By James Pruitt, Senior Staff Writer

Many small business owners brush off tax deductions that could save them and their small business large amounts of money. At the same time, all businesses need to understand their liabilities to avoid conflicts with the IRS or any other parties.

First, remember the importance of business records. Such records are convenient for your own internal purposes and play crucial roles in any drama that may come into play later. New entrepreneurs, especially, may underestimate the importance of their own private transactions. A clear and reliable records system can smooth out unforeseen problems in the future. 

Many independent businesspeople forget the need to track their own accounts in case prying eyes might zero in on any inconsistencies. Good internal records can resolve, for example, customer disputes before they escalate. Furthermore, these records can make all the difference in any future lawsuits or tax proceedings.

Second, remember that business expenses are deductible. Personal expenses, on the other hand, meld into your regular finances. However, even the best intentions can’t always prevent confusion between personal and business expenses, especially for small business owners who have chosen not to incorporate. The best solution lies with good planning. 

A list of possible business expenses may include advertising, rent, and/or mortgage expenses for office space, utilities, and employee salaries and benefits. Interest on loans may also provide a deduction. Finally, consider equipment, maintenance, and depreciation on any equipment as it wears out. 

Even relevant industry publications may provide just such a deduction. Imagine a doctor’s office without the New England Journal of Medicine. Most law offices couldn’t function without their legal digests, which are updated periodically. Any variety of other specialized professions may need these kinds of subscriptions to stay “in the know.” 

Business Expense v. Company Expense v. Personal Expenses

Your personal expenses may include your house, car, or cell phone assuming use only in a personal rather than business context. However, such assets may overlap with business expenses in some cases. Assuming some sort of overlap, generally, consider the percentage you use for business or personal reasons. In such cases, the percent of the value of maintenance of the asset becomes most relevant on Tax Day. Here, your accurate business records may come in handy.

Unfortunately, some other ongoing company expenses may not provide a tax break, even when separate from personal expenses. For example, if your company does any political lobbying, your company must shoulder the whole cost, taxation, and all. The same goes for fines and penalties. Ideally, a CPA can help sort out these technicalities.

Formal incorporation can help set these boundaries for you. However, some types of small businesses may see no need for this level of formality. 

Smaller businesses are more likely to utilize personal resources along with deductible business expenses. During tax season, itemizing these deductions may present greater challenges than the black-and-white restrictions facing more strictly incorporated companies, which must separate their affairs from their owners like oil and water.

Finally, don’t be afraid to seek professional help. Many business owners do handle their own expense records, but these records can become complicated very quickly.  A good accountant can prevent your worst headaches later. The IRS updates its regulations frequently, and a CPA may have more experience than others in more complex taxation matters.

In short, prepare, prepare, prepare. One of the best ways to prepare is to develop a good records system. Further down the road, an entrepreneur’s handling of expenses determines the path around many obstacles that fate may put in your path down the line.

VAMBOA, the Veterans and Military Business Owners Association hope that this article has not only been valuable but provided some unique perspective.  We work hard to bring you important, positive, helpful, and timely information and are the “go-to” online venue for Veteran and Military Business Owners.  VAMBOA is a non-profit trade association.   We do not charge members any dues or fees and members can also use our seal on their collateral and website.   If you are not yet a member, you can register here:  https://vamboa.org/member-registration/

We also invite you to check us out on social media too.

Facebook:  https://www.facebook.com/vamboa

Twitter:  https://twitter.com/VAMBOA

Do not forget that VAMBOA members receive significant discounts on technology needs.   Check them out here: https://vamboa.org/dell-technologies/ 

By James Pruitt, Senior Staff Writer

The most common types of small business are sole proprietorships. As discussed in previous blog posts, many small business owners ferret out their economic niche from a specific hobby, interest, or expertise which they can best accommodate from the privacy of their own home.

Independent business owners should consider their relationship with the organization when deciding whether to incorporate. Legally, a sole proprietor often can’t separate from their business. The obligations between the person and organization stay one and the same. 

As for the positives, some business owners benefit from the ability to take their organization in unique directions based on their own judgment. Often, the owner can’t effectively delegate their vision to a newcomer. Small businesses often start with specialized concepts. Sometimes, the only necessary staff within the company maybe you, the one business owner.

Various negatives may also rear their heads. For example, some may perceive the company as less established as, for example, an LLC (limited liability company) or a company that has undergone formal incorporation. 

Business partners may view the company with greater suspicion. Remember, legal liabilities for a sole business owner and the organization itself are one and the same. The possibility of a “fly-by-night” operation may loom larger in the eyes of potential contractors.

Given the integration of a sole proprietorship with the business owner, the proprietor bears all the burden when problems arise. Furthermore, these organizations often hold less organizational backing, so funding and investment revenue present greater challenges. Finally, an ultimate sale of the business may bring further logistical issues. Outsiders may show little interest in a company tailored to the ambitions of one individual.

Positives are manifold for the right business owner. Sole proprietors may control their own schedules. Also, the simplicity of a sole proprietorship can make the process of tax preparation more agreeable. Businesses’ expenses are deductible, and the process is done much easier in general. Furthermore, sole proprietorships are much less expensive and easier to start up without the process of establishing an LLC or incorporating.  

Incorporation separates much of the owner’s legal responsibility from that of the business. The incorporation process also may loosen the grip of the owner on the business itself. After all, the process of registering a business implies the presence of other stakeholders. When others share an indispensable role in the organization, the process becomes worthwhile. 

In the end, the business structure must fulfill the needs of the owner. Sole proprietorships suit certain owners’ needs more than others. Some business ideas are unique enough that the owner should exercise the types of control that sole proprietors offer. Also, sometimes the founder simply doesn’t need a large, complex organization. 

Hence, when starting a new business, always consider the benefits of non-incorporation, as well as different types of incorporation. Many new owners may in fact benefit from incorporation as an LLC or, more formally, as an S or C corporation. However, other proprietors can satisfy their obligations independently. Assuming other stakeholders don’t complicate operations or legal matters, the simplicity of sole proprietorship should remain a viable option.

VAMBOA, the Veterans and Military Business Owners Association hope that this article has not only been valuable but provided some unique perspective.  We work hard to bring you important, positive, helpful, and timely information and are the “go-to” online venue for Veteran and Military Business Owners.  VAMBOA is a non-profit trade association.   We do not charge members any dues or fees and members can also use our seal on their collateral and website.   If you are not yet a member, you can register here:  https://vamboa.org/member-registration/

We also invite you to check us out on social media too.

Facebook:  https://www.facebook.com/vamboa

Twitter:  https://twitter.com/VAMBOA

Do not forget that VAMBOA members receive significant discounts on technology needs.   Check them out here: https://vamboa.org/dell-technologies/ 

By James Pruitt, Senior Staff Writer

Vast deposits of excess stock can leave small business owners bewildered or perplexed in the wake of a “failed” marketing attempt. Remember, excess inventory generally has some value to someone. However, prevention generally spares entrepreneurs storage expenses and manufacturing costs. 

Whatever happened to the Avon Lady? Multilevel marketing schemes are back with a vengeance. These companies can famously leave a garage full of excess merchandise. But what about the tribulations of small business owners who manufacture their own products?

As a general principle, unused products are a liability for small businesses. Such products gain the moniker of “deadstock” after collecting cobwebs in the back shelves of warehouses.

The Pandemic has brought fluxes in inventory to all sectors of the economy. Supply chain disruptions have plagued the worldwide economy since March of 2020. Skeleton crews on all fronts have left companies alternately oversupplied or undersupplied, even as demand has mushroomed since the early part of this year.

Inventory shortages are nothing new. First, demand fluctuates naturally due to a variety of market forces. Fashions move forward, circumstances change, and consumer needs oscillate accordingly. 

Second, businesses sometimes rush to meet demand. In the process, quality may suffer, leading consumers to search elsewhere. Over-eager business owners sometimes churn out subpar products to meet demand. The result leaves the owner in the lurch for storage and disposal. No one wants a trove of shoddy “skinny jeans” manufactured in 2008, especially in 2021.

Third, some businesses may lack effective inventory management systems. Internal operations may well disrupt a good balance between different types of products. Good online inventory management programs may include Fishbowl, Netsuite, and Quickbooks, although options for businesses are vast, and may include proprietary options as well. Also, consider the everyday operations of a company outside the computer system.

Fourth, the business may be marketing one product at the expense of another. Marketing resources may gravitate in one direction, based upon the expertise or biases of the company staff. Leadership on hand may know more about one product than another. Sometimes leadership and staff simply prefer one product over another. Such cases may simply present a human resources challenge.  Enthusiasts of one type of product on the marketing front may compensate for an oversupply of fans of another.

Finally, one person’s trash is another’s treasure. Remember that disastrous ET video game from the early eighties? Most ended up in a landfill. The landfill was excavated, and some collectors of vintage arcade games paid over $1000 for cartridges of a terrible but historically significant video game. Even in most cases of overstock, hope remains.

Best practice avoids excess supplies of unmarketable products from the outset. However, as with most of life’s problems, excess inventory is often unavoidable. With the resurgence of multilevel marketing, overstock has reached new levels in some quarters. However, certain business practices have long resulted in inventory imbalances, even before the Pandemic. 

In Part I of this two-part series, we examined strategies to prevent excess deadstock, to begin with. In Part 2, we will examine strategies to dispose of excess inventory, online and otherwise once such stock inevitably accumulates.

VAMBOA, the Veterans and Military Business Owners Association hope that this article of this two-part series has not only been valuable but provided some unique perspective.  We work hard to bring you important, positive, helpful, and timely information and are the “go to” online venue for Veteran and Military Business Owners.  VAMBOA is a non-profit trade association.   We do not charge members any dues or fees and members can also use our seal on their collateral and website.   If you are not yet a member, you can register here:  https://vamboa.org/member-registration/

We also invite you to check us out on social media too.

Facebook:  https://www.facebook.com/vamboa

Twitter:  https://twitter.com/VAMBOA

Do not forget that VAMBOA members receive significant discounts on technology needs.   Check them out here: https://vamboa.org/dell-technologies/ 

By James Pruitt, Senior Staff Writer

Inflation has become a growing concern as cash has flowed into consumer’s hands following the outset of coronavirus. In theory, businesses should increase prices, especially as labor becomes more expensive. In fact, the economy is more chaotic and unpredictable. Business owners should consider sound realities before they jump to conclusions about how to price their products in the post-pandemic economy.

As discussed in previous blog posts, the pandemic sent the trend toward online consumerism into overdrive. Consumers know they can now resort to online sources that maintain a low overhead. This development bodes poorly for “brick and mortar” stores. Unfortunately for such establishments, the balance of power may continue to shift in the direction of online consumers.

What can a small business owner just out of the military and looking to apply their newfound skills do, especially in this strange new economy? Fortunately, many strategies can simplify marketing efforts.

• First, human interactions, in general, have become more online over the past few decades. The possible end of the Pandemic will not change this trajectory. During the Pandemic, online interactions only became more sophisticated and established. websites and social media have only gained importance. Every economic participant, including veteran business owners, should become more Internet savvy. 
• Second, unpredictable shifts in price can leave entrepreneurs unprepared. Given confusing shifts in the economy, business owners should understand current market circumstances in the here and now. For this reason, entrepreneurs should stay vigilant about direct competitors. Confusion may arise from assumptions and inaccurate predictions from the media. Mindfulness about the here and now should prevail.

“Staying vigilant” does not mean cutthroat behavior. “Staying vigilant” means an understanding of a ballpark range for goods and services catering to your specific clientele. Everyone benefits from some level of cooperation. Consider networking groups or your local Chamber of Commerce. Of course, backstabbing tactics only draw the worst kinds of attention.

Learning spreadsheets can help new business owners compare themselves most accurately to rivals in the current, uncharted online market. Microsoft Excel, as well as Apple Numbers and Google Sheets, may provide tools to compare prices with similar online marketers. 

• Third, new business owners should consider their own costs and capacities. Many analysts divide these costs between variable and fixed costs. “Variable” costs shift with demand and changes in the economy. “Fixed” costs may include contractual obligations such as overhead, payroll, and the costs of maintaining websites. The goals and resources of the business owner may determine the outcome.
• Fourth, consider profit margin and your own economic needs. Profit margin tends to vary by industry. Usually, profit margin consists of the difference between the cost of maintenance and the income from sales. Great damage can occur when the owner has invested heavily in the business, and profit margins stay low. A home business may need only a low-profit margin, and a restaurant or auto shop inevitably requires a much higher one, due to the cost of equipment.
• Fifth, underpricing may ruin a business. Many entrepreneurs try to achieve brand recognition through discounts, sales, and cheap products. Misguided attempts at market penetration can leave consumers turning their noses when entrepreneurs need to raise prices to simply pay the bills. 

In short, pricing depends largely on the circumstances of the business owner. Generally, higher investments in overhead and equipment necessitate much more careful analysis. Always, the best price for a product or service depends on the relevant market. Hairbrained schemes such as underpricing rarely serve anyone. Veteran Business Owners need to balance their own circumstances and those of any other market participants, including clients and competitors. 

VAMBOA, the Veterans and Military Business Owners Association hope that this article has not only been valuable but provided some unique perspective.  We work hard to bring you important, positive, helpful, and timely information and are the “go-to” online venue for Veteran and Military Business Owners.  VAMBOA is a non-profit trade association.   We do not charge members any dues or fees and members can also use our seal on their collateral and website.   If you are not yet a member, you can register here:  

https://vamboa.org/member-registration/

We also invite you to check us out on social media too.

Facebook:  https://www.facebook.com/vamboa

Twitter:  https://twitter.com/VAMBOA

Do not forget that VAMBOA members receive significant discounts on technology needs.   Check them out here:

https://vamboa.org/dell-technologies/ 

Financial Terms for Veteran Small Business Owners

Financial Terms for Veteran Small Business Owners

By Debbie Gregory.

Regardless of the size of your business or how long you have been operating, Veteran Small Business Owners need to understand basic financial terms to successfully run their business   We have below a glossary of financial terms to review and understand so that you have a better grasp on your business and whether or not you are making money and when you can forecast a profit.   VAMBOA also highly recommends courses offered by the Small Business Association (SBA) in basic finances for small businesses.  All of the courses that the SBA offers are free of charge and we encourage you to take advantage of them.

Accounts Payable

Accounts payable is also called trade payable. It refers to the total invoices for goods and services a business has received, but has yet to pay. They’re usually due for payment within 15 to 45 days. In short, this is money your business owes to other businesses.

Accounts Receivable

Accounts receivable is the amount of money a company has claim to or has invoiced. It is from having sold goods or rendered services to its customers. This is what other businesses or customers owe your business.

Accrued Expenses

Accrued expenses are expenses that a business has incurred but has yet to pay. This is because either the invoices have not yet been received or the payments aren’t yet due.

Examples of accrued expenses include interest on loans and taxes incurred. Salaries your employees earn up to the period of reporting, but aren’t due for payment until after the report is prepared, are also accrued expenses.

Assets

An asset is any item your business owns that is of fiscal value and is expected to benefit the business in the future.

Balance Sheet

Your balance sheet gives an overview of the financial situation of your company. Unlike an income statement, a balance sheet offers a snapshot of a business’s finances at a specific time.

A balance sheet consists of three segments:

• “Assets”
• “Liabilities”
• “Owner’s Equity”

These three segments must balance out in a simple equation. Assets = Liabilities + Owner’s Equity. Hence, the name balance sheet.

Cash and Cash Equivalents

Cash and cash equivalents are assets and items that a business can easily convert into cash. Cash equivalents could include checks, certificates of deposit, and treasury bills. If your business doesn’t have cash equivalents, it would only report its cash-at-hand and in the bank.

Cash Flow

Cash flow refers to the reconciliation of cash moving into and out of a business. When a business receives more cash than it sends out, it is cash flow positive. A business is cash flow negative when it spends more than it receives.

Cost of Goods Sold or Cost of Revenue

Cost of goods sold refers to the full cost for the production of the goods a business sells.

Equity Stake

Equity stake is the part of a company owned by an entity. It is usually expressed as a percentage. In a true sole proprietorship, the owner of the business owns a 100% equity stake.

Franchise

A franchise is a license. It grants the franchisee access to the franchisor’s trademark and operation guidelines. The franchisor is the entity that owns the trademark. A franchisor is usually an accomplished and well-known company. It uses licensing agreements to expand without spending the capital (money) required.

Gross Profit

Gross profit is the cost of goods sold or cost of revenue subtracted from net sales. This excludes operating expenses that do not directly generate revenue. This includes costs such as accounting, supplies, and advertising. It is the first determinant of how profitable a company is. It indicates the financial viability of the products and services the company offers.

Let’s say your detergent manufacturing business sells $50,000 worth of detergent in a year. The raw materials, transportation, production facility rental, and factory labor cost $30,000. Your gross profit would be $20,000.

Gross Profit Margin

Gross profit margin refers to the ratio of the revenue that you keep as gross profit. It is also called gross margin or gross profit percentage.

The formula to calculate this is (Gross Profit/Net Sales) x 100.

A detergent business whose gross profit is $20,000 with net sales of $50,000 has a gross profit margin of 40%. This means the detergent sold returned 40% on the capital that’s directly associated with the detergent production.

Gross Sales

Gross sales include the total of all sales activity during a reported period. It excludes sales deductions such as sales discounts, sales returns, and sales allowances. Gross sales figures track how effective sales efforts are, assuming there were no deductions. When you deduct these items, what you have left is net sales or revenue.

Income Statement

Your income statement is also called a profit and loss statement, earnings statement, or statement of operations. An income statement shows all the money your business makes, its expenses, and its profit. The typical frequency for income statements is both quarterly and annually.

If your business is struggling to make a profit, the income statement is the first place you need to look. It will show you if — and where — there’s room for reducing expenses to improve profitability. It can also show if the only way to improve profitability is to make more money.

Liabilities

A liability refers to anything a business owes. This includes loans, mortgages, and advance payment for goods and services not yet delivered or rendered. Liabilities are reported on balance sheets as short-term (current) and long-term liabilities. Current liabilities are typically debts or obligations that are due within a year. This includes short-term loans, interest, and taxes. Long-term liabilities are due over a longer period.

Net Income

Net income is gross profit minus every expense incurred during the reported period. You get this by subtracting the cost of goods, services, and operating and non-operating expenses from your net sales or total revenue. Non-operating expenses include interest, depreciation, taxes, and advertising.

It is the overall determinant of how profitable a business is. Here’s an example. If your gross profit is $20,000, and you spent $10,000 on operating and non-operating items, your net income would be $10,000. This means your business made a profit of $10,000 after you deduct all production, service, and operational expenses for that reporting period.

Non-Operating Expenses and Loss

Non-operating expenses are costs incurred due to activities unrelated to a business’s core operation. These activities don’t have tangible effects on operating results. This includes, but is not limited to, interest and insurance.

Non-operating loss is loss incurred due to activities that don’t relate to business operations. A good example would be a loss incurred as a result of a lawsuit settlement.

Non-Operating Revenue and Income

Non-operating revenue and income is the total profit created by a business from activities that aren’t tied to its core operations. Examples would include proceeds from selling business equipment. It can also include profit made from sales due to foreign exchange.

Notes Payable and Notes Receivable

Notes payable are IOUs. These could be funds borrowed from a bank or an amount owed to a supplier for raw materials delivered. Notes payable are a debt instrument. They are recorded as a current liability on a balance sheet if due within 12 months. If they are due over a longer term, they are considered long-term liability.

Notes receivable is the opposite of notes payable. What one company records as notes payable, another company records as notes receivable. Notes receivable appear as a current asset on a balance sheet if expected within 12 months. Anything more than that is considered a long-term asset.

Operating Expenses

Operating expenses are the costs tied to a business’s core operations. These costs can be classified into two categories. The first category is cost of goods sold (or cost of revenue) and selling. The second category is general and administrative expenses (SG&A).

Owner’s Equity

Owner’s equity is the totality of the owner’s investment into the business. This is the portion of assets that belongs to the business owner.

Operating Income

Operating income is the revenue or net sales that’s left after you deduct operating costs. It is also called operating profit or earnings before interest and taxes (EBIT). Its calculation excludes non-operating expenses like interests, taxes, lawsuit settlement expenses, etc.

Operating Margin

Operating margin is the ratio of revenue or net sales a business keeps as operating income. It is calculated by dividing operating income by revenue or net sales. The result is then presented as a percentage by multiplying by 100.

As an example, a business’s operating income was $10,000 on a $50,000 revenue or net sales. Its operating margin is then $10,000/$50,000 = 0.2 x 100 = 20%.

Operating margin helps determine how efficient a company’s day-to-day operations are. In the example above, the business’s day-to-day operation made $0.20 for each dollar of revenue.

Prepaid Expenses

Prepaid expenses are advance payment for future expenses. Prepaid expenses usually appear on a balance sheet in the current asset’s subsection. This is because they’re usually due within 12 months. Prepaid expenses usually arise when businesses pay in advance for goods and services needed in the near term.

Insurance is one example of prepaid expense. For example, your business buys an insurance policy of $2,400 over a 12-month period. Your prepaid expenses account will be credited with $2,400 at the beginning of the period. Accountants would divide this by 12 to say you’re paying $200 per month. So, as each month passes, you’d have used $200 out of your prepaid insurance expense. The $200 expensed for a given month will show up in your non-operating expenses column for that month. It will be debiting from your prepaid expenses account.

The same accounting process goes for any type of prepaid expense. You can account for rent, supplies, and legal and contract expenses in this way.

Revenue

Revenue is the total amount of money a company brings in from its business activities after discounts, returned goods, and other sales allowances have been deducted. Businesses that sell goods, such as retailers, are more likely to refer to revenue as net sales. It is also called top-line because it usually appears at the top of an income statement.

 Selling, General, and Administrative Expenses (SG&A)

Selling, general, and administrative expenses are expenses you incur while selling your products and services. They also include the cost of running your business on a daily basis. Below is a breakdown:

• Selling expenses include the cost to sell the goods you’ve already produced or purchased. This excludes cost of production or purchase. It includes: expenses related to sales material, traveling, advertising, delivery, warehousing, telephone bills, salaries of sales employees, and sales commission.
• General and Administrative expenses are usually more fixed than selling expenses. They include expenses related to rent, mortgage, insurance, utilities, and salaries of non-production and non-sales employees.

Unearned Revenue

Unearned revenue refers to advance payments a business receives from its customers. It is also called deferred or prepaid revenue. So long as the goods or services for which the payment was made are yet to be delivered, that amount of money remains an unearned revenue. Since it indicates that a business owes its customers, unearned revenue appears as a current liability on balance sheets. Typically, what one entity records as unearned revenue, another entity records as prepaid expenses.

Various businesses incur unearned revenue differently. For example, a subscription service company that bills its customers yearly will have one year’s worth of deferred revenue. As each month passes, a portion of the subscription fee proportional to a month’s service will be deducted to reflect the worth of subscription service left undelivered. Deductions from the deferred revenue account are credited as revenue in the income statement.

Managing your finances is one of the most important parts of running a business. Unfortunately, small business owners who have little financial background shy away from these responsibilities. By learning these key financial terms, you’ll be more able to understand your financial statements, communicate with finance professionals, and monitor your business’s cash flow.

Veteran and Military Business Owners Association, VAMBOA,