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Small Business Secrets: Practices that Aid Personal Finances 0

Posted on May 20, 2015 by Tiffany C. Wright
Financial management is financial health

Managing your money like a successful small business owner can enhance your financial health.

There are a number of activities that small business owners routinely engage in out of necessity. For example, for successful small businesses, cash is king. You can be profitable yet have very poor cash flow because you did not structure the timing of your inflows to exceed your outflows. Most ongoing successful business owners have developed the ability to forecast and manage cash. Learning to do this and other activities bodes well for individuals and improving both their personal financial management capabilities and their actual personal finances.

Managing Cash Flow

I plan out my cash flows 12 weeks in advance. If I see that I’ll have a large outflow in a given week, I’ll make adjustments in other weeks to ensure I have the cash or I’ll use our credit cards or line of credit. But I make sure that I can pay these down within 1-2 months. In addition, I plan out capital expenditures 1-2 years in advance. That way, I can explore ways to fund those expenditures in advance such as a lease, term loan or (more rarely) one or more investors.

People can use this same planning and discipline to manage their personal finances. Treat those major vacations and large purchases like capital expenditures. Know your personal inflows and outflows and timing and only use your credit cards to cover the gaps or to allow time for more cash to come in before you pay out (i.e., you delay the cash outflow by 25 or more days by putting it on the credit card).

Poor financial management

Poor financial management is evidenced by overdue bills, maxed out credit cards and little cash.

No Reliance on One Income Source

Another thing is, as a business owner, I try not to place more than 5-10% of my business with any one customer. Sometimes a customer may jump to a much higher percentage (which is usually great!), but then I focus on expanding customers or the business to again lower that percentage. Most non-investors and non-business owners have one or two sources of income – their own and that of their spouse, if they’re married. To generate cash from other sources, you can invest in real estate, invest in bonds, invest in stocks that pay dividends, freelance, have a part-time job,… The point is to reduce your reliance on your paycheck through multiple methods so you don’t experience a massive shock if you lose that paycheck.

Periodically Extract Money and Invest

Finally, I am currently growing my business. However, with previous businesses, I pulled money out of the business periodically and invested in other assets – other businesses, stocks, and real estate. I want to build the value of my business by retaining some profits but I need to reduce the risk of a negative impact on my personal finances if something unexpected happens and adversely slams my business. You can benefit from doing the same personally. Take money from your paycheck and invest it in something, preferably, multiple assets that you know and are comfortable with. You increase your net worth over time and reduce the likelihood that one asset will collapse and wipe you out financially.

Best Business Tip: Play to Your Strengths 0

Posted on April 24, 2015 by Tiffany C. Wright
Develop strengths, not weaknesses

A quote that illustrates my point.

The best business tip I received was, “Play to your strengths, not your weaknesses , however, anything can be learned.” This came a little later in my career, after getting my MBA, when I had some experience under my belt. The person was telling me that anything I would need to know, I could learn. However, instead of using a great deal of effort to learn something I’ll rarely use or that I strongly dislike doing, focus on learning to enhance my strengths. Those strengths include what I like because when you (or I) are passionate about something, you embrace it and learn faster…and want to know more.

So often we try to strengthen our weaknesses. I do think it is very important to understand what your weaknesses are. You need to know your weaknesses in order to delegate and partner effectively. However, playing to your strengths is what builds personal and business competitive advantages. And those strengths can be further enhanced through education – experiential, online, in class, reading, or more. This one tip really helped me to focus. It also helped me know that, although I may not be fully capable of doing something at this moment, I can learn how to do it at some future moment.

What was your best business tip and why? Please share and comment below.

Video: Limited Liability Companies (LLCs) and 1099s 0

Posted on January 29, 2014 by Tiffany C. Wright

This video by The Resourceful CEO succinctly explains LLCs, the tax filing status of LLCs (sole proprietor, partnership, corporation) and how this filing status has no impact on 1099 filing and reporting requirements for LLCs. It dissolves any confusion you may have surrounding LLCs and 1099 reporting requirements.

Video: IRS Company Penalties for Not Filing 1099s 0

Posted on January 27, 2014 by Tiffany C. Wright

For more information on 1099s, check out the 1099 Guide

The Give and Take of Receiving a Business Loan 0

Posted on September 17, 2013 by Tiffany C. Wright


Non-corporate accounting firms need 1099s, regardless of the firm's size.

Your firm needs to assess working capital needs to determine loan size.

While it would be wonderful if everyone had a private stockpile of cash for covering business expenses, for the average small business owner, this is simply not the case. Thus, most small businesses will need to take out a business loan at some point.

Some business people look at debt as a nasty, four-letter word, and see it as something to be avoided at all costs. But even very large, successful businesses have some level of debt.

As the old adage goes, “It takes money to make money.” Sometimes acquiring the cash flow necessary to make a business more successful means taking out a business loan.

This is not to say that the act of taking out a business loan, in and of itself, will magically make a business successful. Of course, there are both pros and cons to consider when taking out a business loan.

Advantages of Business Loans

As mentioned above, the chief factor that makes business loans attractive is the ready access to capital that they provide. However, there are other incentives to taking out business loans.

Low Cost Financing

While there is not one standard interest rate charged for all business loans, they typically cost less than other means of financing, such as business credit cards.

Credit Building Opportunity

If business loans are managed in a timely and prudent manner, they can go a long way in establishing a solid business credit rating. Companies like Dun & Bradstreet offer great tools to help businesses improve their credit scores. Care should be taken to make loan payments as early as possible, and to ensure that the payment history is being correctly reported on the business’s credit file, in order to maximize these benefits.


Standard business loans are widely utilized, but financial institutions may also be able to help business owners access other types of business loans. These include non-business loans that can be used for business expenses, and SBA-backed loans. Business owners would do well to consult their financial institution’s loan officers, who may be able to apprise them of alternate business loan options that they might not have considered.

Maintaining Control

For one thing, taking out a business loan leaves business owners fully in control of business decisions. Once the business loan is approved, there are no interested parties to consult on how the money should be spent, or how business should be conducted.

Further, once the loan is paid back, the obligation to the lender is fulfilled. This allows the business owner to acquire capital without needing to share profits with investors.

Potential Disadvantages of Business Loans

While business loans do give businesses access to much-needed capital, there are potential drawbacks to taking out a business loan.

Qualifying Can Be Challenging

This is not as much of a hurdle for large, established businesses with healthy balance sheets, but for small businesses, qualifying for business loans can be an uphill battle. Many lenders will not consider loans to new business entities without collateral (personal or business assets used to secure the loan), or a personal guarantorship (which extends the liability for loan to the guarantors).

Making the Payments

Every business owner knows that loans require repayment. However, if a business owner borrows more than they can handle, they could find themselves in an untenable position. Therefore, it is imperative that those taking out business loans resist the urge to take on more debt than they can realistically repay.

Potentially Negative Effect on Credit

This is the flip side of the credit building coin, but bears mentioning nonetheless. Even if business loan debt is kept at a manageable level, but isn’t managed responsibly, the effect on a business’s credit rating can be devastating. Again, make payments as early as possible, and never let them slip through the cracks.

Ramifications of Defaulting

If the business loan was borrowed solely by the business, then defaulting on the loan would ruin the business’s credit rating, and potentially forfeit the business’s assets. Additionally, many business loans require the principals of the business to sign as personal guarantors, or to put up collateral in order to secure the loan.

If this is the case, then the liability for the loan is not limited to business assets, and the personal wealth of all parties responsible could also be forfeited.

Tracking Elusive Profits in the Construction Industry 0

Posted on August 19, 2013 by Tiffany C. Wright

This article is very well-written. It addresses a key concern in the construction industry and a behavior pattern that often leads to a construction company’s demise. I’d love to hear your comments. – TCW


Tracking Elusive Profits in the Construction Industry

By Len Goodman

A framing subcontractor can protect his assets by organizing as an LLC.

A framing subcontractor can protect his profits by better tracking of cash inflows and outflows.

In simple terms, profit is defined as: Profit= Income-Expenses.

But contractors and sub-contractors know it’s not that simple. In fact, if you talk to most contractors, most have only a “gut feel” if a project has actually made a profit or not. It’s true! Given that anecdotal bidding usually uses a 10-15% profit margin (sometimes as low as 5%) means that even a slight over run in labor or materials can have a big impact on the profitability of a job.

For those of you readers not familiar with the way income and expenses flow for a mid-size construction job, consider the following general example.

Example: Job XYZ

Month 1: Materials, labor and G&A expenses are paid by the contractor but only part of the contract amount (draws) has been collected to offset the expenses. At the end of month 1, the project shows a loss.

Month 2: Labor, materials, G&A (overhead) are expensed by the contractor for Month 2, but no payments (draws) are still behind the job costs for Month 2. At the end of Month 2 the project still shows a loss.

Month 3: The project is finished but the material, labor, and G&A for the balance of the project have been paid in full. But, payments are still behind the expenses. At the end of Month 3, the project still shows a loss.

Month 4: The final payments and hold back (usually contains the profit for the entire job) for the project are paid and now the project can be evaluated to see if it made a profit or not.

The bottom-line is that without proper tracking and matching of income and expenses, most construction related companies won’t know if they made a profit until the project is over. This time lag between expenses and income is the cause for the demise of many construction companies. Any overages of labor, materials or other expenses are not picked up until after the project has been completed.

Because of the special nature of construction accounting, most accountants have little understanding of how construction accounting works. Accountants are trained to provide accurate information for tax purposes-not for operational needs.

You see, if the bid for a job has been done correctly, at the end of the project the contractor should see a profit close to what was bid. Of course, there are change orders and other factors that will change the original bid, but all those changes have to be accounted for. Whatever happens during the job, a contractor must be compensated for the expenses incurred. At the end of any project, expenses must be offset by revenue plus the profit.

Types of Profit

1. Gross profit (margin): Revenue-Direct expenses.

This type of profit measures how efficient the company is in regards to controlling direct costs (costs related to the job site). Normally, direct costs are the most variable and difficult to control. Indeed, for all intense and purposes, G&A can be considered as more or less a fixed expense with little variation.

2. Net profit before Taxes: Gross profit-(Selling costs +G&A)

This type of profit is the most universally used definition of profit used to determine how profitable a company is. It includes all normal expenses involved in the operation and is subtracted from revenues. It does not include certain costs such as interest, taxes and amortization because these will vary from company to company.


For the reasons stated in the last paragraph, many financial reports refer to net profit as “EBITA”-which means “earnings before interest, taxes and amortization”.

3. Total Return to owner: Net profit + (owner salary and benefits).

Salary, insurance, auto and travel expenses and other eccentric expense categories are some of the less obvious compensation paid to ownership or management. These work related expenses could easily be considered as a personal benefit that could be considered as profit. Of course, one of the best reasons for ownership is being able to decide what a reasonable business expense is and what is not. Paying taxes on income does not mean that it isn’t good business practice to legally minimize taxable revenues. Often times, a company’s net profit may be below average for the industry solely because the owner’s salary and benefits distort the bottom line. In fact it is very important when buying a company to clearly identify those “fringe benefits” that can detract from real profitability.

Being able to track a realistic evaluation of the company’s performance is very important and internal tracking of income, expenses and profits should be kept as “pristine” as possible, at least for management purposes.

Len Goodman has been a consultant to the construction industry for over twenty years. His focus is on helping contractors and sub-contractors learn best practices for administering their companies. Most small to medium sized construction company owners and managers don’t have the type of training needed to accurately bid, engineer profit and monitor profitability. Mr Goodman has a website dedicated to addressing the training needed to overcome this important need.

Article Source:



To Improve Cash Flow Management, You Must Have This 0

Posted on August 15, 2013 by Tiffany C. Wright

Here’s a different perspective on cash flow management, from the system perspective. I invite any and all comments. – TW


To Improve Cash Flow Management, You Must Have This
By guest author, Stacy Luft

If you want cash to rain in on your business, you must manage it effectively.

If you want cash to rain in on your business, you must manage it effectively.

Tax time is usually the time when most small business owners think about their bookkeeping system. All year they have been collecting receipts in a drawer and it isn’t until about a month before the tax accountant calls that they think… “Uh oh, I have to get my books in order so I can get my taxes done!” This is also the time of year when I’m asked to help someone set up a system for the bookkeeping and help them organize their work because they don’t want to “go through this again next year”.

Many times a small business owner will ask me, what accounting software should I use? I can answer easily that my preferred accounting software is Xero Accounting. However, that doesn’t answer the real question at hand. The business owner is struggling with something more than what software will fix. They are struggling with a drawer full of receipts and an idea of how much money that they’re pretty sure they make each month. They might even say “I used to know exactly what I had in the bank at any given time, but lately I’m not sure. Last week I even bounced a check and I’ve never done that before.”

So the problem really is that they have a system it’s just that it’s no longer serving them well. They have out grown the way they were doing things. Putting receipts in the draw and keeping a tally in their head. This is a system for sure, it’s just that now the business is starting to pick up and it’s just not as easy to keep track of all the details anymore. Things are beginning to fall through the cracks. Cash flow is starting to become a little cloudy.

When we first start out it is easy to keep up with everything, because we aren’t yet busy enough with paying clients and we haven’t been spending very much, so there just isn’t a whole lot to keep track of. It’s easy to stay up to date on our bookkeeping and keep a running tally in our heads. But then, we start to get busy and we start to run out of time and we start to let the things that don’t immediately bring in money fall behind. “I’ll get to that later” we tell ourselves. Later never comes though, because there really is only “now” to our brains. We need to schedule in the time to take care of everything.

How a bookkeeeping system can improve cash flow management:

So why do I need a solid accounting system you ask? What does this have to do with me and my cash flow? If you ask an accounting person you will likely hear an answer similar to, “Because you do! How can you run your business without it?” As a small business owner you will react with – “Well I’ve been running my business this way for years and I haven’t needed an accounting system. What you want me to do is way too complicated and way too much work for me to do!” Frankly, you would be right. The accounting system that you use, needs to be no more complicated than the stage of the life cycle your business is in. I think we can all agree that we need to have some form of an accounting system because we have to file our taxes each year. Truthfully, to me, that is actually the last priority to setting up a bookkeeping system to help me RUN my business. For example, can you keep a box of receipts for your expenses and track your income from your PayPal and bank statements for tax purposes? Absolutely. But will that box of receipts answer questions you have about your business?

Questions that a solid bookkeeping system can answer:

  • How much did I spend in Facebook advertising last quarter?
  • How much money did I spend on networking events this year as compared to last year?
  • How much cash do I need to collect each month to keep the doors open?
  • Where am I making money or losing money in my business?
  • Did I give my tax accountant all the expenses that qualify for deductions?

It may not seem like it, but each of the questions above are all related to cash flow. Improving your cash flow is the best way you can improve the strength of your business for the long term. Let’s face it, as business owners cash flow is really the only thing that matters. It is the life blood of your business. First place to go to improve your cash flow? Your systems. Systems can help you find mistakes, systems can help protect your business. Systems can help you to make informed choices for your business. A good system is like a good habit. Good habits will get you good results and bad habits or bad systems will bring bad results.

A solid bookkeeping system can help your small business by tracking your spending and your income in real time. (Or at least weekly) Setting up a system that tracks your money can improve your cash flow simply by having clarity on HOW you are spending your money. Having a solid bookkeeping and accounting system will answer questions like “Am I making any money… really?”

The secret to success for your bookkeeping system to unlock the secrets to your cash flow? Consistency. Discipline. All the time.

When you are starting out, you may not have the budget to hire someone to do it for you right away, but you still need a system and you need to work that system with consistency. Create a habit out of doing your bookkeeping. Schedule it into your work day each week. Set aside time during your normal business hours to take care of your bookkeeping. My suggestion is not to leave it until the end of the work day because it’s very easy to let it slide to “later” when you do. I also suggest scheduling it into your normal business hours because this will help you to understand easily when it’s time to hire someone to help you by taking over the bookkeeping tasks for you. A good measure for hiring help is when you are doing tasks that keep you from bringing in money to your business. You’re no longer spending most of your time on revenue generating activities. By scheduling your bookkeeping during your normal business hours you will gain the benefit that systems bring to your business.

The ability to know what your cash flow is at any given time and be able to make course corrections as you go can make or break your business.

How would a solid bookkeeping system improve your cash flow? What are some of the questions that come up for you that keep you up at night?

Ready to get your Bookkeeping System in order? Contact us to find out more about how we can help you!

Article Source:,-You-Must-Have-This&id=7624871



Small Business Financing: Interview with a Banker 0

Posted on August 13, 2013 by Tiffany C. Wright

I often talk about what is need to obtain bank financing. Here is an in-depth conversation with Dean Fabro of Bank of the West by Michael Gray, CPA. Although it is nearly 30 minutes long, he gives a lot of great information about what businesses need to present to banks in order to obtain bank loans.

Some points Mr. Gray makes:

  1. Businesses need to present audited or reviewed quarterly and annual financial statements. At the least, if you are small and do not wish to incur the necessary expense (my words!), have these financial statements compiled. In all these cases an external CPA or CPA firm prepares the financial statements. This lends significantly more credibility regarding accuracy when compared to the alternative: written statements or Excel spreadsheets or printout from Quickbooks, Peachtree Accounting or other accounting software.
  2. Ensure your business has more viable assets than liabilities. If not, you need to change your asset composition or inject capital to shore up your owner’s equity….and increase the cash –an asset — on your company’s balance sheet.

To view the entire interview, click on the video. To get to the meat of the interview and bypass introductions and general market overviews skip ahead to the 5-minute mark.

What Are the Additional Legal Considerations for a Start-up 0

Posted on August 07, 2013 by Tiffany C. Wright
Consult with an attorney for any legal document you need assistance with.

Consult with an attorney for any legal document you need assistance with.

I generally advise larger businesses but occasionally advise smaller, micro businesses or start-ups via email or phone. A question I’ve had repeatedly is some variation of the following:

Q: I am starting a business.What else do I need to do in addition to the following:

  1. File Articles of Incorporation (to protect your personal assets from the activities of your business)
  2. Obtain Employer Identification Number or EIN
  3. Obtain  a Business License from your city or municipality
  4. Craft an abbreviated business plan
  5. Craft a legal contract — shareholder’s agreement, buy-sell agreement or both — between yourself and any co-owners or business partners***
  6. Open bank account in business’ name

A: My detailed answer to this question follows:

Federal and state statutes mandate that your corporation’s Board and shareholders must meet a minimum of once a year. Therefore, you’ll need a Board of Directors meeting and a shareholders meeting. If you are your business partner are the sole shareholders and officers then you can hold the meeting one after the other. You can meet in person which, if you work together, is easy to do. Document the meeting, attendees, and major decisions made.  You will need these meetings and their related documentation to ensure no can “pierce the corporate veil”. You MUST adhere to these administrative formalities. (When a court or judge “pierces the corporate veil” they allow a creditor to legally pursue your personal assets as as a shareholder or director. This voids the major protection provided by a corporation hence the term “pierce the corporate veil”)

You need to have a stronger agreement than a simple contract with your business partner or co-founder. A Shareholder’s Agreement outlines the rights and responsibilities you each have as shareholders in the company. A Buy/Sell Agreement outlines what the roles of each employee-shareholder, what occurs if one of you dies or becomes disabled, what happens in the event of a divorce. Essentially, a Buy/Sell Agreement includes all of the issues that people rarely consider but sure wish they had when the problems arise.

To establish business credit and further protect your personal assets by avoiding personal guarantees, visit the Dun & Bradstreet  website and obtain a DUNS number. You need a DUNS number as the first step to building a Paydex score, which is the credit rating used for businesses. In  addition, you will need a DUNS number to do business with the federal government.

Your town or city –or, in some states, your state — requires you to obtain a business license. From my experience, the underlying purpose is for tracking and taxation purposes but the reason does not negate the requirement!

Now you have all the legal basics covered to get started with your corporation!

Tiffany C. Wright Feature on Author and Book Buzz 0

Posted on July 22, 2013 by Tiffany C. Wright
My feature on Author and Book Buzz!

My feature on Author and Book Buzz!

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