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3 Ways to get more for your marketing dollars

A strong economy leads some company owners to cut back on marketing. Why spend the money if business is so good? Others see it differently — a robust economy means more sales opportunities, so pouring dollars into marketing is the way to go.

The right approach for your company depends on many factors, but one thing is for sure: Few businesses can afford to cut back drastically on marketing or stop altogether, no matter how well the economy is doing. Yet spending recklessly may be dangerous as well. Here are three ways to creatively get more from your marketing dollars so you can cut back or ramp up as prudent:

    1. Do more digitally. There are good reasons to remind yourself of digital marketing’s potential value: the affordable cost, the ability to communicate with customers directly, faster results and better tracking capabilities. Consider or re-evaluate strategies such as:
      • Regularly updating your search engine optimization approaches so your website ranks higher in online searches and more prospective customers can find you,
      • Refining your use of email, text message and social media to communicate with customers (for instance, using more dynamic messages to introduce new products or announce special offers), and
      • Offering “flash sales” and Internet-only deals to test and tweak offers before making them via more expansive (and expensive) media.
    2. Search for media deals. During boom times, you may feel at the mercy of high advertising rates. The good news is that there are many more marketing/advertising channels than there used to be and, therefore, much more competition among them. Finding a better deal is often a matter of knowing where to look.

Track your marketing efforts carefully and dedicate time to exploring new options. For example, podcasts remain enormously popular. Could a marketing initiative that exploits their reach pay dividends? Another possibility is shifting to smaller, less expensive ads posted in a wider variety of outlets over one massive campaign.

    1. Don’t forget public relations (PR). These days, business owners tend to fear the news. When a company makes headlines, it’s all too often because of an accident, scandal or oversight. But you can turn this scenario on its head by using PR to your advantage.

Specifically, ask your marketing department to craft clear, concise but exciting press releases regarding your newest products or services. Then distribute these press releases via both traditional and online channels to complement your marketing efforts. In this manner, you can make the news, get information out to more people and even improve your search engine rankings — all typically at only the cost of your marketing team’s time.

These are just a few ideas to help ensure your marketing dollars play a winning role in your company’s investment in itself. We can provide further assistance in evaluating your spending in this area, as well as in developing a feasible budget for next year.

© 2018

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Helpful Articles News Tax

Deductible Business Interest

Taxpayers can generally deduct business interest paid or accrued during the year, subject to limits. The U.S. Congress Joint Committee on Taxation has published a briefing, titled “Overview of Limitation on Deduction of Business Interest,” to clarify changes brought by the Tax Cuts and Jobs Act.
The briefing discusses these topics: definition of terms; carryforward rules; pass-through entities; the effect of the carryforward rule on partnerships; exceptions; and the effective date of the changes. Access it at https://bit.ly/2UjTglJ and then click “download.”
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Employer Identification Number (EIN) Process

The IRS is revising the Employer Identification Number (EIN) process. Anyone filing a tax return or other documents with the IRS must provide a taxpayer ID number. One way that employers, estates, and certain others do so is with an EIN. The IRS has announced that, as of 5/13/19, to obtain a nine-digit EIN, the application must list an individual as the “responsible party” and include that person’ s Social Security number or other taxpayer ID number. The purpose is to enhance security by preventing entities from obtaining additional EINs. (IR 2019-58)

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Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019

Top Republicans on the U.S. House Ways and Means Committee introduced legislation on 3/29/19 that is designed to help strengthen Americans’ long-term financial security.

If it passes, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 would expand opportunities for Americans to increase their retirement savings. It would also repeal the maximum age for making traditional IRA contributions and improve the portability of lifetime income options from one plan to another. To read the text of the bill: https://bit.ly/2I2Bkok

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What Does the New Lease Accounting Standard Mean for Banks?

Abstract: The Financial Accounting Standards Board’s new lease accounting standard takes effect this year for public business entities — and fiscal years beginning after December 15, 2019, for other organizations. The new standard may affect banks in two ways: First, it will cause many customers’ balance sheets to swell, which may cause some customers to violate loan covenants. Second, it will have an impact on banks’ own balance sheets, which may affect their capital ratios. This article discusses the ins and outs of the new standard, while a sidebar explains how to add flexibility to loan covenants.
What does the new lease accounting standard mean for banks?
The Financial Accounting Standards Board’s (FASB’s) new lease accounting standard, nearly 13 years in the making, finally takes effect this year for public business entities — and fiscal years beginning after December 15, 2019, for other organizations. By eliminating off-balance-sheet treatment for most operating leases, the new standard may affect banks in two ways: First, it will cause many customers’ balance sheets to swell, which may cause some customers to violate loan covenants. Second, it will have an impact on banks’ own balance sheets, which may affect their capital ratios.
A brief refresher
Under the previous lease accounting standard, leases were classified either as “capital” or “operating” leases. Generally, capital leases transfer ownership of assets to the lessee, while operating leases transfer the right to use assets during the lease term. Capital leases are reported on the balance sheet, but operating leases are not — though they’re disclosed in the financial statement footnotes.
The new standard retains the distinction between operating and capital leases (now called “finance” leases), but requires all leases, other than short-term operating leases (those with terms under one year), to be reported on the balance sheet. For each lease on the balance sheet, a lessee will record 1) a liability reflecting its obligation to make lease payments, and 2) an asset reflecting its legal right to use the leased property (a “right-of-use” or ROU asset). Both are based on the present value of minimum payments under the lease, with adjustments to the ROU asset for certain prepayments, incentives and costs.
Expense recognition under the new standard depends on a lease’s classification. For finance leases, organizations amortize the ROU asset, generally on a straight-line basis, and recognize interest expense and liability repayment over the life of the lease, similar to a loan. For operating leases, organizations generally recognize lease expenses on a straight-line basis, with certain adjustments.
Impact on loan covenants
As the new standard takes effect, borrowers with significant operating leases will experience an immediate increase in assets and liabilities on their balance sheets. As a result, some loan customers may be in technical violation of loan covenants that place limits on their overall debt or require them to maintain certain debt-related financial ratios. Banks should review all loan covenants to evaluate the impact of the new standard.
Whether it will have an adverse impact on borrowers depends in part on how “debt” is defined in the loan documents. The FASB, recognizing that the new standard might create issues with loan covenants, provided for operating lease liabilities to be characterized as “operating liabilities,” rather than “debt.” This action should prevent violations of some commonly used loan covenants. However, covenants that rely on financial ratios that include operating lease liabilities may present a problem.
Banks should consider modifying existing loan covenants to avoid unnecessary breaches and revise covenants going forward to reflect the new lease accounting standard. (See “Adding flexibility to your loan covenants.”) It’s important to recognize that the addition of operating leases to the balance sheet doesn’t change a borrower’s underlying economic situation, cash flow or ability to repay a loan. After all, in most cases, the borrower has been making these lease payments for years — the new standard merely changes the way they’re reported.
Impact on bank capital
For most community banks, the new lease accounting standard isn’t likely to have a significant impact on regulatory capital. But it may affect some banks with substantial operating leases for facilities, equipment and other fixed assets.
This is because the addition of ROU assets to the balance sheet may affect the ratio of capital to risk-weighted assets. The ratio is used to determine capital adequacy.
Some recommendations
All banks should review their loan documents and modify them if necessary to prevent inadvertent violations of loan covenants. They should also assess the impact of the new standard, if any, on their regulatory capital levels.

Sidebar: Adding flexibility to your loan covenants
The new lease accounting standard demonstrates how changes in financial reporting can affect compliance with loan covenants, even if the underlying economics are the same. As you review existing loan documents and negotiate new ones, consider incorporating covenant models that provide the flexibility needed to adapt to future changes in Generally Accepted Accounting Principles (GAAP). Two common approaches are:
1. Frozen GAAP. Covenants that contain a frozen GAAP clause provide that changes in financial ratios resulting from changes in GAAP won’t cause a violation. In other words, applicable GAAP is frozen as of the date the loan is made. The problem with this approach is that continuing to apply GAAP that’s in effect at the time the loan agreement is executed, regardless of future changes, essentially requires two sets of books: one to comply with GAAP and one to track compliance with loan covenants.
2. Semifrozen GAAP. A semifrozen GAAP clause requires the parties to renegotiate the loan covenant if a change in GAAP alters financial ratios. This approach avoids the need to keep two sets of books. But it requires the parties to amend the covenant to accommodate their respective needs while reflecting changes in GAAP.
© 2019

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Beware the Ides of March — if you own a pass-through entity

Shakespeare’s words don’t apply just to Julius Caesar; they also apply to calendar-year partnerships, S corporations and limited liability companies (LLCs) treated as partnerships or S corporations for tax purposes. Why? The Ides of March, more commonly known as March 15, is the federal income tax filing deadline for these “pass-through” entities.

Not-so-ancient history

Until the 2016 tax year, the filing deadline for partnerships was the same as that for individual taxpayers: April 15 (or shortly thereafter if April 15 fell on a weekend or holiday). One of the primary reasons for moving up the partnership filing deadline was to make it easier for owners to file their personal returns by the April filing deadline. After all, partnership (and S corporation) income passes through to the owners. The earlier date allows owners to use the information contained in the pass-through entity forms to file their personal returns.

For partnerships with fiscal year ends, tax returns are now due the 15th day of the third month after the close of the tax year. The same deadline applies to fiscal-year S corporations. Under prior law, returns for fiscal-year partnerships were due the 15th day of the fourth month after the close of the fiscal tax year.

Avoiding a tragedy

If you haven’t filed your calendar-year partnership or S corporation return yet and are worried about having sufficient time to complete it, you can avoid the tragedy of a late return by filing for an extension. Under the current law, the maximum extension for calendar-year partnerships is six months (until September 16, 2019, for 2018 returns). This is up from five months under the old law. So the extension deadline is the same — only the length of the extension has changed. The extension deadline for calendar-year S corporations also is September 16, 2019, for 2018 returns.

Whether you’ll be filing a partnership or an S corporation return, you must file for the extension by March 15 if it’s a calendar-year entity.

Extending the drama

Filing for an extension can be tax-smart if you’re missing critical documents or you face unexpected life events that prevent you from devoting sufficient time to your return right now.

But to avoid potential interest and penalties, you still must (with a few exceptions) pay any tax due by the un-extended deadline. There probably won’t be any tax liability from the partnership or S corporation return. But, if filing for an extension for the entity return causes you to also have to file an extension for your personal return, it could cause you to owe interest and penalties in relation to your personal return.

We can help you file your tax returns on a timely basis or determine whether filing for an extension is appropriate. Contact us today.

© 2019

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4 Pillars of a Solid Sales Process

Is your sales process getting off-balance? Sometimes it can be hard to tell. Fluctuations in the economy, changes in customer interest and dips in demand may cause slowdowns that are beyond your control. But if the numbers keep dropping and you’re not sure why, you may need to double-check the structural soundness of how you sell your company’s products or services. Here are four pillars of a solid sales process:

1. Synergy with marketing. The sales staff can’t go it alone. Your marketing department has a responsibility to provide some assistance and direction in generating leads. You may have a long-standing profile of the ideal candidates for your products or services, but is it outdated? Could it use some tweaks? Creating a broader universe of customers who are likely to benefit from your offerings will add focus and opportunity to your salespeople’s efforts.

2. Active responsiveness. A sense of urgency is crucial to the sales process. Whether a prospect responded to some form of advertisement or is being targeted for cold calling, making timely and appropriate contact will ease the way for the salesperson to get through to the decision maker. If selling your product or service requires a face-to-face presence, making and keeping of appointments is critical. Gather data on how quickly your salespeople are following up on leads and make improvements as necessary.

3. Clear documentation. There will always be some degree of recordkeeping associated with sales. Your salespeople will interact with many potential customers and must keep track of what was said or promised at each part of the sales cycle. Fortunately, today’s technology (typically in the form of a customer relationship system) can help streamline this activity. Make sure yours is up to date and properly used. Effective performers spend most of their time calling or meeting with customers. They carry out the administrative parts of their jobs either early or late in the day and don’t use paperwork as an excuse to avoid actively selling.

4. Consistency. A process is defined as a series of related steps that lead to a specific end. Lagging sales are often the result of deficiencies in steps of the sales process. If your business is struggling to maintain or increase its numbers, it may be time to audit your sales process to identify irregularities. You might also hold a sales staff retreat to get everyone back on the same page. Contact us to discuss these and other ideas on reinforcing your sales process.

© 2018

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4 Business Function You Could Outsource Right Now

One thing in plentiful supply in today’s business world is help. Orbiting every industry are providers, consultancies and independent contractors offering a wide array of support services. Simply put, it’s never been easier to outsource certain business functions so you can better focus on fulfilling your company’s mission and growing its bottom line. Here are four such functions to consider:

  • Information technology. This is the most obvious and time-tested choice. Bringing in an outside firm or consultant to handle your IT systems can provide the benefits we’ve mentioned — particularly in the sense of enabling you to stay on task and not get diverted by technology’s constant changes. A competent provider will stay on top of the latest, optimal hardware and software for your business, as well as help you better access, store and protect your data.
  • Payroll and other HR functions. These areas are subject to many complex regulations and laws that change frequently — as does the software needed to track and respond to the revisions. A worthy vendor will be able to not only adjust to these changes, but also give you and your staff online access to payroll and HR data that allows employees to get immediate answers to their questions.
  • Customer service. This may seem an unlikely candidate because you might believe that, for someone to represent your company, he or she must work for it. But this isn’t necessarily so — internal customer service departments often have a high turnover rate, which drives up the costs of maintaining them and drives down customer satisfaction. Outsourcing to a provider with a more stable, loyal staff can make everyone happier.
  • Accounting. You could bring in an outside expert to handle your accounting and financial reporting. A reputable provider can manage your books, collect payments, pay invoices and keep your accounting technology up to date. The right provider can also help generate financial statements that will meet the desired standards of management, investors and lenders.

Naturally, there are potential downsides to outsourcing these or other functions. You’ll incur a substantial and regular cost in engaging a provider. It will be critical to get an acceptable return on that investment. You’ll also have to place considerable trust in any vendor — there’s always a chance that trust could be misplaced. Last, even a good outsourcing arrangement will entail some time and energy on your part to maintain the relationship.

Is this the year your business dips its toe in the vast waters of outsourced services? Maybe. Our firm can help you answer this question, choose the right function to outsource (if the answer is yes) and identify a provider likely to offer the best value.

© 2019

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Do your long-term customers know everything about you?

A technician at a mobility equipment supplier was servicing the motorized wheelchair of a long-time customer and noticed it was a brand-new model. “Where did you buy the chair?” he asked the customer. “At the health care supply store on the other side of town,” the customer replied. The technician paused and then asked, “Well, why didn’t you buy the chair from us?” The customer replied, “I didn’t know you sold wheelchairs.”

Look deeper

Most business owners would likely agree that selling to existing customers is much easier than finding new ones. Yet many companies continue to squander potential sales to long-term, satisfied customers simply because they don’t create awareness of all their products and services.

It seems puzzling that the long-time customer in our example wouldn’t know that his wheelchair service provider also sold wheelchairs. But when you look a little deeper, it’s easy to understand why.

The repair customer always visited the repair shop, which had a separate entrance. While the customer’s chair was being repaired, he sat in the waiting area, which provided a variety of magazines but no product brochures or other promotional materials. The customer had no idea that a new sales facility was on the other side of the building until the technician asked about the new wheelchair.

Be inquisitive

Are you losing business from long-term customers because of a similar disconnect? To find out, ask yourself two fundamental questions:

1. Are your customers buying everything they need from you? To find the answer, you must thoroughly understand your customers’ needs. Identify your top tier of customers — say, the 20% who provide 80% of your revenue. What do they buy from you? What else might they need? Don’t just take orders from them; learn everything you can about their missions, strategic plans and operations.

2. Are your customers aware of everything you offer? The quickest way to learn this is, simply, to ask. Instruct your salespeople to regularly inquire about whether customers would be interested in products or services they’ve never bought. Also, add flyers, brochures or catalogs to orders when you fulfill them. Consider building greater awareness by hosting free lunches or festive corporate events to educate your customers on the existence and value of your products and services.

Raise awareness

If you have long-term customers, you must be doing something right — and that’s to your company’s credit. But, remember, it’s not out of the question that you could lose any one of those customers if they’re unaware of your full spectrum of products and services. That’s an open opportunity for a competitor.

By taking steps to raise awareness of your products and services, you’ll put yourself in a better position to increase sales and profitability. Our firm can help you identify your strongest revenue sources and provide further ideas for enhancing them.

© 2018

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Fundamental tax truths for C corporations

The flat 21% federal income tax rate for C corporations under the Tax Cuts and Jobs Act (TCJA) has been great news for these entities and their owners. But some fundamental tax truths for C corporations largely remain the same:

C corporations are subject to double taxation. Double taxation occurs when corporate income is taxed once at the corporate level and again at the shareholder level as dividends are paid out. The cost of double taxation, however, is now generally less because of the 21% corporate rate.

 

And double taxation isn’t a problem when a C corporation needs to retain all its earnings to finance growth and capital investments. Because all the earnings stay “inside” the corporation, no dividends are paid to shareholders, and, therefore, there’s no double taxation.

Double taxation also isn’t an issue when a C corporation’s taxable income levels are low. This can often be achieved by paying reasonable salaries and bonuses to shareholder-employees and providing them with tax-favored fringe benefits (deductible by the corporation and tax-free to the recipient shareholder-employees).

C corporation status isn’t generally advisable for ventures with appreciating assets or certain depreciable assets. If assets such as real estate are eventually sold for substantial gains, it may be impossible to extract the profits from the corporation without being subject to double taxation. In contrast, if appreciating assets are held by a pass-through entity (such as an S corporation, partnership or limited liability company treated as a partnership for tax purposes), gains on such sales will be taxed only once, at the owner level.

But assets held by a C corporation don’t necessarily have to appreciate in value for double taxation to occur. Depreciation lowers the tax basis of the property, so a taxable gain results whenever the sale price exceeds the depreciated basis. In effect, appreciation can be caused by depreciation when depreciable assets hold their value.

To avoid this double-taxation issue, you might consider using a pass-through entity to lease to your C corporation appreciating assets or depreciable assets that will hold their value.

C corporation status isn’t generally advisable for ventures that will incur ongoing tax losses. When a venture is set up as a C corporation, losses aren’t passed through to the owners (the shareholders) like they would be in a pass-through entity. Instead, they create corporate net operating losses (NOLs) that can be carried over to future tax years and then used to offset any corporate taxable income.

This was already a potential downside of C corporations, because it can take many years for a start-up to be profitable. Now, under the TCJA, NOLs that arise in tax years beginning after 2017 can’t offset more than 80% of taxable income in the NOL carryover year. So it may take even longer to fully absorb tax losses.

Do you have questions about C corporation tax issues post-TCJA? Contact us.

© 2019