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November 2011 News and Notes

Have a plan; Stick to It

I once asked a business owner to tell me the secret to the success of his growing company.  The company was experiencing strong growth, while still maintaining profit margins above industry norms.  He didn’t tell me he was just smarter than his competitors, or a better salesman.  Instead, he confided that his success was based upon his employees.  He detailed his plan for hiring people with specific qualities, training them, and, as they were promoted through the system, having them train others in the same way.  That way, he always had well trained employees working in a consistent manner, which led to high productivity and quality.

Wow!  You couldn’t have a better plan than that for being successful and managing growth without compromising the operational integrity of a business.  However, all plans, no matter how solid, require the discipline to stick to the plan.  When there is an opportunity to grab more business than the company is adequately able to handle, it can be tempting.  Past success can cloud one’s judgment.  It’s easy to believe that previous successes can be duplicated in any environment, or under a different set of circumstances.  However, companies are rarely equipped to handle excessively rapid growth.  When 15% or 20% annual growth suddenly becomes 50%, all the rules change.

It’s not possible to expand and train a workforce fast enough to both produce the larger amount of work, and maintain high levels of quality and productivity at the same time.  In another instance, a company tripled its revenues in less than four years, only to discover that net income had not increased at all.  The pursuit of growth without discipline or a plan had led to more stress, headaches and risk, all without any more rewards.

In today’s challenging economic environment, talking about managing growth may seem misplaced.  However, if your business is down from previous highs, now is a perfect time to make plans to build future growth on a foundation that can more easily stand the inevitable economic fluctuations.  Why is it so important?  Although both were very successful at one time, neither of the companies referenced above is still in business.  Don’t let the same thing happen to yours.

The Key to Business Borrowing

It's no secret that banks have become far more conservative in their lending practices towards small businesses.  Even businesses with a strong, positive credit history need something more--collateral.

From SmartMoney.com

http://www.smartmoney.com/small-business/small-business/the-case-for-collateral-1320759099671/?link=SM_clm_sum

3% Govt. Contract Payment Withholding-Update

As we have discussed before, a rule requiring government agencies to wihhold 3% for income taxes on all payments to contractors is scheduled to be implemented in 2013.  The Senate has passed a bill to repeal.  Now, assuming that bill can be reconciled with the House version, the rule will never go into effect.

From the Journal of Accountancy

http://www.journalofaccountancy.com/Web/20114794.htm

Word to the Wise: Make Sure to Pay Your Payroll Taxes

With business cash flow tighter than ever, it can be tempting to delay the payment of payroll taxes to the IRS.  Don't do it.  As this article explains, penalties can be harsh, and may extend beyond the corporate veil to include business owners and certain employees on a personal basis.  Even criminal penalties are possible.

From Forbes

http://www.forbes.com/sites/stephendunn/2011/11/13/officers-personal-liability-for-their-companys-unpaid-taxes/

Happy Holidays!

As is our custom, this will be the last News and Notes of 2011.  Be sure to watch for us again in January 2012.

In the meantime, be sure to follow us on Twitter @TomHarrisCPA