Tuesday, September 25, 2012

All I Need To Know About Running My Business Is In My Head

imageThis article was written by Mike Capsuto, SCORE Orange County Management Counselor

When entrepreneurs are asked why they do not keep financial records current, common replies are that they are too busy with day to day operations, they do not have the expertise or cannot afford the staff, and most commonly “I built this business from the ground up. All I need to know about running my business is in my head”.

Without current financial records important decisions end up based on mentally retained or verbally obtained information. Relying on this form of record keeping may be adequate for a small business with simple processes, but for most other businesses maintaining current financial records is necessary.

What are the benefits of current financial records?

There are many benefits:

First it is a management tool. Up to date financial records allow you to measure how efficiently you are using your business resources and whether you are making a sufficient profit to meet family expenses, retirement planning, and other needs and desires. Financial success is determined by profitability. If a business is not profitable it may not be sustainable.

Second it is a planning tool. One of the greatest weaknesses from verbally or mentally obtained information is the inability to do accurate planning. Few people have sufficient memory retention to make operational or financial comparisons. One can usually remember facts and figures from current operations but have difficulty remembering their expectations of previous periods except in a hazy way. Good planning can warn of possible future crises. Steps can be taken to prevent these crises, making day to day operations smoother. A small company can benefit from simple planning as much as a large company can from an elaborate one.

Third, it is a tax tool. Good financial records simplify reporting and help increase after tax income. Relying on memory for certain financial transactions, can cause lost deductions and tax credits.

Fourth it is a tool for raising capital. Properly kept financial records provide bankers and investor with information necessary to make decisions in your favor. It also demonstrates your management ability.

When does it become necessary to keep financial records current?

The answer is “Day One”! Outside of that, there are several telltale signs:

· Forgetfulness – This is not the forgetfulness associated with a total lapse of memory but from fuzziness of memory. One usually remembers the general information but not the details that were provided at the time. The details are now forgotten and no longer available for management use.

· Inefficiencies – It is time to change when you notice that machines or workers are idle despite having back-orders. Other indicators include frequent stock-outs, product recalls and warranty work.

· Inaccuracy – When information obtained verbally is inaccurate to make competent decisions.

· Lack of time – When there is not sufficient time to look up critical information it is a signal that the information needs to be formally developed and easily retrieved.

· Poor cash flow - You are investing more money into the business to keep it operating.

What financial records are necessary? There are two sets of records needed to be kept current. First are the financial reports – The Statement of Income, The Statement of Financial Position and Statement of Cash Flows. These are report cards used as feed back to compare your business's performance against your expectations. They are also used by investors and creditors to make informative decisions concerning the stewardship of your business.

The second set of records/reports is needed to develop managerial analysis and control. These reports have no set format as required in financial reporting but are designed to aid in making important operational and strategic business decisions. Typical reports are used to develop budgets, control costs, establish competitive prices, accept special orders and determine the financial feasibility of capital investments.

However, no one form of reporting system fits every business. Many factors must be considered - the size of the business (large, medium or small); the type of business (manufacturing, retail, service or agriculture); the form of organization (sole proprietor, partnership, corporation, family, etc). It also depends on whether you currently have or anticipate having employees, fringe benefits or pension plans. Having the wrong system can become a less useful tool wasting your time and money.

The best method to establish a financial record keeping system is to obtain the advice of a professional familiar with your business and applicable tax laws. They can set up a system that will provide both the management control and financial reports necessary to run a successful business. Once established you will find your business running more efficiently and profitably.

Crowd Funding

This article was written by Amy Feldman in NEW YORK (Reuters) – August 11, 2012, reprinted by permission

When Julie Uhrman, chief executive of gaming start-up Ouya Inc, went looking for funding to launch a new video gaming console, she turned to crowdfunding site Kickstarter Inc.

The goal: $950,000. Instead, when the campaign ended August 8, so many gamers and game developers had pledged $99 (or more) to get the new Android-based Ouya that the company raised $8.6 million, making it one of the biggest crowdfunding success stories ever.

"We've been in the public consciousness for only 30 days, and we sold over 60,000 boxes," Uhrman says. "There's a good audience (on Kickstarter) for the product we're trying to build, and it allowed us to move very quickly."

But one important thing has been overlooked: taxes.

"We've been talking about that, but we have been so busy," she says. "Luckily, we have good accountants, so they'll sort it out for us."

CROWDFUNDING GROWS

Crowdfunding on sites like Kickstarter or Indiegogo Inc is a relatively new way to raise funds. It allows an entrepreneur to get proceeds for a specific project, often offering "rewards" to those who pledge.

When Kickstarter began in 2009, crowdfunding was largely used by musicians, film makers and other creative types to raise small sums of money for projects that might not make any money. But as it's grown — in some cases, becoming an alternative to venture capital — the dollars involved have gotten bigger.

Ouya is one of eight campaigns to raise at least $1 million on Kickstarter. All told, Kickstarter backers have pledged more than $300 million since its launch, while competitors like Indiegogo have also grown rapidly.

"Crowdsourcing is becoming a popular way for start-ups to raise cash, and the companies that receive the cash may not realize the proceeds are taxable," says Murray Solomon, a tax partner at accounting firm EisnerAmper. "They may get a very unpleasant surprise when they build all their prototypes and spend all the money."

In fact, if you raise more than $20,000 on Kickstarter from more than 200 people, you'll get a Form 1099-K (a new tax form introduced in 2011 and required for third-party payments above that threshold), courtesy of Amazon Payments, which processes transactions for the site.

Indiegogo, which allows pledges by PayPal or credit card, notes in its agreement that users "shall have full responsibility for applicable taxes" on their projects' funding. (Kickstarter and Indiegogo both declined to discuss tax issues.)

NEED TO KNOW

If you're planning to crowdfund, here's what you need to know:

If it's a sale, it's taxable.

Say, for example, a startup uses a crowdfunding site to raise money to develop a new iPhone accessory, and offers "rewards" — as these campaigns typically do — of those accessories in various combinations for different pledged amounts.

"That's the most common situation, and it's taxable because you get something in return," says EisnerAmper's Solomon.

Even funds below the 1099-K reporting threshold remain taxable, says Solomon.

This spring, Pizza Delicious, a New York-style pizza place in New Orleans, raised $18,300 on Kickstarter for a new pizza oven, offering pizzas, bumper stickers and T-shirts to those who pledged.

"We thought it would be a cool way to get people excited and drum up support for projects," says co-owner Greg Augarten. "It's taxed like any other income, but it's still worth it."

Just because the funds are taxable, though, doesn't mean you'll actually owe tax on them. If your business expenses are higher than the money you bring in, you may not owe anything.

Michael Guenther, a certified public accountant in Sacramento, who works with video game companies and has three Kickstarter clients, says most such startups would not owe tax in the first year because of the combination of business costs and tax benefits, such as the research and development tax credit.

"Most Kickstarter companies would use nearly 100 percent of their Kickstarter funds to build whatever it is they're looking to build," he says.

That's generally the case for musicians and other creative types raising small sums for specific projects.

Ken Thomson, a Brooklyn-based composer and saxophonist, raised $2,665 last December for a new album. Most of his 89 backers paid $25 and will get the CD when it's done.

"It casts a wider net, and we were able to get more pre-orders," Thomson says.

But the idea that he'll owe taxes after spending at least $10,000 to produce the CD makes Thomson laugh. He figures he won't owe taxes since he expects his expenses to dwarf the money he raised.

"I dumped the entire amount of money I got from Kickstarter into the studio, and then I have to figure out how to give everyone CDs," he says. "When you make a record, you assume you are going to lose money on it."

NON-TAXABLE EXEMPTIONS

There are situations in which crowdfunded pledges may not be taxable. Some may be considered gifts, others donations. Once the JOBS Act, which allows startups to solicit investors online as a way to encourage funding of small businesses, takes effect, some contributions may be considered "capital contributions," and not taxable when they're received.

In general, a gift is a contribution in which the giver gets nothing in return. Gifts are not taxable to the recipient, and gift givers are allowed $13,000 a year per recipient tax-free. A recent do-gooder campaign on Indiegogo raised more than $700,000 for a bullied school bus monitor to take a vacation.

"That's the perfect example of what would be a gift," EisnerAmper's Solomon says.

Charitable donations, to a registered 501c3, are another exception. Donations may be both tax-free to the non-profit and tax-deductible to the donor.

With crowdfunding still a niche business, accountants are puzzling over the lines between different tax situations. As EisnerAmper's Solomon puts it: "I think it's so new that there are going to be some gray areas."

(This story in 8th paragraph, corrects description of eight $1 million-plus efforts to campaigns, because they were not all start-ups.)

Let Your Imagination Fuel Your Success

imageThis article was written by Harvey McKay, author and lecturer

Take a close look at the back of a dollar bill. On the left side is a pyramid, with an eye at the top. Over the pyramid is the Latin inscription “annuit coeptis.” It means: “Providence has Favored Our Undertakings.”

The pyramid symbolizes the strength of the union of the states. The top of the pyramid is unfinished, meaning there is still work to be done to make our system even better. The eye stands for the all-seeing God, Supreme Builder of the Universe. Benjamin Franklin chose this motto because he believed imagination was the singular characteristic of the people he helped to forge into a new nation.

I think Ben Franklin would be pleasantly surprised where imagination got this great nation.

“The most interesting people are the people with the most interesting pictures in their minds,” said Earl Nightingale, one of the pioneers of the motivational movement.

I’m always fascinated listening to people who see the world through a different lens. Most of us have ideas of what we’d like to change, but not necessarily the vision to make it happen. People who can clear the negative clutter from problems will always be successful.

The famous inventor Thomas Edison used to say his deafness was his greatest blessing. A blessing because it saved him from having to listen to reasons why things couldn’t be done.

Curtis Carlson, founder of the Carlson Companies and one of my mentors, spent his life building and expanding. When asked what personal qualities contributed to the building of his successful empire, Curt responded, “I think my success is the result of my ability to see and to imagine how things can be. I’m not distracted by how things are.”

It’s never too late to develop your imagination, although I believe that the longer you suppress it, the more challenging it will be. Consider this lesson that was shared by Gordon McKenzie, a well-known creative force at Hallmark Cards.

McKenzie often visited schools to talk about his work. He usually introduced himself as an artist, and then would ask the students, “How many of you are artists?”

In kindergarten and first grade, almost every hand was enthusiastically raised. In second grade classrooms, about three-fourths of the children would raise their hands, but not as eagerly. Just a few third-graders admitted their artistic talent.

By the time he interviewed the sixth graders, he said not one of them raised a hand. They thought being an artist was “uncool.” (My guess is that Curt Carlson was one of those kids who didn’t mind being “uncool.”)

So if we want to cultivate creativity and imagination, a good place to start is with children. Children don’t recognize limits on possibilities. They look through that different lens, that is, until we train them to focus on the practical.

Children are open to trying all kinds of solutions. We would do well to learn from them that there is rarely just one way to get a job done.

A friend shared a story from the NewsOK website about two parents working on their Christmas cards with their 6-year-old son. The son’s job was to lick the stamps (back before self-adhesive stamps were available.) But the little boy balked because he didn’t like the taste of the glue on the stamps. His parents prevailed, and reluctantly, he went to his room to finish his assignment.

Before long, he emerged from his room with a big smile on his face and handed his father the pile. Every envelope was stamped. His stunned father said, “But I thought you didn’t like the way the stamps tasted when you licked them!”

“Yeah, that was yucky,” the son replied. “So I just licked the envelopes and then stuck the stamps on.”

Of course, I love a good story about envelopes!

From Napoleon Hill’s famous book Law of Success, comes this summarizing thought: “Just as the oak tree develops from the germ that lies in the acorn, and the bird develops from the germ that lies asleep in the egg, so will your material achievements grow out of the organized plans that you create in your imagination. First comes the thought; then organization of that thought into ideas and plans; then transformation of those plans into reality. The beginning, as you will observe, is in your imagination.”

Room to Grow

imageIn Success Magazine, October 2012 edition, reprinted by permission

John Maxwell woke with a start. It was 3:30 a.m. and he had an idea. He tossed and turned, but couldn’t let it go. “I put my robe on, went down in my office and said, ‘I have got to write this book now,’ ” he says. “From 5:30 to noon, I sat at my desk and basically set out those laws.”

Two years later, the book Maxwell began that morning, The 15 Invaluable Laws of Growth, is about to hit bookstores nationwide.

Maxwell is visibly excited about the book when we meet for lunch at a marina restaurant in Palm Beach County, Fla., just minutes from his home overlooking the Atlantic Ocean. In fact, he tells me that he had his publisher push back another of his books so this one could be published first. “It was a passion of mine more than I think any other book I’ve ever written,” he says in his booming baritone voice.

And that’s saying a lot, because Maxwell has already sold more than 19 million copies of his other books, including three that have sold more than 1 million apiece: The 21 Irrefutable Laws of Leadership, Developing the Leader Within Youclip_image001 and The 21 Indispensable Qualities of a Leader. But the common denominator of those titles—leadership—is not the primary focus of his new work.

“This book is for everybody. Because everybody needs to grow,” he says. “And once that happens, their whole world begins to change.”

And he should know. After a light-bulb moment 40 years ago, Maxwell has been following a personal-growth plan. “I feel that a great percentage of my success today is based on that one simple decision to continue to develop and personally grow myself,” he says.

With success as an author, speaker, entrepreneur and leadership consultant whose organizations have trained more than 5 million people around the world, Maxwell, now 65, could take it easy. Tanned and well-groomed, wearing sports jacket, slacks and open-collared shirt, he appears comfortable and relaxed. He is an active golfer and grandfather. “When he’s not writing, speaking or leading in some capacity,” according to his website, “John can most likely be found at the golf course concession stand buying his grandchildren hot dogs, pop and candy (just don’t tell their parents).”

But Maxwell also follows a disciplined routine that involves daily activities that bring him closer to his goals.

“I wish, when I started out, somebody would have said, ‘Here are the laws of growth for you. Take these laws and apply them to your life, and off you go,’ ” he says, with a flick of the hand as if to send a younger version of himself on his way. “Obviously, that didn’t happen to me, so this is really exciting to me to have this book launch. If a person wants to grow, then this is going to be the key that unlocks the door. I know what it’s done for me, and I know what it’ll do for the reader.”


The Epiphany

When he started his career, Maxwell says he had a strong work ethic and a desire to be successful. “I had a strategy: hard work. I hoped that would get me where I wanted to go. But working hard doesn’t guarantee success. And hope isn’t a strategy.”

In the early ’70s, as a 24-year-old pastor, Maxwell faced a challenge. He had been offered the chance to lead one of the biggest churches in his denomination, but he didn’t feel experienced enough for the task. “I was in way over my head, and I knew that if I didn’t rise to the occasion, I would fail spectacularly,” he writes.

So he sought help from an executive coach who asked him about his plan for personal growth. “I had no plan,” Maxwell recalls, his palms opening to the umbrella shading our dockside table. “I didn’t know I was supposed to have a plan. But that stimulated me. He went on and said, ‘Growth isn’t an automatic process. You’re going to grow because you intentionally grow, not by accident.’ So that was life-changing for me.”

That’s why his “Law of Intentionality” is No. 1 on his list. “If you want your life to improve, you must improve yourself,” he says. Setting your intentions to begin growing deliberately and regularly is the first step to realizing your potential.

Having read several of his books as well as interviewing him on the phone for SUCCESS, I’m familiar with Maxwell’s works and message. But I tell him when we meet that this book really spoke to me in ways the others didn’t.

Maxwell says he thinks this kind of learning will resonate with lots of people, particularly because of the global recession and poor job market. “Because we look at our outward circumstances and say, ‘What can we do with them?’ And, honestly, a lot of times, we can’t do much about them. But we can do everything about ourselves.”

He points to a lesson learned from the book As a Man Thinketh by James Allen, one of many his father paid him to read as a child (“That’s how I got my allowance,” he says). “Allen wrote, ‘Men are anxious to improve their circumstances, but are unwilling to improve themselves.’ I read that in the seventh grade and remember thinking, ‘Wow.’ ”

While he doesn’t have answers for curing society’s ills overnight, Maxwell is confident about the power of personal growth: “What I’ve discovered is, if the right things happen in me, I can begin to control some of the things that happen outside of me.”


Growing Pains

In writing Laws of Growth, Maxwell drew from his own experiences. “I found each and every law to be true in my life,” he says. “And once I taught others to practice these laws, I found that they worked for other people, too.”

For example, he says one of the earliest principles he learned related to his “Law of Reflection.” As a child, his father would take him on various excursions, always wrapping up the experience with two questions: “What did you love and what did you learn?”

“The second question really caused me to reflect,” he says. “When somebody tells you experience is the best teacher, that’s not true. The best teacher is evaluated experience, which is reflection.” Now he spends dedicated time every day, if only for 10 minutes, to reflect, ask questions and put things in perspective.

Over and over in his life, Maxwell has experienced his “Law of Pain,” which he explains as “good management of bad experiences [that] leads to great growth.” Examples he cites include the “Pain of Conflict”: “One church I led experienced a split in the congregation, and some people left the church. That experience made me dig deeper as a leader.” Another is his “Pain of Bad Health”: “My heart attack at age 51 was excruciating. It was also an eye-opener. I immediately changed my eating habits and bought into the practice of daily exercise.”

Looking back, Maxwell says most of his personal development has occurred during times of pain or conflict, and that the outcome ultimately depended on his reactions. “Successful people take every difficult experience and learn from it; unsuccessful people take difficult experience and leave it. They run, and they don’t learn. So they repeat it again and again.”

During our lunch, it’s evident that Maxwell has been to this restaurant before. He calls waiters and waitresses by first name; if he doesn’t know a name, he asks what it is and repeats it to himself. In fact, by the end of our conversation, he’s used my name about two dozen times.

It quickly becomes clear that Maxwell practices what he preaches: He wants to connect with people. He wants to help people wherever they are.

One group he hopes will benefit from Laws of Growth is small-business owners, especially those struggling in this economy. In the face of slashed budgets, skeleton staffs and uncertain futures, Maxwell says it’s natural to become paralyzed with fear.

He points to his time with a stewardship company that helped nonprofits raise money. As the largest organization of its kind in the United States, the company typically signed a contract every day, he says. In 2001, they were on par, until 9/11. “From 9/11 to the end of the year, we didn’t sign one contract,” he says. “What happened? Everyone froze.”

His “Law of Consistency” addresses that tendency, he says. “Motivation gets you going—discipline keeps you growing.”

Applying the law involves asking key questions—such as “Do you know what you need to improve?” and “Do you know how you are supposed to improve?”—to develop daily growth practices. “Small disciplines repeated with consistency every day lead to great achievements gained slowly over time.”

He recommends starting with small changes so as not to become overwhelmed and to be patient, as progress occurs over time. “Value the process,” he says. “It is going to take a long time, so you might as well enjoy the journey.” Also, contrary to what most of us have been taught, Maxwell suggests switching our thinking from goal-consciousness to growth-consciousness. Focusing solely on goals is seasonal, he says, while concentrating on growth is lifelong.

Maxwell also refers to his “Law of Curiosity” as being essential for small-business owners. Beyond simply solving problems, “Asking why fires the imagination. It leads to discovery. It opens up options,” he writes. “People say not to cross a bridge until we come to it, but as someone once said, ‘This world is owned by people who have crossed bridges in their imagination before anyone else has.’ ”


Tools for Tough Times

Maxwell also hopes others struggling in today’s economy will pick up the book. Recent college graduates, for example, could benefit from practicing his “Law of Awareness,” which states, “You must know yourself to grow yourself,” Maxwell says.

“Because they’re young, they don’t know themselves,” he says. “And it’s OK. But they really need to allow that to happen in their life.” Some key questions in the application section of the chapter can help readers focus on their talents, goals and motivations, “and get on course to do what you were made to do in life.”

“People say there are two great days in a person’s life: the day you were born and the day you discover why,” Maxwell writes. “I want to encourage you to seek what you were put on this earth to do. Then pursue it with all your effort.”

Flipping through his iPad to get the wording just right, Maxwell says another principle that’s crucial for recent grads is his “Law of Environment,” which suggests that “growth thrives in conducive surroundings.” Right out of college, a young adult may have to settle for a job that isn’t a great fit. “The odds of them getting in a non-conducive environment are very high, and they have to have the confidence in themselves to recognize that,” he says.

Maxwell describes a growth environment as one in which “others are ahead of me, I am continually challenged, my focus is forward, the atmosphere is affirming, I am often out of my comfort zone, I wake up excited, failure is not my enemy, others are growing, people desire change, and growth is modeled and expected.”

While changing jobs is never easy, he suggests it’s essential for anyone seeking to learn and grow to be looking for those opportunities. Even for people who seem to do well in an environment, it’s important to keep in mind that the “best place to learn is always where others are ahead of you.”

Spending time with more successful people is also a component of his “Law of Modeling,” which says, “It’s hard to improve when you have no one but yourself to follow.”

“Find somebody who does well and find out why they do well,” he says. “A lot of people have never had somebody to show them how to succeed, so all they dwell on is failure. They need to get around somebody who can help them.”

The unemployed and underemployed should also follow his “Law of the Mirror,” which states, “You must see value in yourself to add value to yourself.” Maxwell illustrates his point this way: Say, for example, you’ve just been fired. So you used to think of yourself as an 8, but your confidence drops, you value yourself less and you now consider yourself a 3. Consequently, people will treat you like a 3, you’ll respond to people like a 3, you’ll perform tasks like a 3—and you’re in trouble.

“If you lower your self-image, you won’t go beyond it,” Maxwell says. “The lower the lid, the less you will accomplish and do. I think it’s very true in this economy. It causes people to self-doubt.”


Building Momentum

“One of the great things about a personal-growth plan is that it’s like a diet,” Maxwell says. You lose the first five pounds and all of a sudden you’re motivated. With a personal growth plan, one of the first things you’ll say is, ‘Wow, this is starting to work for me,’ which will also keep you going.” Essentially, by making deliberate, daily efforts to improve ourselves and our lives, we slowly build momentum, which typically results in more accumulated achievements. These incremental successes help build esteem, which enables us to pursue larger goals—overall, a powerful snowball effect.

Today, Maxwell is intent on creating his own snowball effect by focusing on his legacy. “My growth plan now is, How do I expand and extend my influence?” he says, his tone sober, his speech deliberate. “I’m purposely training and equipping other people with my principles and my values so that they can carry them on.”

A major part of that is EQUIP, his international leadership training organization. Leaders in various sectors of society—from government and education to business and religion—receive Maxwell’s training and then develop strategies to target specific problems. “We’re hoping in two years to be in every country in the world, and we think we will be,” he says. “We’re training a million leaders a year, and now we’re on a 10-year strategy of transformation.”

Plus, in March 2011, he founded the John Maxwell Team, which trains and certifies coaches, teachers and speakers. These team members go on to spread Maxwell’s teachings through workshops, seminars, speaking and coaching. Also part of the John Maxwell Team is YouthMAX, a program that sends coaches into schools to discuss with students issues such as bullying, self-image, character development and attitude; the program had reached 150,000 kids by early 2012.

And what about the book that got pushed back to make way for The 15 Invaluable Laws of Growth? That’s in the pipeline, too. Called Sometimes You Win, Sometimes You Learn—“Isn’t that a great title?” he asks giddily—Maxwell describes it as the sequel to Failing Forward in 2000.

“What’s funny is, in this book, I did more dumb things since then than I did in the first one,” he says with a chuckle, leaning back in his chair. “If you thought I was really stupid back then, I’m taking you to failure graduate school. I tell all these stories in the book and what I learn from them, because, in the end, the whole point is to learn something, right?”