Business Idea - Success or Not? How to Tell!

Hint: it's not to spend thousands of dollars producing a new widget or rolling out a new service, then hoping and praying that you'll somehow find enough customers to turn a profit.

And while market analysis is definitely an important step in making any business decision, investing weeks or months in writing a lengthy detailed number-laden business plan with pages and pages of charts, graphs, and estimated profit and loss statements is often only an exercise in frustration.

After all, in many cases, the figures are simply wild guesses. So, what should you do?

The best way I know to find out if people are interested in a particular product or service and what they might be willing to pay for it, is to ask them. Sounds simple when you think about it, right? I'm amazed at the number of entrepreneurs I've seen in my practice of public accounting who never even considered this approach.

Here are a few ways you can connect with your current customers and prospective clients to get their input:

• On the phone
• By email
• Through snail mail
• In a form posted on your web site or blog
• On Internet forums
• At on-line social media sites
• When they visit your office or store
• At local networking events
• Via webinar or teleseminar

With the exception of regular postal mail, all of these methods can be tested for free. Gone are the days when you had to spend big bucks and take giant risks when starting or growing a business.

I don't have space here to go into great detail about how to use these various options to actually collect the data and opinions you'll need, but I'll give you some advice. Instead of asking direct questions about the widget or service you're thinking of, try a one-question survey instead.

Ask the people in your target market about the problems they currently face. If you listen carefully, you'll probably hear them define the solution that they're looking for. Then you'll know what to provide.

I'll practice what I preach by showing you how I use a free online survey tool. Click here to take a one minute survey about your small business. Your answer will help form the content for my next article. For more information: Sheryl@BusinessStartupSuccessClub.com.

Accounting Philosophically: "Due Diligence or Diligence Due?"

As you've probably noticed by now, my friend and I tend to get into some fairly philosophical discussions (bourbon has this affect on us) - and recently, we were talking about the mergers and acquisitions that seem to be going on, almost on a daily basis, in the business world.

In particular, we focused on the GM-Fiat merger and wondered about its impact, especially since Italy is part of the European Union, on the Euro and the Dollar - and globalization. But, that's a topic for another article that I'll have to think about some more.

Anyway, moving on, we considered the due diligence that should be a key part of any merger or acquisition and, as we do in most discussions, we tried to apply it to the current "real world" economic situation we are all in.

For those that may not be that familiar with the term, due diligence is basically the investigation, analysis, and evaluation of all pertinent financial and business data and information of all companies or organizations involved in the merger or acquisition. This naturally led us to wonder about how a government in deficit could be a viable partner in a merger or acquisition. But again, that's a topic for another article that I'll have to think about some more.

So, we moved on to the mortgage crisis - now, foreclosure crisis - and we wondered about what due diligence must have been done by buyers, sellers, and the organizations that financed the transactions. For most of us "average Joe" folks, the purchase of a home is the biggest transaction we will ever attempt. So, what happened?

Like always, my friend offered this philosophical observation, "My guess is that due diligence was interpreted to mean "I will be diligent when things come due - until then, hey, I've got a beautiful place to live in." If this observation is even a little bit accurate, and assuming it also applies to the sellers and finance organizations, then we really have to wonder exactly what kind of accounting and bookkeeping was going on. Surely, they did not all graduate from the Avaricious University School for the Financially Unaware!... whoa... let me get off my soapbox here...

My main point here is due diligence - and although it is generally thought of in a more strategic sense, it really needs to be applied our everyday accounting and bookkeeping practices. If this is done, then perhaps we will never need to worry about merger, acquisition - or foreclosure.

Interesting, huh? Let me know what your thoughts: Email me at william.vasquez@taxtalkonline.com

Accounting Philosophically is strictly a tongue-in-cheek observation and is not intended to reflect any political affiliation, lobbying cause, or other similar position

Having Account Receivables Issues? - Improve Now!

Almost any small business can use advice on how to improve its collection cycle. The first line of defense against late payments is a complete invoice. Your bills should be accurate, detailed and easy to understand. If difficult to understand, then your client will need to call for additional information. That translates into "you have been added to their to-do list," which increases the time of your collection cycle. Include on each invoice:

• Your company's contact information: name, address, tax id number, phone and contact person
• The date the invoice was prepared
• The customer's name and address
• A description of the goods or services sold to the customer - itemize, if possible (An itemized bill is harder to contest.)
• The amount due, with sales tax amount broken out
• When the invoice is due

Once prepared, send invoices promptly. Another piece of small business advice is the longer you take to bill a customer the less likely you are to receive payment for the goods and services provided. Following is a simple calculation for a powerful tracking tool that can help you adjust your cash in-flow on an as-needed basis:

Step 1: Calculate your average collection period by dividing your total sales for the previous year by 365. This gives you your average daily sales volume. (Total Sales / 365 Days = Average Daily Sales Volume)

Step 2: Then divide your average daily sales volume into your current accounts receivable balance to get the number of days it takes to collect a bill. (Average Accounts Receivable Collection Period = Average Daily Sales Volume / Current Accounts Receivable Balance)
Now that you know your average accounts receivable collection period, you then need to interpret that number as it relates to your business by asking four important bookkeeping service questions.

1. Is your average accounts receivable collection period in line with the company's credit policy?
2. Are you billing your customers consistently?
3. Are you billing your customers effectively?
4. Are you tracking overdue accounts and taking consistent action to collect past due accounts?

By answering these four basic questions, implementing a few bookkeeping service procedures and heeding this small business advice, you'll soon be running a fine-tuned collection machine.

Maiking The Tax Bill More Bearable - Options for Selling a Business

Hopefully, before selling a business, you meet with a CPA or tax accountant and get an estimate on how much of your proceeds will be going directly to Uncle Sam if you pay them in a lump sum at time of sale. You don't want to save this surprise for after all is said and done, because not only will it most likely be a shock, but you will have given up your chance to do anything about it.

Planning is everything. For this article it is assumed you are not doing a 1031 business exchange, that is selling your business and buying another similar business taking into consideration all the IRS guidelines and timelines. It's pretty rare to see, but it can defer all of your capital gains tax if done correctly.

Depending on how the business is sold, the gains may be taxed as long term capital gain, short term capital gain, ordinary income, etc. and if you are selling an asset in a C-Corp you may face double taxation. So, the idea is to minimize your tax bill and maximize your proceeds no matter what situation you are in.

One option is with a Self Directed Installment Sale. The structure must be in place before the buy/sell agreement is signed. The gist is to receive the sale proceeds in installments and only pay capital gains tax as you receive the income. This has the effect of allowing the majority of money you would have paid immediately in taxes to continue earning compounded interest for you for many years, thus increasing your bottom line by a significant amount.

The details are a bit too complex to fully outline in a short article, but both an LLC and a Trust are created for you and set up meet IRS criteria for favorable taxation of installment sales. Your asset gets transferred to the LLC prior to sale, and your buyer purchases from your LLC. The trust buys the shares of your LLC from you via an installment agreement and you pay taxes on your gain only as you receive the payments.

You, the seller, are able to control when the payments begin and how long they will be spread out. This allows for maximum flexibility to control your income, and plan for future tax savings as well. Since your buyer paid cash in exchange for your property, you are not dependent on them to make the installment payments and you have transferred the risk of refinance or default.

To learn more about this and other tax strategies contact Paula Straub at 760-917-0858