See Until Next Time above.
In our online poll this week, we asked this question: “With the tax filing dates coming up, how will you file?” You can see the numbers in the poll results below, but I want to offer my perspective on them here.
We’ve asked the income tax filing question for the past three years. Even though the response options were a little different each year, here’s what I see comparing all three: The perennial filing practices for small businesses are split by about 60/40 for those filing on time vs the extension crowd. I want to think that’s good news, as that would seem to indicate more folks are a little better organized. But let’s be clear, there are many good and practical reasons for filing an extension without it being an indictment of your business practices.
Full disclosure, around here we always file extensions for both business and personal, and I recommend it to anyone who needs a little more time for whatever reason. I have it on good authority that filing an extension is not seen as a bad thing by the IRS.
There is one sad note in our poll this week. It’s the first time I’ve offered the option to select: “Won’t file any returns this year.” As will see below, a small part of our sample chose this. When a business is struggling, one of the things that often slips is paying taxes and filing returns.
Over the years I’ve dealt with the IRS on behalf of clients and for myself, in circumstances that were good and some that were not so much. My experience is that they’ve always been helpful. If you ever get into this condition, don’t wait — talk to the IRS as soon as possible, tell them your issues and ask them for help. They will help you. But the longer you wait, the longer it will take to pay off the interest and penalties.
Our tax code and the system are completely screwed up, but the people you’ll meet at the IRS are not.
Trick question: If your business were a car, would the dashboard have warning lights or gauges? The correct answer is gauges because they provide incremental information, while a light is either on or off.
Business gauges are financial statements, numbers and ratios that anticipate attention; warning lights often don’t reveal a problem until it’s too late.
Let’s take a look at these two different dashboards addressing the same three issues:
This light flashes when you’re out of stock. Oh, you’ve got plenty of inventory, but it’s poorly distributed across lines and you don’t have what customers want now.
Inventory gauge: This is your balance sheet, which helps you see inventory creeping up in any month so you can immediately check stocking levels to get them back in line.
Inventory is cash you can’t spend until a customer pays for it. Can your cash flow wait for a light to flash before you make inventory adjustments?
Payroll caution light: High payroll!
A payroll light only comes on when this expense is already too high. By then you may have made hiring and compensation commitments you can’t justify.
Payroll gauge: The needle on the payroll gauge identifies the payroll-to-sales ratio including a breakdown of how much you should pay sales, management, production, etc.
Payroll is likely your largest operating expense. Do you want to wait for a light to flash or manage it with the incremental movement of a needle?
Growth danger light: Excessive speed!
This light blinks when your working capital engine has reached redline operating levels. By that time, either your internal systems are over extended, you will have grown yourself out of business, or both.
Growth gauge: Certain financial ratios and a cash flow projection are the growth gauges that indicate if you have the working capital to expand or if you should slow down until you’ve acquired the capital to grow successfully.
With sustainable success depending on sound growth decisions, you need the incremental immediacy of a gauge, not the vagueness of a blinking light.
Business gauges are the numbers on your financial statements and the ratios they produce. Like gauges on a car’s instrument panel, when displayed accurately and checked regularly, they move in small increments to show positive trends or alert you to a specific dangerous direction.
Astute business operators not only manage the movement of their operating gauges but also understand the cause-and-effect relationship each gauge has with another.
Write this on a rock …
Businesses that survive long-term have gauges on their dashboard, not warning lights.
Jim Blasingame is the author of the award-winning book, “The Age of the Customer: Prepare for the Moment of Relevance.”
The life of a small business owner is hectic, to say the least. Multi-tasking is the norm. So much of our day is spent reacting to the crisis of the moment, conducting the business of the day, and initiating our plans for the future. And once we acquire a level of competence in this life we’ve chosen, it’s natural to want to relax, settle in, and seek the ease that can come with familiarity and repetition.
But the marketplace isn’t a comfortable, lumbering vessel anymore, rolling along like a single screw trawler. It’s become more like a vibrant starship capable of warp speed. Indeed, it takes a much more knowledgeable person to successfully operate a business in today’s marketplace than it did even 10 years ago.
The great American revolutionary and legendary wordsmith, Thomas Paine, said, “I have seldom passed five minutes of my life, however circumstanced, in which I did not acquire some knowledge.” This from a corset maker who dropped out of school at 13.
You can’t anticipate everything, so react when you must. The business of the day, obviously, must be attended to. And what will you have tomorrow if you don’t plan for it?
But however circumstanced, before you succumb to the human tendency to rest on your laurels, make it part of your daily tasks to acquire some knowledge.
Make it your daily intention to learn something new that might help you react more effectively, operate more profitably, and plan more intelligently.
Thanks for being part of my community. I’ll see you on the radio and the Internet.
One of the interesting business trends to have witnessed going back a decade is how small business owners have chosen a loan source. But the future trend should be even more interesting.
Looking back, there have been primarily three sources of loan funds for growing small businesses:
1. Large, multi-state banks
2. Community banks, locally owned and managed
3. Credit unions, also locally determined
In a recent online poll we asked small business owners about their borrowing preference. One-sixth of our respondents chose “large bank,” which is down from a decade ago. Following the 2008 financial crisis large banks stopped lending to small business while they struggled with their own regulatory stress test. They’re lending to small businesses again, but are now in catch-up mode.
One-eighth of our sample selected “credit union,” which is higher than the past. Much to the chagrin of banks, credit unions have expanded their customer profiles to include small businesses, aren’t taxed like banks, and aren’t subject to community reinvestment requirements. I predict the credit union loan option will grow for small businesses going forward.
More than two-thirds of our small business audience told us they borrow from community banks. The Independent Community Bankers of America (ICBA) report they make almost 6 of 10 small business loans nationally, so our folks are a little more active with these lenders. Perhaps, since I’ve long espoused the natural symbiosis between Main Street businesses and community banks, I’ve influenced my polling audience to move this needle beyond the national average.
The big news of our poll is that crowdfunding popped up on the lending radar for the first time. The number was only 3%, but this credit source is very new.
Right now crowdfunding loans fit small businesses that aren’t bankable for one reason or another, but are strong enough to handle the associated higher interest rates. I predict over the next decade crowdfunding will claim a larger piece of the small business loan pie for three reasons:
1. Crowdfunding rates will become more competitive
2. It won’t have banking regulatory challenges
3. The virtual, online aspect of crowdfunding will appeal to the next generation of entrepreneurs
Recently I attended a convention of bankers and asked several of them what they knew about crowdfunding. Most had not heard the term, only a couple of those who had heard of crowdfunding knew how it worked and none understood the future implications to their industry.
Bankers, call your office.
Write this on a rock …
Small business borrowing will be a lot different in 2025.