Thursday, September 10, 2009

Tax Games That Are Well Known by the IRS

This article was written by Dick Ginnaty, CPA

clip_image002Many new owners operating in “cash” businesses such as bars, restaurants, video rental, etc think that they can play tax games such as not reporting all the cash taken in.

These are not new games to the IRS. They are familiar with them and they have developed approaches to determine “sales” irrespective of the reported numbers.

In fact, over time the IRS has developed audit manuals for specific types of businesses which are actually public knowledge and can be researched on line. Their techniques for estimating sales are primarily based on analyzing supplier invoices, such as beer and wine suppliers, and then marking up the purchases with the “industry average” markups to equal estimate sales. They then compare their estimate to the reported number to determine if there is sufficient difference to continue to investigate. Many times the fact that the business is reporting little or no income and yet has been in business for five or more years will indicate a potential problem. They then may proceed to determine how the taxpayer is existing (paying mortgages, utilities, etc.) while making little or no money. Valid answers to such questions are loans, gifts, or inheritances.

In some cases, they will actually put the business under surveillance and count the customers. They have been even known to pretend to be a customer, pay in cash, and watch how the cash is handled. Was it put in the cash register? Was the sale rung up?

The point here is it is a dangerous game to play to not report significant amounts of sales. There of course will be penalties, and Congress is ratcheting up the amount of those penalties on an almost yearly basis. A penalty of 20% for underreporting is the usual starting assessment, and then interest, and late payment penalties are added, but criminal indictments can happen.

The old adage that “hogs get slaughtered” comes in to mind when warning people that their innovative technique for not reporting income is usually old hat for the IRS.

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 and if it is of general interest, I will address it in future columns.

Restaurant Survival at Mammoth Lakes

This article was written by Jack James, Score Orange County Management Counselor and Newsletter Editor

clip_image002Tony Rojas, a former Orange County realtor, has owned and operated restaurants at Mammoth for 10 years.

This ski season his upscale Alpenrose restaurant was about to become a recession casualty like other Mammoth restaurants. Dining was at low levels, as low as 15 customers per day. He needed a new business model quickly if he was to survive.

From the market research, 90% of patrons wanted good food at lower prices. Amenities were way down the list, price was the determining factor.

He closed the restaurant, changed the format and remodeled the dining area. Six weeks later he reopened with new menu and lower prices. The plush booths gave way to tables and chairs. The wine inventory was sold off. The major conversion was walk up ordering and paying for your food.. Good food is served quickly and diners save about $4 per plate. No tip required.

The Fireside Grille is a family friendly restaurant where you get BBQ ribs, bratwurst, pastrami, house wine and beer. Try it when you visit Mammoth.

Tony projected 75 meals per day when he reopened. The first week 150 meals per day were being served and it’s increasing as the people hear about the restaurant. The only marketing is word of mouth.

The lesson here is if your niche isn’t working, maybe its time to rethink the business model and make drastic changes.

SEO (Search Engine Optimization) Success Story

This article was written by Bob Bradley, Score Orange County Management Counselor

Become SCORE facebook fan

clip_image002The Tribune Company was in the news for all the wrong reasons in the past few months. Bankruptcy and financial losses to name a couple. Many journalist jobs were threatened, so they looked to the online editions of their newspapers for a glimmer of hope.

Educating journalists did not prove to be an easy task. Their chief SEO person gave a presentation to the suspicious journalists and used an analogy to get his point across. A great article is useless if no one sees it. You can take your news stand and stick in the middle of Missouri by doing no SEO or you can put it in the middle of Times Square by doing good SEO work. He explained that by putting proper words in their headlines, many of which may not be acceptable to journalists, they could make a huge difference in the number of people who read the article. A handful of people, perhaps a quarter of them, bought the snake oil story. Those 25% worked with the SEO and found that their articles hit the first page of Google more often than not. Needless to say the technique was adopted by more journalists but not by all. There are still those that are stubborn, although the percentage has reversed it self (25% still refuse to use SEO).

What did the SEO do to help the journalists? Although he was given full authority to edit whatever he wanted, like changing the title tags, headlines, sub headlines or even the story if he wanted, he never changed any of the headlines, just the tags and description within the HTML. He only made recommendations with respect to the headlines, sub headlines and other text. He worked with the converted journalists on doing keyword research and finding out what works and what does not. In the case of the death of Michael Jackson, their research indicated that the best keyword phrase to be used was, "Michael Jackson Dead". Not "King of Pop is Dead" or "Wacko Jacko is Dead". Keying on "Michael Jackson" would have been obvious but there is significant competition for that word from sources such as MTV and TMZ. One creative and quick to act person bought the domain of www.

After months of work and nurturing, the SEO and the editors began to understand each other better. Editors actually worked directly with the SEO in developing headlines not just for their online version but for their offline newspaper too. The paradigm was changed from delivering the news we believe people should have, to giving them the news we KNOW they want.

The success? Increase in monthly visits to Tribune sites by 20 million!

The principles of SEO and keyword research are the same for everyone. You can target keywords for each of your products and services, put them on specific pages or on targeted pages. SEO never ends, it changes as the world changes.

Reducing Costs in Difficult Times

This article was written by Dennis Wright, Score Orange County Management Counselor

Getting through difficult economic times motivates businesses, both large and small, to seek out ways to reduce costs in an effort to maintain or restore profitability. That often leads to painful choices regarding staff. The resulting actions, however, may create other problems – internal problems – that can lead to further deterioration in top-line results. Then that business finds itself right back where it started, perhaps reaching for another dose of the same medicine.

Looking beyond what appears to be the obvious though, can produce surprising results. What I’m suggesting is that you look beyond those things that may, and often do, effect sales volume; look at costs that are considered “fixed”, such as those associated with your facility, office equipment, machinery, etc. and the leases related to them.

For example, in terms of office space, if you have something to bargain with – such as extending the term of the lease, provided of course that makes sense after considering other factors – you may be able to reduce your present monthly rent by means of an early renewal. This requires market knowledge and research to engineer, and should not be attempted without help from a qualified real estate professional. It’s also a good idea to look closely at how you are using leased space. A right-sizing analysis and a workflow study might lead to reconfiguring your space, which in turn may enable you to create a landlord approved space sharing arrangement with another party who would also share the rent, or give you the ability to sublease a portion of it to another business. Downsizing equipment and entering a new lease with the same vendor may also help trim costs.

There are several reasons these alternatives are often last to be considered, but that’s another matter. The key is to think outside the box and see where that leads. SCORE is here to help you do just that. Consider this: over 100 counselors, most of whom are retired executives or former business owners, all of whom have lived through recessions. In other words a team of people who likely have faced the same situations – the same decisions – you now face who will listen and offer advice that comes from real life experiences.

I’m certainly not saying there is a single “silver bullet” solution just waiting to be discovered, as a matter of fact any solution will likely involve further research and a combination of appropriate well planned and executed actions, but don’t you owe it to yourself and your staff to explore every option before taking the next step? Call us today, at 714 550 7369, for an appointment and let’s see what ideas we can come up with together.

The NEW Economy

This article was written by Hillel Pitlik, Score Orange County Management Counselor

clip_image001The turmoil in the US economy forces every business to re-evaluate and reinvent itself. That may sound off the wall, but its time to rethink why things worked in the past and what today has brought.

Is your product or service still relevant? Is the competition beating you on price, quality or service? These questions cause us to rethink our business idea. Is it due for an update or change in direction? Perhaps it’s time to stop the bleeding and pack it in.

Our economy will recover slowly. So our expectations of our customer base must, of necessity, be revisited. Are there new customers out there whom we could reach? If so, how? Or must we change our mode of operation?

The new media offers the clever entrepreneur a golden opportunity to compete with the brick and mortar sellers. But can your business model compete on a local basis that the media won’t reach? An understanding of your business and the dynamics of the past months might lead to you to establish a new set of goals and new methods to achieve them.

It may be a simple tweak to a durable business idea or a serious change in direction. But understanding the formula that worked before as well as devising a formula that will work today is the key to new success.

One thing is certain, customers are not as willing to part with their hard earned cash. In fact, the economy kicked them badly, so they are saving for the next rainy day, if they can. But there are niches in the armor that can be penetrated. What spending pattern is constant in spite of the economy? You may be able to sneak into those areas and find new success.

I guess what I’ve been saying is, “Look at your business in the mirror and see if the image you see is prepared for today and tomorrow.”

Score Chapter 114 Selected to Judge Aerospace Competition

The Supplier Excellence Alliance(SEA) is a partnership for aerospace suppliers to improve supply chain efforts and create innovation.

SEA has selected Chapter 114 for the second year to judge about 120 applications for their awards. Awards will be given at a Gala in Palm Springs in November.

The Score team is: Angelo Farro(Captain), Jim Fulton, Bob Lichtsinn, Jack James, Jerry Margolin, Pete Dorsa, and Steve Day.