Can a business grow too fast?

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Most businesses hope to grow. They consider themselves successful if growth is taking place, and the faster the growth the better. Can too much business growth be bad for a company? It can be if the growth is not adequately planned.

For example, an established company that doubles its sales volume in a year may find itself strapped for cash, for working space, and for trained personnel.

For most established companies, a 12% to 15% annual growth rate would probably be manageable. The ideal growth rate for your company depends on the unique circumstances in your firm and industry.

A new company (starting with zero sales) must obviously grow more rapidly than an established one. Some new businesses may double their sales each year for the first five years or so before reaching the level where a 15% annual rate is healthy.

Rapid growth often requires more inventory and more space. And it may require money to fund additional work-in-process or accounts receivable. Who will fund the growth? A 15% growth rate can probably be funded by retained earnings. A more rapid rate may require an injection of outside capital. If the owners can’t provide the money, will it be the suppliers (increasing the accounts payable) or a banker (new short-term debt)?

Every business should have a written business plan with its growth projections clearly identified. The plan should include provisions for the finances, space, equipment, and personnel that such growth will require.

Your company’s growth should be both workable and profitable. Please contact us for assistance with your business planning.

Smart business people learn to delegate work

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As a business owner or manager, you may think that if you want things done “the right way,” you have to do them yourself. But that isn’t always the best approach at work, even if you firmly believe you’re the best person for the job. There simply isn’t enough time in the day – not if you have a business to run.

Like it or not, you must learn how to delegate work to subordinates. Here are some helpful hints.

* Get organized. Start by deciding which tasks to delegate and which employees will be assigned responsibilities. The workload doesn’t have to be etched in stone, but you should develop a game plan for subdividing jobs.

* Focus on self-starters. You will need to rely on people who can think for themselves. Don’t rely on employees who you anticipate will be constantly seeking your guidance. If you have to show someone what to do every step of the way, it defeats the entire purpose.

* Give workers authority to act independently and make decisions on the fly. Don’t hinder the process by requiring employees to obtain your approval on every decision. This will only turn into a variation of doing things the same old way.

* Monitor work progress. This aspect must be handled with sensitivity. You’ll want to keep an eye on employees, but you can’t keep looking over their shoulders either. Find the proper balance.

* Analyze the results to determine if the work met your expectations. If it didn’t, offer constructive criticism for improvements. Make this a learning experience for both of you.

As you become more comfortable delegating work, you can continue to loosen the reins. When you spend less time on routine matters, you’ll have more time to devote to growing your business profits.

Should you be making estimated tax payments?

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During the tax year you must prepay a substantial amount of the taxes you’ll owe for that year, or you risk being hit with an underpayment penalty. If you’re an employee, that’s usually not a problem. Your employer will withhold taxes from each paycheck. You can adjust the amount withheld so that it covers your total tax bill, even if you have extra income from moonlighting or investments. But if you’re self-employed or retired, you might need to make estimated tax payments.

To avoid a penalty, the total of your withholding and estimated tax payments must generally be at least 90 percent of your tax liability for the year, or 100 percent of your last year’s tax liability. There’s no penalty if your underpayment is less than $1,000. Special rules apply to farmers, fishermen, and higher-income taxpayers.

You pay your estimated taxes by making four payments, due in April, June, and September of the current year, and in January of the next year. You can’t just wait until the last date to pay what you owe. You must start paying estimated taxes as you earn taxable income. You can either pay all the tax you owe on each quarter’s earnings, or you can pay it in installments over the remaining periods. But you must be sure to pay enough to avoid an underpayment penalty for each period. Again, special rules apply to farmers and fishermen.

Please contact our office if you think you might need to make estimated tax payments. The quarterly calculations can be complicated, and we can help you figure out how much you need to pay at each date.

Are you able to benefit from an ABLE account?

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The “tax extenders” legislation that became law in December included the “Achieving a Better Life Experience Act” (also called the ABLE Act). This law provides for tax-exempt accounts that can help you or a family member with disabilities pay for qualified expenses related to the disability. These “ABLE accounts” are exempt from income tax although contributions to an account are not deductible on your federal income tax return. ABLE accounts are generally not means tested and some can provide limited bankruptcy protection.

You or a family member are eligible to open an ABLE account if:

1. You’re entitled to social security disability benefits due to blindness or other disability, and that blindness or disability occurred before age 26; or

2. You file a disability certification with the IRS for the tax year.

Annual contributions to an ABLE account are limited to the amount of the annual gift tax exclusion ($14,000 for 2015). Distributions are tax-free as long as they are less than your qualified disability expenses for the year. The list of qualified disability expenses includes housing, education, employment training/support, health prevention/wellness services, financial management, legal fees, and funeral expenses. Other expenses are also approved under the regulations.

Distributions exceeding qualified disability expenses are included in taxable income and are generally subject to a 10% penalty tax. Distributions can be rolled over to another ABLE account for another qualified beneficiary and beneficiaries can be changed between family members. Funds in the account can earn interest or dividends and are not subject to federal income tax as long as distributions are used for qualified disability expenses. ABLE accounts do not have a “use it or lose it” feature and funds can carry over to future years.

The balance remaining in the account after the beneficiary passes away can be used to reimburse state Medicaid payments made on behalf of the beneficiary after the account was established. The remainder goes to the deceased’s estate or to another qualified designated beneficiary. After-death distributions that are not used for qualified disability purposes are subject to income taxes, but not the 10% penalty.

If you are thinking many of these rules sound familiar, you’re correct. ABLE accounts are modeled on 529 college savings accounts and can be as powerful and beneficial. Give us a call so we can help you make the most of this new opportunity.