Is That Your Business Or Your Hobby?

When your expenses exceed your revenues from your side business, the natural inclination may be to declare the loss on your tax return and offset it against income from other sources. However, the IRS may contest that this is not really a side business, but is instead, a hobby and thus would disallow the loss.
If your business did not produce any net profits in 2 out of the past 5 years, the IRS might deem it a hobby and disallow any deductions for expenses caused by the business, from your income from other businesses. If you are dealing with horse breeding, horse racing and horse showing, the period in which you have to show profit is extended to 7 years.
So what happens if the number of years that you incur a loss exceeds the time period above? Here are some of the things that will prove that you have a business, not a part-time hobby:

• Keeping good records and conducting the activity in a business-like manner.

• Having expertise in the field, or hiring other people who do.

• Spending a substantial amount of time on the business to justify the idea that the business is indeed a business and not a hobby.

• Your losses have been caused by unusual events as opposed to foreseeable ongoing losses.

• Financial status – The IRS assumed that wealthy people can absorb ongoing losses, which indicates that what they have is a hobby, while ordinary people are usually trying to make a profit, indicating a business.

• What is the portion of your personal pleasure from the business? If you have a fishing boat, for example, you may derive more pleasure from it, especially if you operate it by yourself and use in only in the weekends. That is indicative of a hobby. But if your side business involves clearing septic tanks, even the IRS agrees it is not a pleasurable task, and so you can claim it as a business.

Do your homework and carefully plan to demonstrate that your business is real and not merely a disguised hobby.

Key Performance Indicators To Track The Health Of Your Business

Small business owners should develop key performance indicators as a way to track, measure, and improve their business. It is one of the most effective ways to know exactly where you stand.

These indicators can help the small business owner focus on what’s important to their business and can serve as a measuring tool to track the progress towards of business goals.

Through a gap analysis, the business owner can get a clearer picture between where he is and where he wants his business to be. There are other measuring tools like balance scorecards and results based management, but key performance indicators are simple to develop and track, so they are easy to use in measuring business performance.

Key performance indicators measure what you have decided are your business success factors. Each business needs to develop its own KPI’s, because there are no two businesses exactly alike.

There is so much information available these days, through Google analytics and other statistical resources, that it is easy to get lost in the numbers.

Key performance indicators can be grouped as follows:

• Output KPIs measure the financial and nonfinancial results of business operations. A few examples would be “Sales,” “Gross margin,” “Net Profit,” and “Number of new clients acquired.”

• Input KPIs measure assets and resources invested in or used to generate business outcomes. Examples include “Investment made in new training materials,” “Funds invested on new equipment,” or “Funds allotted towards the expansion of the business facility.”

• Process KPIs measure the efficiency of business processes. Examples include “Number of hours to return incoming phone calls,” “Hours or days to perform a service or deliver a product” and “Weeks to fully train a new employee.”

There are potentially dozens of KPIs that can be identified in any business but the goal is to select those measures that deliver the most value.

KPI’s make it easy to identify trends, spot problems, and focus on important financial and non-financial issues. They are concise, easy to understand, and help you monitor the health of your business. No business should operate without them.

How To Start A Non-Profit Organization

Starting a non-profit is, in many ways, just like starting a business. Not only is leadership required but an understanding of the workings of business planning, tax law, marketing and financing are very important as well. Here are some things you should think about before you set up an NPO.

What is Your Mission?
Defining your mission is critical; what is the purpose of the NPO and what needs it addresses – should be understood and agreed upon by all the members. It doesn’t mean that the mission statement has to stay the same for years to come. The mission can change and evolve with time, but you have to have a common ground to start with.

Who else is doing it?
Understanding what goes on in your area of interest, who is doing what and how, is also important. There is a lot of information on the internet to get you started. Some sites will list the questions you need to ask yourself before you start.

Make a Business Plan
You cannot approach donors if you don’t have a business plan, just like with a for-profit business. To get government funding you will need a business plan, and it will help you to recruit volunteers.

Board of Directors
Start by selecting members that can function as experts in areas you need help. People who can invest some time to get it started. If they were members of a Board in the past, you can learn from their expertise. Make sure there is no conflict of interests between board members, or between any of them and you. Some states require that you appoint directors before filing.

Incorporate the NPO and Register it
It is a similar process to registering a regular corporation but with the added paperwork of applying for tax-exempt status with the IRS and the State you operate in. Tax exempt status 501(c)(3) outweighs the added work.

Incorporation options
Another form of incorporation that is becoming more widespread is the L3C (Low profit, Limited, Liability Company). This form combines the legal advantages of an LLC with some financial benefit of NPO. As of now only 5 states recognize this kind of corporation.

Government Grants
Check what kinds of government grants are available. You can see some resources on the federal government’s site for SBA.

Start Fundraising
Look for a way to diversify your fundraising efforts, so you won’t get hit when one donor goes through rough times, or when seasonal changes affect the donors.

Over 8% of people in the American workforce are getting their salaries from a non-profit organization. Maybe it is time to turn your philanthropy work into an NPO and get rewarded for your efforts.

Do You Have An Exit Strategy For Your Small Business

Perhaps, like me, you are a person who reads with interest the business section of your favorite newspaper. I am long fascinated when two companies selling seemingly similar products and or services are sold for vastly different prices. Fascination aside, there is no magic to this. There are a few distinct and identifiable reasons why one is able to command top dollars as its selling price.

Planning – It Applied Then and It Applies Now
You will no doubt recall the long hours and hard work you invested to grow your business. The same tenacity and attention to detail you used then should be used when selling your business.

Your goal should be to look as attractive as possible to a potential buyer. An important factor in bolstering the stats of your business when preparing to sell is time. It is recommended that you start this process at least three years before intending to sell. The reason you want to start this three years prior to selling is because most buyers will want to look at financial information for that period of time to confirm that your business has staying power and steady income potential before they consider making an offer.

Increase Your Business’s Income
The first thing a potential buyer will want to know is what your business’ revenue and net income are. A great way to position your company in the most favorable light is to bolster your income statement.

Talk to your accountant about how to cast your financials to reflect growth and success. Examples of what can be done can include:

• Increase your marketing budget – This raises the inflow of new customers
• Hire a new employee on a commission or contract basis to show expansion
• Expand the hours of operation to generate more revenue

In tandem with increasing your revenues, you will also want to look at reducing unnecessary expenses. Talk to your accountant about options for reducing expenditures, such as taking a critical look at your depreciation and inventory reporting methods.

Remove Unproductive Assets and Acquire New Ones
Take a hard look at your business’ assets. To prepare for a sale, you should be making plans to sell or dispose of unproductive assets that aren’t doing anything for your small business. An example can include cleaning up your inventory by removing items that aren’t selling. You may incur a loss doing this, but what you will be gaining is the less tangible but more important advantage that your business will look better to a potential buyer and get you the highest sale price possible.

Why You Should Switch To FPC

Are you really delighted with your profits right now?

Are you completely confident that they will continue to grow and expand?

Is your financial professional advising you on how to take advantage of the down market?

There is a profound problem in business today. Owners of professional practices, traditional businesses, and other entrepreneurs, who decade after decade produce the overwhelming majority of job growth and general economic growth are being overburdened with taxes, government red tape, and harsh competitive environments, are now being slammed with the worst economic climate since the great depression.

The National Federation of Independent Business has published reports in the past indicating that almost two thirds of business owners make little or no profit over the lifetime of their business. Now in December 2009, the NFIB is reporting that 51% of business owners are seeing falling profits with 61% reporting weaker sales. Credit is tighter than it should be given the $800 billion bailout of the financial system. Employment, inventories, and capital outlays are heading down at a near record pace. The traditional optimism of entrepreneurs has been replaced by the hope for survival.

Tough times like this are like a hungry bear charging across the meadow, someone is going to get eaten. If you run faster than your competitor you will live, he will get eaten. It’s that simple. Even the Great Depression was a double edged sword cutting out and pulverizing the inefficient and forcing change while creating the largest amount of millionaires in history. The danger is not the economy, the danger is in not adapting to the new economy. The opportunities are immense for those who can adapt.

Is your Current CPA, Accountant, or Financial Professional giving you Rock Solid Business Advice Right Now?

Are they minimizing your taxes years round?

Giving you monthly updates on where you stand?

Telling you to improve your organization?

Suggest new effective marketing methods even offering you free marketing seminars?

Do they understand your business, your current situation?

Do they even care?

Because that is what you need….

So why aren’t they helping you?

There are two possible reasons -
1. They don’t know how.
2. They don’t care.

We are different.

We know how. We care.

The one dimensional, 19th century services offered by most CPA’s Accountants, and Financial Professionals do not come close to meeting the needs of the 21st century economy in turmoil….I mean just look at your accountant’s web site (if they have one)…does it reflect today’s technology and today’s economy? If they are living in the past…are you really going to be satisfied with that kind of sub-par commitment to their clients?