Donald Sauder, CPA

Preface: Understanding the power of the ideas makes all the difference. Not matter what your marketplace, innovation will improve the landscape in the future. How can you capitalize on this fact, first, with awareness of how innovation has worked in history.     Where Will Ideas Lead Your Marketplace Innovation will always be with us. Eureka insights leading to extraordinary developments in civilization have been occurring before the day a group of men built a truly preposterous boat called the Ark. The Ark was a fabulously good idea in it’s time, but so innovative that it seemingly had to draw significant ridicule towards those implementing on the idea. First lesson from history, when innovate ideas seem ridiculous to you, don’t ridicule them. Instead say something like, “that’s a very unique”.   Good idea’s take time to become great ideas. In 1799 Sir George Cayley presented the first design for a fixed-wing aircraft. Numerous attempts were made to implement on Sir George Cayley’s idea during the next century; and on December 17, 1903 in Kitty Hawk, Wilbur and Orville Wright made the first controlled, sustained power flight. This led to the development of aircraft into a marketable mode of transportation. There are many acclaimed aviators who competed with Wilbur and Orville. The builders of the Ezekiel Airship for the Reverend Burrell Cannon, claim in 1902 to have made the first flight. Nonetheless, airplanes have developed significantly in since 1903. Today Donald Trump fly’s in a Boeing 757 with a $100m price tag; and if that isn’t surprising; Saudi Prince Al-Waleed Bin Talal owns a everything gold Airbus A380 with supposed elevators for $500m. Sir George Cayley’s idea in 1799 has followed a path of incredible innovation to today. Where will innovation lead in the next century for your marketplace?   Let’s bring this to a practical level. Most…

Preface: Part II of Intellectual Capital (IC) – if you appreciate what IC can do for your business, here are a few suggestions for developing it.   Goals and Intellectual Capital Research indicates that the primary filter for what gets noticed by the mind (your employees) is closely correlated with goals of the listener. So too, the breakthroughs in developing intellectual capital in your business will result from the goals of your shareholders, partners, advisors, and employees. That is to say that if your human capital is concerned about payday, ok. But the really big breakthroughs arrive when your human capital is not preoccupied with work or personal stressors, but have the flexibility to freewheel on how they can improves process (work less, earn more, doing the same task) or get a bonus (create the companies next strategic sales driver) or work flexible hours. This is the development of intellectual capital. Intellectual capital is not an asset from a generally accepted accounting principle standpoint. Those assets must be acquired with a cost and a market value, and ownership. Financial skills of a CFO are not an accounting asset, but the computers and software are assets. Karl-Erik Sveiby, a Swedish researcher, produced the taxonomy for intellectual capital and the invisible balance sheet. His team concluded that the competencies of the people in the business are biggest single factor in financial performance. In fact, the field of intellectual capital is so important, some companies have Directors of Intellectual Capital. And it is not a new area of business science, Thomas Stewart wrote an article: Brainpower: How Intellectual Capital is Becoming America’s Most Important Asset (Fortune, June 3, 1191.) If competencies are so vital to the financial performance of businesses, how can they be developed? Namely training, mentoring, and guiding your employees towards greater competencies that…

Preface: Intellectual capital is the most vital value catalyst in your business.  How often do you assess it’s inherent value in your business performance.   Intellectual Capital in Your Business Intellectual capital is much more than say the valuable patents obtained from research and development, innovation, and inventions. Intellectual capital is the sum of intangible values in your business. The cornucopia of intellectual capital in business encompasses the inherent value in business alliance capital e.g. relationships with customers, clients, vendors, and the community, i.e. goodwill; structural capital e.g. patents trademarks,, brand(s), proprietary software, database(s) and proprietary knowledge; and not least, human capital e.g. employees, shareholders, values. Yes, a values are a form of intellectual capital too. So intellectual capital has three major components i) business alliance capital ii) structural capital iii) human capital. Deficiencies of intellectual capital in a business, can result in value deteriorating quickly or maybe never developing properly. Developing and sustaining intellectual capital is one of the cornerstones of successful management. Are sales trends deteriorating, revenues lackluster, or are you always concerned about the continuity of a strong bottom line? Investing in intellectual capital improvements in your business is the surest way to ameliorate these concerns. Business Alliance Capital Let’s look at business alliance capital for a moment. How do to you sustain ties with customers, vendors. This is the vital goodwill of the business. Why do customers feel better putting their dollars in you and your employee’s hands? What do you specifically do to add value to your customers? It should be more than lowest prices — you can’t do business with an empty wagon. Is it the appreciation your customers feel, your values, that in turn gives loyalty and commitment to your business from customers, and keeps earning their dollars? Do your customers feel special, do…

Preface: Blog continued from Part I Due Diligence Assessment – Part (II) Small business due diligence is best performed as team. What probes do you need when performing due diligence? The following list are questions to help get you on the right path. Employees are an important asset to any business. What is the expertise of management? Does the businesses products or services require special schooling, or licensing? Is the work desired among community members? What compensation is paid, i.e. is it market rate, how does it compare to industry? Is labor unionized? What key management roles are in the business? Is there a board of directors? Is there a hierarchy in the business? Does the business develop talent? Is the business in compliance with labor laws and work environment compliance? What is the human resource policy? What is the current year net income or loss? What is the previous year net income or loss? Who prepared the financial statements, i.e. CPA or management? How much reliance do you place on the accuracy of the financials or tax filings? What is the current year top line revenue? What is the previous year’s top line revenue? How do revenues compare to the competition? What is the current year gross profit margin? What is the previous year gross profit margin? What is the brand value? Can the brand be leveraged? What beta does the brand have to marketplace trends? How recession proof is the industry? What is the value of business intangibles, i.e. patents, trademarks, or other intellectual property, e.g. employee expertise or processes? What detail is available on specific revenue channels, e.g. products, services, category, country, or dealers or distributors? What is gross margin by revenue channels? How does profitability and income statement margins compare to the industry? What projections or budgets…

Preface: Small business due diligence requires time and thought. Be thorough. The following blog is to help you think about pertinent questions with advice to obtain proper paperwork texture. Due Diligence Assessment – Part I Due diligence is best performed as team. What probes do you need when performing due diligence? The following list are questions to help get you on the right path. Begin with who is the businesses customer(s). What is the average size of a customer’s account? A business with an average sale of $120,000 will require a different methodology and hold greater homogenization risk than a business with average customer sales of $200. What are the revenue trends of customers? Are customers purchasing on a recurring basis, and if so, with what frequency? Are there any significant customer concentrations? Does one customer represent more than 10% of annual revenue? What characteristics keep customers? Will the customers take their business elsewhere with new management? What are customer turnover rates? Do customers frequent the business only when in the area, or when sales and discounts are in season? What creates customer turnover for the business? Do customers turnover because of lack of service, price, convenience or other factors? What is the company’s strategy for obtaining new customers? How does the company get new customers to purchase its products or service and develop revenue? How key is a sale team to the business? Who is that sales team? How many competitors does the business face? Is the business in a fiercely competitive industry, e.g. fast food restaurants in a metropolitan area? What is the defining competitive edge? Will the competitive edge work for your product or service. What are the values of the business? Do you value those values? If the business is service oriented, can it retain intellectual capital, i.e….

Preface: Reducing and deferring tax is strategy. Here are some strategies you might, and might not, give frequent thought.   2015 Small Business Tax Strategies Taxes are simply a cost of doing business. Yet, like all costs, you can manage it to your advantage. If you’ve read this far, you are an entrepreneur who appreciates the time planning the tax effect of your income. Maybe planning tax strategy is new to you. Whether it is or not, the strategies are similar year to year — deferring revenue, accelerating expenses, contributing to a retirement account, making charitable contributions, or maximizing depreciation expense. You would be well advised to adhere to only legal tax reduction strategies. Any other path is fraught with risk and even forfeiture of business value. Other legal loopholes include domestic productions activities deductions for manufacturers or specific tax credits applicable to your industry. Employee bonuses are a great strategy to reduce taxes, and reinvest in your businesses workforce. A well- compensated team will take satisfaction in their work and minimize hidden business liabilities, namely employee inefficiencies. There are though so many more ways to plan for taxes. Investing in marketing and advertising is another strategy for deferring a business’s tax liability. Advertising and marketing is one of the most efficient methods to defer taxes from one year to the next, or in perpetuity. An advertising campaign will help you develop your market position, and defer revenue to the following period(s). With the increased top line revenue from advertising, you can increase the value of your business over time too. Successful tax planning should incorporate the vision of the business. For instance does it make financial sense to purchase $150,000 of equipment to solely save on taxes? You should calculated the process optimization of that new equipment and return on investment, i.e, will…

Preface: SEP-IRA’s permit up to $53,000 dollars to be tax deferred for 2015. In plain English, as a + savings strategy, what are the highlights and drawbacks?   Can a SEP-IRA Reduce Your Tax Bill Self-employed and looking for ways to reduce or defer your tax bill? A Simplified Employee Pension Individual Retirement Arrangement (SEP-IRA) may be an option for you. SEP-IRA’s are congruent with profit-sharing plans. Employers can contribute up to 25% of wages to a SEP-IRA (20% for self-employed individuals before self-employed tax deductions) with a limit of $53,000 for 2015. Employers may contribute up to 25% of an employee’s wages to the SEP-IRA too. For instance if an employee earns $50,000, the employer may make a profit-sharing contribution up to $12,500. SEP-IRA’s work for sole proprietors, partnerships, and corporations. For instance if you’re an independent contractor and want to make retirement contributions with flexibility on the contribution intervals, and low administrative costs, a SEP-IRA probably will suit that retirement plan criteria; and include simplicity of set-up with typically inexpensive ongoing administrative fees compared to a 401k. SEP-IRA’s can be set-up at the last minute, so if you need to reduce taxes after tax year end, a SEP-IRA has that flexibility. You can create a SEP-IRA for your business up until the due of the employers income tax return, including extensions. Don’t wait until the last minute if you have proper tax planning, but it’s an option. For employees, once an employer makes a contribution, the money is in your mine. Whereas a 401k usually has a vesting schedule. Employers are not required to file the Form 5500 with a SEP-IRA that is required for a 401k. If you’ve ever filed a 5500, you realize time saved is money saved. Another drawback? Loans are not available from a SEP-IRA…

Preface: Vehicles are one way to reduce tax expense, what options are most favorable?   Business Vehicles   Deciding whether to buy a vehicle versus leasing is not always easy. The main advantages of leasing are lower monthly payments than a loan, and less cash paid upfront to provide transportation for you or your employees. A purchase provides depreciation expense if actual vehicle expense deductions are employed; a lease payment is deductible as an expense too. For instance, if you lease a vehicle you can deduct the monthly lease expense plus fuel, repairs and maintenance.   So why lease when you can afford to buy? If you lease, you can often obtain more car for the same monthly payment as a purchase. This is the main reason luxury vehicles are leased rather than purchased. When the lease term is finished you can obtain a new vehicle. Warranties often last the life of a lease and increase the ease of vehicle ownership, and some leases are maintenance free too. Disadvantages of leasing – you pay for door ding’s and spills at the end of the lease – deductions from the security deposit which can be thousands in addition to the monthly payments. If you want to terminate a lease early there are additional costs associated with such, and if you lease you will always have vehicle payments to make without gaining equity. Gap insurance, covering the cost of the lease if the vehicle is totaled, is most often a part of the lease. If you purchase a new vehicle every two or three years, or want to minimize monthly payments, leasing may be for you. Leasing also has a lower sales tax cost, which can save significant dollars on a luxury auto. For tax purposes if you lease a vehicle for…

Preface: Do you have an IRA and want to do more with your retirement asset? Self-directed IRA’s are a developing area of the tax deferred retirement investments. Continue the Read……   Self-Directed IRA’s Individual Retirement Accounts (IRA’s) are investment vehicles used on behalf of tens of millions of American’s for retirement savings. IRA’s permit account holders to contribute towards retirement savings in an account either pre-tax (Traditional IRA) or post tax (Roth IRA). Traditional IRA’s permit a deduction from taxable income in the year of contribution and a deferral of investment gains on asset gains until distribution of the funds. Roth IRA contributions are taxed before contribution to the account, and all gains are tax free when in the parameters of qualified retirement withdraws. Because financial advisors make commissions from selling securities, e.g. bonds, mutual funds, and stocks, self-directed IRA’s are not widely advertised as a retirement investment option. Self-Directed IRA’s were affirmed by the Tax Courts in 1996, and offer retirement investments options to account holders in a variety of investments, e.g. domestic or foreign real estate, private mortgages, precious metals, stocks, bonds, mutual funds, forex, futures, tax liens, private businesses, etc. Approximately 2.5 million self-directed IRA accounts are working for retirement investments in the US. The IRS requires a fiduciary (custodian or qualified trustee) to hold the IRA assets as a custodian of the asset(s), manage investments, and approve and maintain records pertaining to the self-directed IRA. Fiduciaries help guide compliance of the self-directed IRA to ensure regulation compliance of the self-directed IRA, and avoidance of prohibited transactions. Prohibited transaction include: life insurance, collectibles, stamps, coins, alcoholic beverages, and certain other tangible personal property. The Internal Revenue Code doesn’t list permitted investments, only those prohibited. Prohibited transaction can result in a 15% on assets at assessment, and 100% if not…

Preface: Tax audits are low risk if you’ve prepared beforehand with a tax accountant who understands what is and is not a tax categorical exclusion; nevertheless, audits are most business owners top tax concern.   Avoiding Tax Audits   Rule Number One of minimizing tax audit risk is to file a complete and accurate tax return. Rule Number Two is never forget Rule Number One. Today, the IRS has data mining software that analyzes your financial habits and transaction history; and unearthing tax fraud is only becoming increasingly easier for the Internal Revenue Service (IRS). For instance, with software, depending on the business industry, the IRS can determine estimated gross revenues from a water bill, and use net income averages to determine the accuracy of your tax filing.   Saying you strive to file a complete and accurate tax return is not to say that you won’t be audited, but that you have little to be fearful of. The IRS uses an audit guide called Market Segment Specialization Program or MSSP. Market Segment Specialization Programs provide guidelines on what level of income your business should report as taxable income. If you are involved in an audit, it is vital to have a tax professional involved who can research the Internal Revenue Code compared to the MSSP parameters the auditor follows, to provide you with the optimal tax audit result. The MSSP is an audit guide and not tax code.   Guidelines to Minimize Audits   Avoid tax shelters. If the IRS sees form 8271 Investor Reporting of Tax Shelter Registration Numbers your tax audit risk increases. However, if audit representation is not a concern for you, you should still take measures to ensure your tax filing is accurate and complete.   Avoid talking about your tax filing with anyone but your tax…