inexpensive items or services from a brick-and-mortar store, cash might be best.  Yet you might be surprised how many people don’t carry cash anymore, and your customers aren’t likely to make a major purchase with cash. And a lot of cash on your premises, frankly, can make you a target.  Did we mention diligent recordkeeping to avoid tax trouble? We mean really diligent. You have to make a special report to the IRS if any transaction involves more than 10 grand in cash. (Reach out to us with any questions about this.)   Give yourself credit Credit cards (which consumers seem to prefer more than debit cards) can make a smooth transaction on both sides of the checkout. Taking card payments can expand your pool of customers and, via deposits right to your bank, streamline your revenue without you keeping a lot of cash on hand. They’ve also been shown to increase impulse purchases. This convenience comes at a price for you in the form of multiple fees (such as per-transaction and monthly) or special equipment such as card readers (which can cost up to a grand or so). Note that fees for debit card transactions are capped but credit card companies set the fees for their cards’ transactions.  And with a cash purchase, the buyer has to show up and plead their case to get their money back. Chargebacks for returns from unhappy credit card customers can ding your account without warning. Some banks also hold merchants responsible for credit card fraud, a potentially expensive liability especially if you can’t process more-secure chip cards.  The quaint paper check is about as far as you can get from microchip technology. Yet some older customers prefer writing checks, and some businesses still take them – all you need is a business bank account and a smart acceptance policy. Best to take only checks from well-known or in-state banks or to use a third party to verify the quality of the check. Electronic processing of checks can come with a service fee. Customers can stop payment on a check. And of course, checks can bounce. Not only does this sometimes nick you with a fee from your own bank but getting your money can then become an especially long process. And it could go all the way to small claims court or end with you hiring a collection agency.  Other payment methods  Mobile: Probably as many people own smartphones as hold credit cards – maybe more – and payments are usually fast and convenient, but you may have to worry about security, frequent app updates, and compatibility issues, especially if customers don’t have iPhones or Androids. Electronic payments: Again, it’s fast and easy, especially if you have international customers. These are also pretty much indispensable if you sell online; they’ll calculate the sales tax for you. Fees tend to be higher here than with other methods. Autopay: Customers often find this the best way to pay for subscription services, and you get your money regularly without having to send more than maybe an annual reminder to re-up. That can also produce problems for you, such as overdraft charges when your customer can’t make the payment and after-the-fact (sometimes angry) cancellations and demands for refunds. Email invoicing: Good if you provide a service. Your bill goes out fast, which can produce a faster payment. It also makes your bookkeeping and accounting easier because it’s electronic, and you won’t have to track down paperwork. It doesn’t always work as well for retail, though, and there’s always the chance your bill will wind up overlooked in a customer’s spam folder.   Some vendors Here are a few household names that offer options, just to get you started. (We can recommend others that might be better for you.)  Paypal: Mobile, online and in-person payment. An online transaction fee of about 3.5%, about 2% for in-person payments using a QR code. Various fees for other services such as credit and debit card payments.  Venmo: No set-up fee, a seller transaction fee of about 2%, no monthly fees. “Profile” needed. Other fees for such features as electronic withdrawals.  Quickbooks Payment: No monthly or set-up fees. Rates from 1% for ACH transactions to 2.4% to 3.4%, depending on how the transaction is processed.   In this day, setting up a plethora of payment methods is probably a good call. And you especially want to consider advancing your options as the world evolves and new methods hit the scene.  Even with this list of pros and cons, we understand if you still need

Business Growth

ONeill & Bergado’s Fighting Inflation Series: Taking Out a Business Loan

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Today we want to start a series on how small businesses like yours can fight inflation. Because we know that’s one of the top concerns for businesses across the country right now. But I’d also like to know… How’s your business faring?  We are genuinely interested in how things are going and what concerns are topping your list right now in the midst of inflation and the looming recession.  The pandemic forced San Francisco Bay Area businesses like yours to pivot when it comes to serving customers and developing loyalty. And building services into your business, while struggling to hire staff, and even keep things afloat financially are all huge challenges to getting and keeping customers. It’s a lot. Here’s one thought on keeping your staff happy post-pandemic (hint: it’s more than better pay or casual Fridays). Hybrid work is here to stay. And it’s a pretty attractive employee perk for acquiring (and maintaining) good workers. So, figuring out how to make it work for your business has to be a priority. There are lots of articles on this subject out there. (Here’s a good example.) Of course, we here at ONeill & Bergado are here to help advise you on making that work for your business, both in terms of taxes and operating budget:Patti (408) 775-7790 Gale 408-775-7800 So, to get into today’s topic, in the interest of helping your business succeed in these inflationary times, one thing you might consider is taking out a business loan. I know that might seem counterproductive, but to help fight rising costs, it might just be the solution you’re looking for right now. So, what could that look like for your San Francisco Bay Area business? Here’s part one in our fighting inflation series… ONeill & Bergado’s Fighting Inflation Series: Taking Out a Business Loan“If you would know the value of money, try to borrow some.” – Benjamin Franklin Taking on debt to ease the strain of inflation may seem to go against common business sense, but the right business loan can help you fight rising costs in many areas of your operation.  Our new series on fighting inflation begins with a look at how to make this plan work.  The hits keep on coming The highest across-the-board price jumps in decades have driven more than four out of five small-business owners to express real worry in recent surveys. That’s all across the country, too, across all sectors and among all sizes of businesses.  Owners report that to cope with rising inflation they’re often raising the prices of their goods and services or cutting staff. Cash flow struggles, rising production costs, reduced sales and slimmer profit margins, and drops in customer loyalty and satisfaction are just a few of the hard knocks businesses are reporting right now.  But the U.S. Chamber of Commerce is reportedly seeing another trend among businesses right now: They’re taking out more loans. Business Loans: Why and how Like we asked before, why would businesses take on more debt now?  A few reasons: – To bulk up inventory before prices rise higher– To hire new employees before they become scarcer or demand even higher wages– To accelerate marketing– To invest in technology or equipment to streamline operations  If those moves sound appealing right now, slow down. Debt is debt even if you take it on to improve your operation. The debate about new debt amid high inflation has, on one side, the argument of repaying a fixed-rate loan easier with cheaper dollars in the future. The other side points out that new debt locks your business into new obligations right when you might need flexibility for your money.  To see if a loan’s for you right now, start with your detailed plans to use the money (the prospective lender is going to want to know this anyway).  Maybe you want to pay off an old loan and refinance at better terms.  If you’re buying equipment, have you done enough price comparisons? Where and how exactly are you going to market your company? How much is the outlet going to charge to take your ads live? Do you need to engage a consultant?  About hiring, what sort of wages for new talent have you been planning for in these inflationary times? Tack down the exact figure you need in a loan – no less and no more.  And how much can your company afford to repay a lender each month? Don’t forget lead time: Loan applications can take days to months – and then the money can arrive with surprise fees for the application, guarantees, late repayment, and other details.  The annual percentage rate is of course another major factor in the cost of your loan. Headlines have screamed a lot lately about the Federal Reserve raising interest rates to combat inflation, and experts believe that yes, this will eventually impact the costs of small business loans. This might also in fact make small business loans easier to get as more lenders enter the space.  Nothing’s quite as unsure as an economy, but of all times recently, this might be the moment to go with a fixed-rate loan. They’re generally easier to comparison shop and, if inflation continues, interest rates may rise again.  (We can help you with the math here, and there are also lots of biz-loan calculators out there, too.) Nuts and bolts of applying Prospective lenders are going to look at your credit score and history; the quality of your cash flow; the collateral you have at hand to cover the loan should you default; how long you’ve been in business; and the landscape of your industry and competition at large.  Banks come first to mind as a place to get a loan, but you should look into other avenues as well, such as investors, asset management firms, and credit unions.  Marketplace lending (aka peer-to-peer or platform lending) uses online platforms to connect consumers or businesses who seek to borrow money with investors willing to buy or invest in the loan. A business line of

Business Growth

Raises and Inflation: San Francisco Bay Area Business Owners, Listen Up

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Everywhere I turn there’s a San Francisco Bay Area business with a “Now Hiring” sign in the window. Are you seeing this too? Staffing is an issue in every industry across the country.  Part of that? Making money isn’t the only reason people want a job. 2020 certainly shifted priorities. Even if you could throw more money at a phenomenal potential hire, it’s not a guarantee that would be enough to entice them to take the job. What’s been revealed through the Great Resignation is that people are looking for MORE in their workplaces. And when you’re hiring, you need to consider that. Job seekers want flexibility. They want support. They want a working culture that actually cares for them and brings themreal value. And if you’re not making that pivot, you’re in real trouble on the hiring front – maybe even in terms of keeping great employees.  And I do want to talk about how to take care of your employees right now… especially with inflation’s nasty grip squeezing their wallets (and yours). But first, have you thought about how to get your business through a lean year (or a few lean years)? Or have you been thinking about how to raise wages without breaking your bank account? Those are some things we should discuss before it’s too late:Patti (408) 775-7790 Gale 408-775-7800 Now, naturally, when prices are rising everywhere, your employees are going to start coming to you, wondering if you’ll also adjust their pay rate to meet the pressure of inflation. And a good boss will most certainly give raises to employees as they bring value to the company.  So, how do you plan for raises and inflation occurring at the same time? Let’s take a look… Raises and Inflation: San Francisco Bay Area Business Owners, Listen Up“Everything is negotiable. Whether or not the negotiation is easy is another thing.” – Carrie Fisher Rising prices take a double edge to your San Francisco Bay Area business: They tempt you to give your workers lavish raises to keep them happy – or give no raises at all to keep you in business.  Business owners all over the nation say that to cope with rising inflation they’re raising prices or cutting staff. At the same time, they’re bombarded with cash flow struggles, rising production costs, reduced sales and slimmer profit margins, and drops in customer loyalty and satisfaction. What can a small business even afford for raises this year?  Our inflation series continues with a look at what you should think about concerning worker raises and inflation periods.   The up and up Wages are on the rise in a big way. A recent survey from the Conference Board predicts almost a 4% jump in wage costs for companies in 2022, the highest in 14 years. Amid a staffing crunch, one major trucking company is hiking pay by as much as 33%, even for drivers just out of training.  Adjusted for inflation, though, the real value of wages has been on a steady decline for the better part of a year. And wages weren’t great before that, many say, which has helped fuel the Great Resignation. Now gone are the days of the old 1-2% annual bump.  Given inflation, workers expect raises this year – sometimes as much as 10% – or they walk. Again considering inflation, anything less than 5% might actually seem to your employees like a pay cut, the way prices are going. So, you want to do right by your workers, but you’re crunched, too. What can you do about raises and inflation and keep everyone happy?  Your calculations Start with the numbers to plan your raises, as well as what else you have to keep in mind.  For one, wages rose only about 3.3% in the latter part of 2021, but employees who switched jobs saw almost double that increase. Companies that can afford it say they’re looking at 6% bumps across the board with extra for good performance and other incentives.  Of course, giving more to one employee can mean less for everyone else – and that includes signing bonuses paid and expected higher starting salaries for hires. Those are at the expense of your more-senior workers, leaving you in what staffing folks call an “upward pressure” dilemma regarding merit raises (more in a sec about who deserves one of those).  Another factor: Raises compound into the future. Any pay hikes this year will become the base salaries you’ll have to work on for raises in future years for both salaries and percentages of increase (assuming the workers stay with you). Do the math forward. What will you be able to handle down the road?  One strategy is hanging raises on promotions. The latter typically carry a larger percentage raise – 10-15% seems to be the sweet spot – and those only occur occasionally in a worker’s entire time with the business. You won’t be expected to duplicate them every year. You can also try bonuses (Google recently gave out a four-figure one), an incentive that most employees recognize as a one-time event not likely to be repeated regularly in years to come.   Who deserves a raise? Cost of living aside, you’re not in business long before you realize that some folks deserve more money over time than others do, whether because of their function at your company or their work habits or because they’re in such desirable fields as IT, engineering, or finance.  Across all your employees, though, there can be clear signs that somebody needs and deserves a promotion and/or raise before they leave you for greener pastures. Think of it as a smart investment of your money.  Here’s what to look for: Volunteering: They don’t hesitate to do hard work off-hours, either on the job or through professional development. They’re eager to help co-workers – who recognize and appreciate the help – and they show natural leadership.  Questions: They have the professional maturity to ask good ones and about the company in general, not just about their own place in it.  Production: Theirs is way above

Business Growth

The Art of Raising Prices for San Francisco Bay Area Small Businesses

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The unfortunate reality of things right now is that businesses across the board might need to raise their prices. Inflation’s increasingly pervasive effects, as well as continued supply shortages, demand that pricing models change – or at least be re-evaluated.  And while everyone “gets it” that prices are rising everywhere, the customer still may be unhappy about it… and tempted to seek out cheaper alternatives. But before we start on today’s installment of my inflation series, we want to mention a couple things: First, in the IRS’s recent tax tips email, they dropped a quick reminder about business-related travel deductions. If your business is incurring travel expenses, it’s good to know what is and isn’t permissible from the perspective of dear old Uncle Sam.  Also, did you know that the Small Business Digital Alliance (part of the SBA) has this great resource, chock-full of free tools and resources from Fortune 500 companies to help small businesses like yours grow by going increasingly more digital?  Needing guidance on many aspects of your San Francisco Bay Area business is something we have heard over and over again. And of course, even with all those free resources, sometimes you just need a little “face time” from a trusted advisor. Set up an appointment if you need some help thinking through price raising, digital business, etc.:Patti (408) 775-7790   Gale 408-775-7800 Because after all, raising prices can be so tricky. Keeping customers in the process … even trickier. We’re all feeling the strain of increased prices everywhere, yet you can’t avoid shifting your pricing model to accommodate for what we’re seeing.  But (GOOD NEWS) … there is a way you can do it and still retain many of your customers… The Art of Raising Prices for San Francisco Bay Area Small Businesses“There is no victory at bargain basement prices.” – Dwight Eisenhower Prices are on the rise everywhere right now. What about yours?  From just a few pennies to outright sticker shock, hiking prices is one of the quickest paths to losing customers. But you’ve got ends to make meet, too.  Our inflation series continues with one of the most pressing problems for businesses today: How much you need to increase your pricing models – and what to think about before you do.  Worry and response Current inflation is 8.6% year over year, a seemingly endless upward direction that worries most businesses. Almost nine out of 10 have told surveys that they’re also already seeing the hit in higher expenses such as supplies and services, some by as much as 50%. Throw in employees probably wanting above-average raises and you’ve got a compound problem.  Businesses’ response? Not hard to guess: Almost nine out of 10 small businesses in one survey said they had to hike their own prices – and that’s on top of the hefty percentage who’d already raised their prices since the pandemic started.  The key question is, raised prices by how much?  Almost half of businesses had to increase prices by more than 20%; almost half said they kept the increase to no more than 15%. Some companies that haven’t increased prices in years have had to pass along furious new costs to potentially furious old customers.   Take a hard look Before you just decide to pin down your average higher costs and just base your markup on that across the board, take a harder look at your operation and your pricing model.  Do you stand out? Yes, as a fellow small-business owner, we know it’s a hard question to ask yourself but re-assessing your pricing just starts with it: What makes you so special? Why should your customer pay you? Are your services unique?  Special is special. You can increase the price of specialized or exclusive products much easier than you can those of commodities, which customers can easily find replacements for. Special products and services will bear the weight. The same holds true for customer loyalty. How often do your customers say they’d never shop anywhere else? (How often do they prove that, too?) A loyal customer will pay more – just don’t think you can push that forever.  Competition. What’s their price point and range, and how does it compare with yours? If yours is higher, don’t automatically assume that you have to match your competitors’ deal. Do you offer customers resources that the other doesn’t, for example? If you don’t, can you add those resources economically? (As you can imagine, it’s critical to answer those honestly.)  Strategies In with the new. What do you offer that draws in most of your new customers? Raising those prices should be a last resort. You want to increase income from your premium, extra, or add-on items. Your customers don’t use those until they’ve become more loyal to your brand – and become customers who will put up with a price increase longer before they think of leaving you.  You do still want to give special attention to these products and these customers, though (more on this below).  Go slow. Tempting though it is, jacking up prices across the board isn’t necessarily your best move. And when you do, raise prices gradually. As we mentioned, it’s best to raise prices on premium products and services first. But you can tweak both the offerings and the pricing to make them more palatable. Tell it like it is. Be upfront with customers about price hikes – give some clear reasons. Much as people hate bad news, they hate nasty surprises or being kept in the dark more. Bundle. Combining multiple products at a higher price point, giving special warranties, comping higher shipping costs, offering more services or rewards for subscriptions: They all bring more money through your door by having the customer buy more, just not a la carte. Do be careful about devaluing your brand with too many discounts.  Improve your customer service. Next to the sale itself, this is your pivotal touchpoint with a customer. Invest in it, and you’ll solidify your customer base generally.  Change marketing. Some customers will pay more for a product or service they perceive as

Business Growth

A Cutting Expenses How-to for San Francisco Bay Area Businesses

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As a small business owner, you’re battling on a lot of different fronts right now.  You’re doing your best to keep employees happy, raise prices without driving away customers, pivot to alternative supply options as your current ones dry up, adjust for changing tax laws, etc, etc, etc. We small business owners always seem to bear the brunt during economic downturns. And because we’re the backbone of our economy, it matters that we not only survive but, you know, THRIVE. And MY San Francisco Bay Area small business is about helping YOUR San Francisco Bay Area small business find its way to solid ground – even if just by helping you to know that you’re not alone (but, ahem, we can do so much more).  So if you need some time to just talk over a specific financial decision, or navigate your future tax liability (i.e. REDUCE it), that’s quite literally what we’re here for:Patti (408) 775-7790 Gale 408-775-7800 Now, there is something you can do … now. While I almost always advise my clients to work on raising the topline revenue before cutting expenses (simply for morale and psychological reasons), as ol’ Dickens said: These are the times that try men’s souls. It might be necessary to cut sometimes. But there are some FAR superior ways to do this than by firing an employee or chopping necessary overhead (though there are ways to work through that too). So let’s jump into what I mean, shall we? A Cutting Expenses How-to for San Francisco Bay Area Small Businesses“Spare no expense to make everything as economical as possible.” – Samuel Goldwyn Every expense of your small business is one more drain on your bottom line. The good news: Every expense might also be a way to save money.  This next article in our inflation series looks at how you can cut a variety of expenses as inflation now runs hotter than any time in the past 41 years.   The starting point for cutting expenses: The costliest items Your major biz expenses are probably payroll, rent/lease, and equipment. If you’re a new business, you’ve probably also shelled out a lot for inventory and marketing, and startups report being surprised by their first business tax bills, as well as by the price tags of insurance and tech.  Your ax has a lot of potential targets. Where to start?  Let’s get right to the big one on many minds: Payroll.  Compensation usually makes up more than a quarter of your expenses – sometimes more – and like everything else these days, it’s only going up. You want to avoid pay cuts and layoffs (both can hurt you in the long run) but at least make sure your new hires aren’t using a tight labor market to talk you into overpaying. You probably already have a firm idea of what your profession pays, and there are lots of sites out there, such as Glassdoor, where you can compare salaries before you make an offer.  It’s also easier – and usually cheaper – to keep the people you have rather than hire new ones. The replacement cost of an employee can be 150% of their annual salary or more.  Big reasons for resignation include low pay, bad working conditions, bad management, and being forced to return to the office after working remotely. Younger workers appear to be leading the charge for the door. Talk to your employees to see what would keep them happy. Flexible paid time off seems to head most lists.  Your cheaper options for workers? Freelancers and independent contractors tend to be more expensive upfront but you don’t pay health insurance and other perks or payroll taxes. Note: Tax authorities are tightening the definition of “independent contractor” and you can’t just slap the label on a worker without agreeing to other conditions. Check with us if you have any questions.  Your local college may be able to set you up to hire interns, who in exchange for little or no pay will receive college credit. This can also be a great recruiting avenue for you but, again, you must use care to set this up legitimately.   The second place to look when cutting expenses: Your lease Your office space is probably your next biggest expense. First and most obviously, do you still need all that space? Are more workers remote and everybody’s grown comfortable with that? (Some companies have estimated that for every five workers going forward they’ll only need three desks …)  That’s a lot of square footage saved. Can you tinker with your lease? Many commercial leases are long-term but you might have wiggle room to negotiate as your business changes. Assuming you’ve been a good tenant, work with your current landlord first. If you’re looking at a new commercial lease, look for the length of the lease, see how the rent stacks up against others in the area and watch for details like future rent hikes.  A good rule for dealing with landlords also applies to vendors, contractors and others who provide services where you might be able to save money: Many are open to negotiating. There’s never any harm in asking, especially if you only use their services occasionally.  Other areas to examine when cutting expenses Recurring costs. Rather than utilities and other necessities, these are your subscription services that get renewed automatically, usually every month. As time goes on and your memory gets foggier, they can be a tremendous and useless drain of money. Review them frequently.  Marketing. Watch your ROI. There are a lot of options now that may be cheaper than an ad in the local paper, such as online and social media. Get somebody involved (maybe part-time) who understands how to get a message across on these platforms.  Supplies. Once they do the math, many biz owners are surprised at how much their office supplies cost. Track your usage and you’ll find a lot of items you can eliminate or cut back on. Shop around, of course, and buy in volume where you can.  Insurance. This is a

Business Growth

Vendor Negotiation Tips for San Francisco Bay Area Business Owners

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Is your hustle muscle feeling strong right now? I hope so because if your business is going to make it moving forward, it’s going to have to be – at least for somebody on your business team.  This inflationary environment virtually demands it (as does a likely recession — are you planning for it?). Besides juggling all of the economic and cultural changes the last few years have put on your plate, you must set aside time to think about how to adjust for new market forces around your San Francisco Bay Area business. Whether that’s shifting your hiring models, expanding payment methods (ever thought of text message payments?), or striking a deal with your suppliers… well, more on that below. Running a business with long-term success requires you to be nimble. And speaking of long-term success-ion (ahem), have you made plans for the future of your business? Or perhaps you’re feeling unsure about the plan you’ve already made. Either way, succession plans are something we should definitely talk about:(408) 775-7790  Because even when you’re dealing with the here and now of running your business, you still need to be thinking about what lies ahead. But that’s for the future. Let’s come back to THIS moment and talk about one of those nimble moves you can make right now: vendor negotiation… Vendor Negotiation Tips for San Francisco Bay Area Business Owners“Information is a negotiator’s greatest weapon.” – Victor Kiam Small business owners are always looking for a deal – really, who isn’t? And, you’d be hard-pressed to find times when you need a break more than you do now in our present economic situation. Am I right?  So, where can you find one?  One of your first stops on that journey: your suppliers. It might seem like you need them more than they need you – but that’s not entirely true, and with skill and doing a little homework, you can negotiate to get a good deal with them.  That’s why today, we want to continue our inflation series by looking at how you can work with your supplier to get the most you can.  The Wrench in Vendor Negotiation It does appear that in many industries today suppliers hold the cards. Pleading supply chain problems or inflation, they hike their prices up seemingly at will. This also often comes after years of consolidation and larger competitors continuously buying smaller ones – to the detriment and disadvantage of the consumer (just look at the recent nationwide shortage of baby formula). Whatever the reason, your suppliers may have a lot of companies clamoring for their goods right now. That kicks you right in the price point and seems to weaken your time-tested tactics of negotiation.  And what if you don’t negotiate with suppliers but their other customers do? You can wind up with delayed shipments, poorer products or service, and higher prices as your supplier makes up for deals haggled by your competitors. Being Informed Is Key Negotiation is almost always a good idea. It sets the right tone with a new vendor and gets you something for your (supposedly) solid payment history with a long-term supplier.  We say again: Make sure your payment record is good. Or your talks are going to be tough.  First question: Are they giving the best deal? Arm yourself with informed questions, starting with what’s likely your top priority with a vendor: prices. You’ll hurt your deal by initially asking for a price at or below your supplier’s price, so know the figure. Learn all you can about their wholesale costs (which in general have gone up in the past year by almost 11%).  With new vendors especially, ask for references from other customers – they should be willing to offer a few names – and from them, you might well learn not only about prices but other important aspects of working with your suppliers, such as accuracy and timeliness of deliveries, responsiveness, flexibility, and quality of service.  Here are a few good questions you should ask the potential vendor’s  other customers:  Vendor negotiation goes a lot better when you know what you want going in. Set a price in your head before the discussion on what you’re willing to pay – and stick with it. Write down a few other priorities as well. You probably won’t get them all – but aim for the ones you want most, and you’ll have a better chance of landing them.  Think Through Your Talking points Block out time to talk to your supplier when you can keep distractions to a minimum. Match level to level: You’re the owner here, after all, so make sure they’ve got somebody appropriately senior talking to you. Talk to them with patience and respect.  Of course, don’t reveal upfront what you’re willing to compromise on. But what you should reveal is the homework you’ve done on your market’s competitive pricing. In response, expect them to respect your savvy and figure out that you’re a customer in business for the long term.  Always counteroffer, and not just with price. Sweeten the deal with what you can bring to the vendor to get them in front of their key demographics. Doesn’t hurt to consider what you can do for their bottom line.  If you get stonewalled on price? Be flexible regarding how you use this supplier: Offer partial advance payments or talk bundled bulk orders (ask for discounts as percentages and not dollar amounts). If you’ve got different departments using the same supplier and ordering separately, consolidate orders – it tends to save money. Can you partner with another nearby company that uses the same vendor?  It’s not a pleasant vendor negotiation step to think about, but don’t be afraid to threaten to shrink your order – or cancel it completely. This is usually your last card in a negotiation, so be prepared to move on if it doesn’t work.  Remember, the vendor views you the way you view good employees: It’s cheaper to keep what you have than to find new ones. And don’t get mad: Get a better deal.   When staring down the barrel of

Business Growth

Changing Your San Francisco Bay Area Business Structure – A Savings Opportunity?

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Prepare, prepare, prepare. As a recession is bearing down on us all, figuring out how to prepare for economic downturns is something you should be concerned with in your San Francisco Bay Area business. I know I am. Now, while you and I can’t prepare for every eventuality, we can put systems and plans in place that will help our businesses face the most difficult ones. Like what I’m talking about today… taking a close look at your business structure and seeing if making a change would save you money in the long run. As one example – are you prepared for the possibility of a natural disaster striking your area? Depending on what you do, that can have catastrophic effects on your business. You can come up with a plan. The Small Business Readiness for Resiliency program is a good resource to get you started.  And of course, I’ve been sharing my tips and strategies over the last couple of months in my inflation series, to help you make plans for an even thinner “economic winter.” We can help you prepare in other ways. Starting with your tax situation. There are things you can do now – moves you can (and should) make – to help you save money and get all the deductions you are eligible for in your business. Use this right here (sooner is better than later): (408) 775-7790  Now for the final installment of my inflation series… Changing Your San Francisco Bay Area Business Structure – A Savings Opportunity?“Change before you have to.” – Jack Welch How you organize your operations makes a big difference to your bottom line. The same holds true about structuring your San Francisco Bay Area business. You may have different reasons for changing your company structure, such as an expansion of personnel, products, funding; profitability; or asset protection.  This week our inflation series wraps up with a broad overview of the financial aspects of business entities.  Business structure types One of the first and more variable expenses for a business entity is taxes. Yet the same complex taxes that can save a company and its owner money can also mean more expensive tax prep and setting up your new business structure. On the other hand, the more complex the structure the greater your personal protection against business debt.  Here’s a look at some of the most common entity types and their expenses and potential savings.  Sole Proprietorship. This may be your best path if you like doing most of the work, taking all the chances, and reaping the rewards. This is also the most common type of business entity – almost 30 million of them in the U.S.  Sole proprietors are liable for the company’s liabilities, debt and losses – your personal assets are on the line. You pay the taxes of the company, often through quarterly self-employment tax; your income is also taxed.  These entities are cheap (if not free) to form but obtaining future capital to expand can be harder than with other business structures.  Partnership. You own and operate the business with at least one other person.  There are general partnerships where the company is owned by two or more individuals who run it as partners or co-owners; limited partnerships with at least one general and one limited partner; limited liability partnerships where owners aren’t held personally responsible for the debts or other partners’ actions; and LLC partnerships that can have two or more owners, who are called members and whose personal assets are protected.  Your personal financial liability is diffused; so are your profits. Partnerships must file an annual information return to report the income, deductions, gains, losses, and so on from operations but they don’t pay income tax.  Many in partnerships and other entities can take a 20% tax deduction on their “qualified business income” (QBI) – check with us on this, though, as there are a lot of rules.  Limited Liability Corporation (LLC). An LLC exists as a separate legal entity that protects its members from personal liability for business doings.  Registration costs are generally in the low to mid-three figures, depending on your state. Services are available for you to set up an LLC, too, which are usually quick and reasonably priced. Raising capital can take more work, time, and money than with other entities.  For taxes, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and elects to be treated as a corporation.  Corporation and S corp. Money and tax considerations get more complex with these entities. (We’re happy to advise further – give us a buzz.)  A corporation is a separate taxpaying entity that can elect to be taxed as a pass-through entity – a “subchapter S election” that requires filing an IRS Form 2553. Other conditions include a limit on the number of shareholders.  S corps pass corporate income, losses, deductions, and credits through to shareholders, who report the “flow-through” of income and losses on their personal tax returns. They also have to pay FICA taxes on salary compensation to owners and not on the remaining profits. The IRS stresses that S corp owner-employees must be paid “reasonable compensation” for their services. Some states also have special rules for S corps.  C corp. Your corporation can also elect to be a C corporation. The owners are taxed only on the amount of earnings they receive as dividends — not the earnings the corporation retains. Owners can sometimes even get out of capital gains taxes when they sell certain stock of the company (on this and all tax matters, check with us).  C corps can be yet another structure to protect assets – and attract investors as well as live under a lower tax rate than S corps. Nevertheless, a recent study found that some startup C corps would have saved money if they’d formed as LLCs.  In a C corp, the company itself is taxed on income and any additional profits left over and distributed to shareholders (usually as

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