Small Business end of year tasks and opportunities – SBS 42

Greetings, folks, and welcome to the small business show at businessshow.co episode number 42 for Wednesday, November 25, 2015 here in Durham, New Hampshire. I'm Dave Hamilton.

And coming to you from Lafayette, California, I'm Shannon Jean.

Happy Thanksgiving, my friend. Yeah.

Yeah. How did that happen so fast where we're already. How can we be at 42 when it seemed like yesterday we were at 1?

Well, we do this every week and, and there's math involved.

The literal, the literal explanation. I love that.

Well, that's, you know, that's just sort of how it goes with these things, is we just keep on trucking. Yeah. It's, it's, it's because we both share the trait. I'm not going to say it's a positive or a negative trait because I think it's both of bullheaded persistence. And so here we are. Plus we enjoy this. So that's. It's actually a really positive thing.

Yeah. So we're coming up, coming up at the end of. And I thought would be great. And we thought it would be a good time to talk about stuff you need to be doing at the end of the year or before we're in November, so you got a little time here because I guarantee if you wait till after the year ends when you think you probably have some more time, even though you're very busy right now towards the end of the year, there's some planning things that you should be thinking about to make good decisions for next year and even for this year as well. So we thought we'd spend some time talking about. The big one I always think of is my accountant yelling at me, don't call me on December 20th asking for, look at my financials and what can we do? And is there things we need to expense or write off and all that stuff. You want to give yourself plenty of time to make decisions before December 31st. And if you have, if you have a business that owns inventory like several of my companies, that's a really important thing because you want to take inventory, you know, count that inventory, but you also want to assess the, the value of that inventory. How long has, you know, each product or category of products been sitting on your shelves? Hopefully not too long, but inevitably there will be things that maybe you want to write down that value. And if you're not familiar with that, if you've, you know, had an item that we bought it for a dollar and you're trying to sell it for $1.50 and a year later you still have it. And you realize the market is 75 cents, or even worse, maybe the market is 50 cents.

Right.

Then you may need to adjust that cost of that product on your books and you want to think about that. You don't have to do it. But as you, as you bump up against the end of the year and start thinking about, okay, you know, what profits did we book? Hopefully we book some profits, you know, for this year, your accountant is probably going to say, hey, are there any, anything in your inventory that you'd like to lower the cost basis on and thus may lower your taxable income for the company?

Yeah, I don't, I don't run any inventory here, so I'm, I'm glad you do because I never would have even thought to suggest that to people, but hugely important.

Yeah, it is. And, and you know, you're, you're inevitably going to have shrinkage and breakage. And so as you get towards the end of the year, you know, you, you don't want to pay tax on things that you, you know, you shouldn't.

That you don't have. Yeah, right.

Yeah. That you don't have. It's gone. It's either, you know, walked out the door some way or somebody dropped it or that kind of stuff. So getting your inventory and, you know, counted and making sure it matches up and finding any discrepancies and then meeting with your accountant well before probably December so they can help guide you into, you know, towards the end of the year. And, you know, if you don't get it all done, there's certainly some things you can do, you know, in January that impact your books in December, but it just gets to be much more kind of troublesome.

It's tricky. Yeah. Well, because now you're, you know, you're back dating deposits or post dating deposits and things like, I mean, things get weird. You don't want to have to deal with that.

You don't want to do that.

No, no, no.

So.

And then it's a good time. No, I was going to say with the taxes thing. Take a look at your, at your P. L's for the year and just where, you know, how much money have you made? How far ahead are you? Because through most of the year, you want to see that number growing and it's a great number. But right now, you know, when it hits the end of the year, assuming your tax year ends with the calendar year, which most of us do, but you don't have to run it that way. But assuming your tax year runs with the calendar year. If you're booking profits right now, you know, or, or just showing a profit that, that could, you know, that's. You're going to have to pay taxes on that profit. And especially if you're in a business. I've always said that I, I made a mistake, and I'm not convinced that this was a mistake, but it might have been aligning our businesses with the calendar year because most of our revenue happens in Q4, or at least most of our sales happen in Q4. We wind up getting the revenue kind of starting in mid Q4 and comes through, you know, January as people are paying their bills. But I've always said I should have just called it, you know, March 31st was the end of our, our calendar year because it would have, it would have been easier to just manage that stuff.

Sure.

But we, but we're not. And we're on a calendar year and so we have to pay attention. And it indeed, you know, this week I've been looking at, okay, where are our profits? Okay, great. Yep, we made some money. How many, how much of that do I want to pay away in taxes versus, you know, what can I do with that money? And you know, there's, there's several things. I mean, like you said, you might have some capital expenditures and that sort of thing, but this is also perfect timing to start thinking about what you might be doing for your employees that have helped you get here throughout the year. And that can be gifts or bonuses or, you know, a combination of the two. And, you know, all of that stuff. I'm curious what. You know, you're. You. I've always looked to you, Shannon, because you've, well, you've been doing this a little bit longer than me, but it's at least in terms of saying.

You're saying I'm an old man. Is it right?

No, I think we're about the same age. I don't know. I thought we were pretty close. Our kids are about the same age anyway.

Yeah, that's true.

Yep, that's true. But you know what, you know, for, for us, we've, we've either done. Well, we've done, we've done both. We've done cash bonuses, we've done gifts for our employees, and, and you know, sometimes we do both. Sometimes you do one, sometimes we do the other. Depends on the employee. And you know, Mac observer is a little bit different than Backbeat Media. Backbeat Media is very much a cash focused business because it's, we're a salesforce and Salespeople work for money, you know. Yeah, that's right. So, yeah.

And I, you know, we've done it all different ways, trying to come up with the, you know, the, the best way to handle it. We've done cash, we've done gifts. And, and sometimes I've often thought, you know, nice gifts resonate with employees for a longer period of time because they typically keep it. You know, we've given out iPads, we gave out TVs. One year TV is a big one.

Right. Because every time they look at that tv, you know, you give them cash, they're going to pay a bill with it, you know.

Yeah, I like. Yeah, that's right. And they're looking at all the time. And I really do like the, the gift concept. But yeah, again, you know, we've talked in the past about our perspective versus the employee perspective. So, you know, and I, you know, love some feedback on that too. Is, is it just the cash so they can, you know, end their year in, in a good note and help pay for their holiday and, you know, that kind of thing?

It's true. Yeah.

You know, and if you're going to do cash, I would encourage you not to wait until a week before Christmas or the end of the year to do it right about now or into the next few weeks so they have an opportunity to use it in their family and that kind of thing.

Huh. See, that's interesting. You may be right about that. I may have been thinking about that incorrectly. I always thought doing it later allowed people to spend within their perceived budget and then got this little bonus and I can only again, here I am projecting myself. You know, you want to rewind to last week's show, but when we bought our first house, we went through the process. We didn't buy it outright, we didn't have the cash to do that, of course. But you know, we went and got the loan and it was, it was a terrifying process, you know, thinking, wow, you know, this is now, this is real. You know, we're committing that we're going to pay this, you know, this six figure bill over X number of decades and all of that. But we made it happen on our own and we had to, I guess what we did with our first house is, you know, we got some deal where we only put 5% down and then we were going to have to pay mortgage insurance because we didn't have 10% equity in the house and all that stuff. And one of our parents came in after we had, we didn't, we hadn't bought it, but we had put the deal together. Everything was done. We were just sort of waiting for the closing and, and came in and said, okay, I'm going to double your down payment for you.

Oh, that's cool.

Yeah. But, but the. It was made very clear that they waited to do this until we had done it all ourselves. And then it was like, okay, you know, you can do this. And now you, you. Now I'm going to make a little easier for you. And, and I really appreciated that because it meant that I wasn't, you know, it didn't give me. Of course, the next time we bought a house, it was far more expensive and in a different area of the country. And so it was petrifying again, anyway. But at least I went into that second experience knowing I can do this. You know, I don't, I don't necessarily need to rely on other people again. And I kind of liked that.

So, yeah, I do see that. I see that, you know, your point about waiting and that kind of thing. And I think it probably can depend on the, the types of employees that you have.

Sure.

And. And, you know, their response. I mean, we've done, I think one year we did our employee party stuff where we handed out bonuses and things we did after the end of the year because, because we had so much going on and it was tough to get, I don't know, get a place or something like that. And that was an interesting thing as well. I love taking people outside of work. I think that's an important thing to do, whether you go out and lunch or go somewhere. We've done everything from Gone and Race, Go Karts one year to laser tag to baseball games. I mean, stuff that gets people out and makes them just socialize a little bit, and I think it works out well. And it's kind of a time to reflect on the year and what went right and what went wrong and to talk about that with your, with your employees. I think, I think often it's easy to internalize that stuff as a business owner and not put it out there. Especially that towards the end of the year where you're like, okay, you know, want it to be positive and this kind of thing, but I think it's important to mix it together and talk about, hey, this is what we started, we wanted to do this year. These parts of it worked. Hopefully you have some that worked and these parts of it, inevitably you're going to have some that doesn't. And you want, you want to. It gives you a chance to talk about that stuff. I think it's important.

No, I agree, I agree.

Yeah, yeah, definitely. And you know, we're talking about, you know, tax planning and things. Having those expenses before the end of the year is, you know, a great way to lower your taxable income and to spread it out on the people that, that are making it happen for you, you know.

That's right. Yeah, yeah, you right. You can, I mean, you know, it's self serving, but you can, you can do yourself a favor and, and, and you know, reduce your tax burden by doing that. I mean, of course it shifts the tax burden to your employees, but, but they're getting extra money too. I mean it's not right. Yeah, it's, it's, you know.

Yeah, well, and we've done it because I'm totally this, you know, I'm not an anti tax person, but I look at things like okay, we're, let's say we're going to give somebody choose a round number, $1,000 bonus, end of your bonus. Well, you know, how much of that they going to get? You know, $700 or 750 or you know, and I often make the argument to our accounting departments like we need to give them twelve, twelve hundred and fifty bucks. You know, I just want to give or, or let's give them cash, we'll pay the, you know, the tax on it or whatever. But let's just, let's give them, you know, 500 bucks or $100, whatever it is. I mean, you know, different levels of employees. You know, you have a guy working in your warehouse, maybe he gets less and salesperson, you know, different.

Yeah. Whatever it is. Right. Yeah.

Yeah. And I just think it has a great impact. There's nothing like $100 bill in my experience to hand somebody or multiples of them.

Yeah.

And say thank you for your efforts. This is above and beyond. And maybe it's not your end of your stuff because I really do believe in the gift thing has more lasting value unless they just turn around and re gift it. But during the year, handing out those little envelopes I think is powerful and it lets those, your employees know you're thinking about them and in one way or another. But I think it works.

Well, I like it. That's actually a really good idea. Yeah. Because you got to talk to your accountant about making sure you handle it right. But you're right, you can do that where as long as you're not booking it as an expense or a taxable expense, then, then you can do it that way and you pay the taxes and everything's hunky dory.

Yeah. Or just take it out of your pocket. I mean, you know, you're the owner. I mean, I do this. I do it all the time. It's like, okay, hey, or I'm walk out. I'm gonna buy lunch for everybody today. I could just see, you know, we just, you know, we're doing some big project and everybody's working hard. Well, you know, let's go do stuff for them and just take it out of your pocket. You're. You are the business in many ways. Right. Yeah.

You need to be careful. Again, you know, we're not accountants and we've scrapped more things than we've gotten right in that department. I'm sure.

Ye.

But you have to be careful that you're not. That you're not inappropriately blending your personal finances with the business finances.

Absolutely. Oh, that's critically important.

Critically. Yeah. But it's. But when you start a business, I guarantee you, you're doing that because it's just how it works. Like, especially, you know, sole proprietor, that stuff's going to happen. Stop doing that as soon as you can. And then when you're at this point where we're talking about. And you've got employees. Yeah, you can, you can take a hundred bucks out of your pocket. Just be careful that you're not, you know, assigning it in a way that it can come back to haunt you because you don't want it. You don't want to. You don't ever want the IRS to come and say, that's right. Well, the business. And you haven't been operating it separately enough that now everything is, you know, subject to risk and all of that. You don't want that. Yeah.

Yeah. Your accountant needs to tell you if he's looking at accounts and is asking you questions like, well, what's this? And why is this, you know, what's this check written back to you? Or what is this check you wrote to the. Or this cash you put in the business? You know, that kind of thing. Handing, you know, 100 bucks out of your pocket, it's not accountable for. It's just. You're just gifting it, basically.

Yeah. You've paid taxes on that yourself.

That's. That's correct. That's your post tax dollars, and you're just, you know, handing it to someone. So, yeah, you can't.

But there's nothing wrong with that. You just.

Nothing wrong with it.

Don't. Then go try and book it as, you know, an expense somehow, because that's where it gets really ugly.

Yeah, yeah. You do not want to mix up your personal stuff. And it is just a nightmare. And again, your accountant is the one that it has to pass the sniff test. He's got to look at and go, ah, this is kind of weird. Or, you know, what is this? And if you made an error, he can help you back it out and then don't do it again.

Yeah, you can, you can fix these things. Like I said, all of us when we start businesses, so few people actually go and get a business account for the very first check that comes in or goes out. Right. Invariably, somewhere at the early stages of, I would say 90% of every business, there's, you know, this, this complete black hole where there's no differentiation between the business and personal finances. It's just going to happen.

And a lot of times, go ahead. I mean, you don't even, you don't even know you have a business until all of a sudden you get some money.

That's it. Yeah, it's like. And then you go backwards and you're like, well, I did buy that computer and I'm using that for the business, you know, and your accountant says, oh, absolutely, you can do that. You know, especially in that first year of a business where, you know, you haven't filed a return. So you can sort of have a, you can have a, you know, a good revisionist history lesson going on. And all of it's legal, you know, or not. I mean, not all of it, but, but it. Much of it is. And you, as long as you handle it right, but you are doing some revisionist history on that and the IRS knows and they're fine with it. Just be careful and don't make it a habit. You know, 10 years down the road, that's. That's where it's going to be a problem.

Yeah, that's right. It gets, you know, trust us. And when you hear Dave saying it gets more and more complex and you're. As your entity grows and you are doing lots of different things and you, you definitely want to, you know, have your accountant look at. Even if you're not meeting with your accountant on a regular basis, you know, you want to turn over the books to them so they can ask those important questions and guide you. Because more than. Unless you're starting in, you know, an accountant, you know, business, we're not CPAs, and we need people to advise us on the way to book this, this revenue and all that stuff.

Hey, you want a clean line? Yeah, yeah. So I didn't mean to bring us down that trail, but it is, especially this time of year. It's important because, because that's part of what you're going to do in the next, you know, whatever six weeks, five weeks is. Make sure that, you know, oh yeah, that I gotta sort that out before the end of the year and then you can straighten it out and everything's fine. Go ahead.

Well, one of the important. We were talking about inventory earlier and I think it was Kyle Bacchus from KC Toole that made the comment, if you're in a business with any kind of inventory, inevitably you're gonna get to the end of the year and you're gonna owe these taxes and you're not gonna have the cash because you've been buying more inventory. And that's just inherent in an inventory driven business is you're buying product all the time. And so meeting with your accountant or even just running all the numbers yourself with enough time, you know, before the end of the year, you need to be able to calculate what your cash requirements are going to be because you got to file by March, you know, if you're a corporation, March 15th. And yes, you can get extensions, but not on, you know, if you owe money, you have to pay it or you're going to pay penalties and interest. So you want to, you don't want surprises.

It took me, it probably took me five years of being in business, maybe longer to finally get that right. And, and if you remember, I just said I've never had inventory. It's not just people who run a business with inventory. You know, I wasn't paying my own quarterly taxes and, you know, or I was paying them somewhat and it was never right. God, it took and I paid. I mean, I'm sure I racked up, you know, five figures worth of fees over, over those five years where I, it's just stupid, but that's right. But it, you know, it's crazy taking this big chunk of. Right, it's crazy taking this big chunk of money and just sending it to the government every three months or even every month or however, you know, however often you've got to do it. But you gotta, you gotta figure that out. It really is important. It sucks too. It was.

Yeah, it sucks too. I think that's a, that's me. It does.

And where it sucks the worst is when you've been, you know, you've been doing it where you just pay once a year and you just say you know, whatever, I'll pay the extra, whatever it is, thousand bucks and in fees and penalties and whatever it is and you just deal with it. And then, and then you've kicked the can down the road, you're not going to think about it for another year and you sort of do this for a while. And maybe you pay your taxes when you know money's good and you've got a little bit extra and then you know it doesn't hurt as bad, even though it's hurting more than it would if you just paid them on time. But where it really hurts is when you get in line. Because now suddenly you know your monthly revenue, especially your monthly take home, is less than you're used to because suddenly you're doing the right thing. And at the end of the year it all comes out in the wash. And you are in theory ahead of the game because you're not paying penalties. But it's a hard pill to swallow and sometimes an impossible pill to swallow.

Well, it's cash is king, right? Profits are, profits are critically important, don't get me wrong. But cash is the blood of your business. That's right. And you know, every day when I go in, I'm, I'm online. Okay, who's got what, where's this and this, that, the other thing. And you know, one of the things that, and I don't want to segue too much on this, but I've been thinking a lot lately about the, you know, the so called gig economy, you know, the Uber drivers, Lyft drivers, Airbnb rentals, all these, you know, kind of independent, at least for now, independent contractor jobs. You know, how are the, how good are these folks going to be about paying self employment tax, quarterlies, this kinds of things? It is to me a ticking time bomb. Social Security, you know, where you, you know, if you're on your own, you got to cover both sides of it. That, that's why that self employment tax, right, you're going to pay the Social Security that the employer typically pays as well as what you typically pay. And you know, how, how are these folks going to keep up with that in, in any manner? And, and to me it's just a trickle down problem for them, for the government, you know, revenue wise, all these kinds of things. And that's, that's a challenge I think we're going to have to deal with.

That's a really good point, man. Yeah, that's, you're right, that's a whole different conversation. But yeah, I mean, who does it.

I mean, I. I mean, I. I love those services, don't get me wrong.

Of course.

TaskRabbit and all this kind of stuff, and it sounds great and it's flexible and you can make money, whether it's Instacart and you're shopping or you're driving for Uber, but you really need. If you're doing that, you really need to be putting aside. You need to talk to an accountant, you know, and say, okay, I'm doing all these gigs for these different entities, and I'm happy. I'm doing great. My. It's. It sounds great because it's very flexible, yet I have this infrastructure around me. So how much do I need to set aside? Because to your point, Dave, it sneaks up on you where you haven't set anything, and then you're living a certain lifestyle based on your cash that's coming in.

That's the problem. That's right. Yeah. You're living. You're living outside your means. And you. And even if you don't think you are right, that's the. That's the worst part is you think, oh, I've got this money. Awesome.

Yeah.

Well, yeah, yeah, but you really don't. 30% of that, give or take, is somebody else's money. Yeah.

Yeah, that's it. So it's something. Something to think about. And, you know, the same at this time of year, too. I think it's important, you know, you talking about employees and inventory and taxes and things, but also to look at your customers as well as your suppliers. And, you know, even. Just. Even if you don't send out Christmas cards, I mean, you know, I don't know, companies still do that, but recognizing something, you know, where you. If you're sending out gifts or food or, you know, I know your companies have always been great at that, Dave.

Yeah, yeah, we do. We do coffee cakes, man.

Yeah, I've gotten those. They're really good.

I know. We had. We had. We've had people that, you know, haven't been customers throughout the year or whatever, and so they fall off the list. And we've had them call us and say, like, hey, so are you sending out those coffee cakes again? It's like, hey, are you gonna buy some ads again? You know?

Yeah, yeah, that's right. That's right. I love it. Yeah. I think that's. It's an important time to, you know, whether it's through your employees that have relationships with them or you're purchasing people, you know, suppliers. I mean, one of the secrets to, you know, the secret, so to speak, of whatever success I've had is, is treating your suppliers just like they're a customer.

Yes.

Because they are just as in, in my case, often more important than the customer. We're always finding, trying to find new suppliers because we're product driven lease for tech store. We're product driven business. And it's, you know, we send those guys stuff and we do nice things for them and they're always shocked because they're used to them, oh, wait, we're supposed to be sending you stuff, but they remember it. So I would encourage you to, you know, take some time to recognize your best customers as well as the customers you would like to do more. If you're, if you're kind of focusing on, you know, increasing revenue from a customer, you want to pay a little more attention to them and as well recognize your suppliers and other. And other vendors.

Yeah, we, we, every one of our publishers, we, you know, we, we do the coffee cake thing or sometimes even more than that, but, but at, at the very least, we treat them on the same level as our, as our customers. You know, the people that are, that are sending us money because without our publishers, we're not making money here. You know, it's just how it works. Yeah, that's right. Yep. Even even though they've never sent us a check and we send them checks every month, it's. We also send them, you know, gifts and thank you for, you know, trusting us to, with your business because that's, that's what it is. Yeah.

Yeah, I agree. And then, you know, I got, I.

Got one other thing.

Oh, yeah, go ahead.

Health insurance. You know, I know a lot of people, you know, you, you manage health insurance for your, for your employees, but a lot of small businesses don't do that. And especially with, you know, ACA the way it is now in the U.S. yeah, there's even less incentive necessarily to, to do that. So whether it's, you know, your health insurance for your company as a whole or just for you personally, this is the time. Right. Especially with open enrollment. Yeah, we're all stuck with this open enrollment thing. You can't just sign up for health insurance any old time like it used to be, you know, you used to be able to just apply any, any time during the year. And if you were buying an individual plan and it all worked. Well, not anymore. You got to do it now. And even if you did it last year and you're on a plan and you like it, a, that plan might Be going away because every state has different things. I know here in New Hampshire we had two companies last year that, that were in the marketplace. Next year we have three, but two of the ones next year are new and one of the ones that we had is going away. So you've got to, you know, it's worth digging in. Even if you're happy with your plan, go in, check and make sure that you've got, you know, the plan that you want and that the one that you have is, is the best one for you because it, it could change.

Yeah, that's a good point. We could do a whole show on probably should healthcare and, and benefits.

I'm a maniac with that kind of stuff. So, yeah, I'd love to do that. Yeah.

Yeah, let's, let's. We talk about benefits as well for your employees as well as yourself. I think that's a, that's a really good thing.

Yep.

And no. And maybe lastly, but certainly not least important, talking about what's on tap for next year, what goals do you guys have for your business and get your employees involved? I think it's a very good thing. And I'm going to be doing this over the next few weeks during our department meetings. Okay. What goals do we want to set for next year for your department? And I love them to set those goals themselves. I say within kind of an evil laugh because it's much more, it's much easier to hold them accountable when, when they set the goal themselves. And I may have to prompt them a little bit. And, and it may, and it's not always a goal to sell more, whatever, make more, you know, for the warehouse guys, it could be, oh, we want to, you know, give ourselves half an hour to clean the warehouse up every day, whatever. I mean, you know, something that's going to benefit the business and the environment that we work in. I think it's a really good thing to sit down, set some goals that you can say, great, here's our goals. And when do we want to, you know, if you don't put a date on the goal, it's not a goal, it's a wish. And so, you know, I love that. What date can we come back in and say, okay, we're going to set this goal? So by January, whatever, 15th or February 15th, we're going to be doing X. Okay, great. So you put on your calendar and you come back, you kind of talk, talk about it and you say, oh, you know, are we making progress? Because, you know, on the 15th is our our check in where. Where we should be. And I. I think that's very helpful. Gets it on the calendar and kind of out of your head and puts the onus on the department head or the employee to. To kind of keep track of it and. And I really like that.

Good stuff.

Yeah, that's great.

I think that's a good place to leave it, man.

I do too. That's awesome.

Have a. Have a. For those of you in the US in, in celebrating giving this year, wherever you are, please enjoy. Shannon, enjoy. I know you, you have some great time planned with your family, so.

Yeah, we do. And Dave, I'll take this time to tell you, I'm really very thankful for, you know, emailing you, what, 10, 15 years ago to start, you know, our first business together. And I'm really glad to jump back in with you this year to get this, the small business show off the ground.

Well, man, that thanks goes in two directions. It has it. I am thankful for everything we do together and just thankful for the friendship too, so.

Got it.

Good stuff.

Take care, everybody. Have a great Thanksgiving.