(Don’t) Wait Until Next Year!

This article was written by Carl Woodard, Chairman, SCORE Orange County

The promise of better results next year rings throughout Orlando and Detroit today, as celebrations in Los Angeles and Pittsburgh mark championships, after long seasons of basketball and hockey. Fortunately, for all of those teams there will be a next year….a next chance….another quest for the trophies.

Your business success may not be measured by how many trophies adorn your trophy case or by how many people greet your plane when you return from that last successful sales call of your year. More likely, you celebrate by privately appreciating achievement of your goals of increased sales, higher profit or planned business expansion.

Unfortunately, success these days may be measured by your ability to simply remain in business and plan for better years ahead. And that is where we come in….

SCORE, Orange County has over 100 seasoned, successful business people who have faced stiff competition and enjoyed the trophies of business success. Call us at 714-550-7369 and ask for an appointment with one of our counselors. We can guide you in developing your business plan, starting your new business or understanding cash flow. We can help you focus on how to survive an economic downturn. If you prefer, we offer counseling via the internet.

Visit our website www.SCORE114.org and browse through the library of business material. Or check out the extensive list of workshops presented throughout Orange County for your convenience. Notice our Women In Business breakfasts where networking opportunities abound and common problems can be discussed.

Managing a successful business does not allow a “Wait until next year” attitude. Do it now. And remember, our counseling is free of charge. We are waiting for your call.

Sales tax surprises of the ugly kind.

This article was written by Dick Ginnaty, CPA

If you sell tangible goods in California to non governmental entities who are the end users (i.e. they do not resell the goods) then you are subject to collecting and remitting sales tax to the state, and you will be audited by the State Board of Equalization about every 3 years or so. Unfortunately there can be surprises (as in the negative costly kind) during this process.

Two issues that are often the culprit of the surprise, is in installation of the product and delivery of the product. Both processes can give rise to sales tax liabilities.

Part of the installation fees (if charged) can become taxable if there is modification to the product during the installation. For example, if you are a custom drape or window covering business, and in the installation process you trim, or adjust the window cover in any fashion, a portion of the installation charges will be taxable. So if you are a business where installation is part of the process, and you charge for the service, be aware you may be incurring a sales tax liability associated with a portion of your installation charge.

Likewise, if you deliver your product and charge for delivery, you may be subject to sales tax on the delivery. In general, only businesses that deliver themselves via their own vehicles have to be concerned. Delivery via public transportation services (Fedex etc) are not taxable if the fee charged equals the cost. If the fee exceeds the actual cost then the excess is taxable.

The best advice in this area is to call the State Board of Equalization and ask if there are issues with your type of business. In many cases there are special pamphlets for businesses that have issues which are published, and available to identify the problem areas.

Good luck and here’s hoping it “all adds up” for you.

P.S. If there is any area in accounting or tax that you think needs to be addressed in this column please e-mail me at Ginnatycpa@aol.com and if it is of general interest, I will address it in future column.

Next Women in Business Breakfast, Friday July 10th

Join us for another exiting breakfast with Ursula Mentjes, founder of Sales Coach Now (www.salescoachnow.com) and author of Selling with Intention. Ursula believes when you shift your belief system about what selling REALLY means, you will begin to see sales as an effortless process.

The location is the Center Club in Costa Mesa. Details and online reservation information at www.score114.org under Women in Business link.

When are the Banks going to start Lending?

Someone asked me recently, “when are the banks going to start lending and what is the SBA doing to get them to lend?” This is a two part question and, as I mentioned in our April newsletter, banks have the cash to lend but have tightened their underwriting standards. But this tightening of underwriting standards should not be misinterpreted – it does not mean there is no appetite to lend. Indeed, one lender I spoke with recently told me that his goals for 2009 include increasing his loan portfolio by 9%. This strikes me as an impressive goal, particularly in today’s economy when so many businesses are in the doldrums and have been weakened. To put this in perspective, wouldn’t you be happy to increase your sales 9% this year? And what is the SBA doing to encourage lending? As previously reported, the SBA has temporarily increased the amount of their loan guarantees and waived their guaranty fees. Now the real question is “are these measures working? Is the credit pipeline beginning to thaw”? On May 5^th, The Wall Street Journal reported that the volume of new SBA-backed loans has risen more than 20% since mid-March with the weekly average number of 7(a) working capital loans approved having risen 28% from January to mid-March; the 504 loan program for real estate and other fixed assets has seen its average weekly volume increase by a third in the same period.

Also, effective June 15^th, the SBA has a new loan program called ARC loans. These loans are designed for businesses that have been profitable but are now experiencing difficulties due to the economic downturn but which can demonstrate reasonable projections that their distress will reverse as the economy recovers. The ARC program, for loans up to $35,000, is interest free to the borrower, are 100% guaranteed to the lender and can be used for payment of principal and interest on existing bank debt. Repayment begins six months after the last disbursement and can be made over an extended period. Detailed information can be found on the SBA’s website (www.sbs.gov).

So, the answer to that two part question is that the banks have both the cash and desire to lend, albeit with more conservative underwriting standards. The SBA’s current posture is contributing to getting credit flowing to small business again and the numbers coming in indicate that this is working. Now may be the time to review your business to be sure it is focused and on track, brush up your business plan (and seek Score counseling for assistance) and get ready to approach your bank for financing to expand your business in the anticipated recovery.

Work Sharing Unemployment Insurance Program

  This article was written by Bern Lefson, SCORE Orange County Management Counselor

In these difficult economic times, the California Employment Development Department (EDD) has a program that may help alleviate some of the financial burden and aid in retaining key employees. The Work Sharing Unemployment Insurance program allows for the payment of benefits to individuals whose wages and hours have been reduced. The basic purpose is to avoid layoffs and, for temporary situations lasting for a reasonable period of time, to share the available work and make up lost wages through eligibility for unemployment insurance payments.

This Program is practical and helpful by providing employers to quickly gear up when business conditions improve. Employers are spared the expense of recruiting, hiring, and training new employees. Employees are spared the hardship of total unemployment. For employers who must reduce their workforce, this Program may be used as a transition to the workforce reduction. Affected employees can continue to be employed while seeking other employment prior to the effective date of the layoff.

Work Sharing is flexible. Employees may be rotated so different employees have reduced work hours and wages each week. The Program allows the employer to determine which week(s) will have hours and wage reduction. The employer also may designate which employees are to participate.

A Work Sharing plan is approved for a six month period. If, at the end of six months, there is a need to continue the plan, a new application must be filed. Such a new plan may be approved to be effective immediately following the original plan expiration.

Eligibility and approval of the employer’s plan requires the following:

• The Work Sharing plan must be submitted to EDD for approval using Form DE 8686.
• Benefits cannot be paid prior to the approval of the plan by EDD.
• The employer’s Work Sharing plan must include at least two employees and 10% of the workforce or work unit.
• There must be at least 10% reduction in hours worked and wages earned for each participating employee.

It is recommended that anyone interested in the Program contact EDD for more information and for the required Form(s). call the Employment Development Department at:Employers - (916) 464-3343

Walking the Tightrope of Difficult Times

This article was written by Robin Noah, SCORE Orange County Management Counselor

No question these are very difficult time for most businesses. . A major challenge is how continue operating within existing financial parameters. There are no rubber bands to stretch the budget; restructuring, reducing and cut backs are some of the issues business persons are facing. What has to be cut and where do you cut? One of the primary areas always looked at for making changes is the overhead costs.  For most business the first stop is payroll. Cut or reduce payroll and you have personnel issues.

When dealing with personnel issues one needs to be concerned with labor laws. What may seem like a good decision may really be a costly action. For example if cutting back wages is an option you choose to exercise be sure that the basic minimum wages level is maintained for both exempt and non-exempt employees:

Non-Exempts = Mon $8.00 per hour

Exempts = $2,773.33 per month, or $33,280 per year. 

When reducing exempt employees' salary, remember that falling below statutory minimum salaries is a violation of state and federal codes.  This includes any cutbacks or reductions that are reduced by percentages that bring exempt employees below the minimum salary which will negate their exempt classification.

Reducing hours and pay for all employees: This works for nonexempt employees who are paid by the hour and do not have to be paid if they are not working. If you reduce exempt employees' hours to reduce their salary, then you are changing their classification bordering on a non-exempt classification.  Exempt employees are paid to get a job done; not based on the number of hours worked – no time sheets are used.

Another option that is considered is using independent contractors which would reduce the cost of benefits and overtime pay since independent contractors are self employed and receive no “benefits “from the business they contract with.  Independent Contractors (IC) are responsible for their unemployment insurance, workers' compensation and state and federal income tax.

The time bomb here is that simply calling someone an IC does not make it a legal classification. The most important factor is that the business has no control over the IC; the IC has the right to control the manner and means of accomplishing the desired result.   The www.IRS.gov  web site provides information for making the correct IC classification determination.

Be aware that if you hire someone as an IC but they are actually performing the job duties of an employee you have a misclassification problem. This can cost you significant penalties, such as back pay for unpaid overtime, missed meal and rest breaks, repaying your workers' compensation carrier, back taxes, etc. Carefully review the duties you are hiring someone to perform - if you think the individual is an employee, he/she probably is.

Another area rife with problems can be the hiring of temporary workers and treating them as IC’s’ .Whether an individual is an IC depends on the duties he / she was hired to perform and how he/she performs them. The less control a hiring entity has over the result or work product, the more likely the individual is an independent contractor.

In a recent newsletter the California Chamber of Commerce cautioned businesses to be careful in mandatory shut downs :   “ Employers may find that certain times of the year are slower than others or that because of the current economic crisis, a temporary unpaid shutdown would be cost effective. Employers may want to require employees to use accrued vacation or PTO during the shutdown. The Labor Commissioner has opined in the past that reasonable notice of this requirement must be provided (reasonable notice being about 90 days). Even if you have a written policy in your handbook, CalChamber recommends providing additional notice when you intend to invoke this policy because if the notice you provide is deemed unreasonable, you can be liable for unlawfully withholding wages from employees.”

Additionally, the Chamber comments: - Employers whose employees have a lot of accrued vacation or PTO on the books may wish to wipe out the accrued time to decrease their potential liability for monetary payouts. Remember, California law considers vacation time and PTO as wages; once the money is earned, it belongs to the employee and cannot be taken away. Employers may consider adjusting the cap on vacation, requiring employees to take paid time off, or paying out employees for accrued vacation or PTO, but never institute a use it or lose it policy

Tough times mean tough decisions.  Protect yourselves by carefully considering all possibilities, making responsible decisions that will reduce the potential for law suits concerning employee matters.