CategoryUncategorized Archives — C. Lynn Northrup, CPA, CPIM
Planning for success will create success. The pandemic has challenged existing small businesses in addition to the startup of new businesses as a means of economic survival. Creating a business plan will help you:
- Think through your entire business strategy.
- Understand your financial requirements.
- Secure funding.
- Develop your marketing message.
- Identify key customers and how to provide them value.
- Recognize operational challenges.
The process of developing and documenting your business plan gives you a chance to make your mistakes on paper so you can avoid making them. This saves time, money, and costly mistakes.
Some things to consider in your planning process:
- Understand your customers and their needs to help position you to create value for them.
- Develop solutions that fit customer needs and solves their problems.
- Describe how your business works and how you deliver value to customers.
- Identify and analyze your main competitors so you can create a competitive advantage.
- Assess your target market to make sure it’s big enough to make you profitable.
- Analyze your financial projections and develop scenarios of what could happen.
- Make sure your value proposition is sustainable and scalable.
Creating a careful and complete business plan is a blue print for success.
Many new entrepreneurs will start out and not know where they can get help with information they need to get started. Here is information on some resources for small businesses that might be helpful.
Get started on planning for success today!
The IRS recently published guidance to provide cannabis businesses insight regarding compliance with IRS regulations. Major questions have been raised regarding Section 471 (c) which allows small business tax payers with revenue under $25 million to adopt the cash basis of accounting and prepare the books and records in accordance with the taxpayer’s accounting records. This seemed to open the door to modifying how cannabis businesses recorded cost of goods sold to minimize the impacted of Section 280E. Changes in Section 471 (c) resulted from the Tax Cuts and Jobs Act of 2018.
Section 280E disallows all deductions or credits for a business that sells or otherwise traffics marijuana. However, Section 280E does allow businesses to reduce its gross receipts by properly calculating cost of goods sold. This means that advertising or selling expenses are not deductible.
The guidance under Section 471 (c) according to the IRS is that it is just a timing provision and would not permit a taxpayer to recover a cost that it would not otherwise be permitted to recover or deduct for Federal income tax purposes solely by reason of it being an inventory cost. We’re not sure if this works and there could a conflict with Section 471 (c). This is a new regulation and is the IRS opinion on the application of Section 471 (c). They are adding Internal Revenue Code “flush language” via a regulation which is the opinion of the Internal Revenue Service.
I work with multiple cannabis businesses and have spent a considerable amount of time dealing with Section 471 (c) and how to apply it. The regulations say that qualifying businesses may choose to treat its inventory as reflected in the taxpayer’s books and records prepared in accordance with the taxpayer’s accounting procedures. If a change in accounting was made to adopt the new regulations, a Form 3115 is required to be filed outlining the changes.
A taxpayer taking the Section 471 (c) approach contrary to the regulations should consider disclosing any position that could be inconsistent with the new regulations. A disclosure should be made by filing a Form 8275R with the tax return. Determining cost of goods sold for cannabis businesses can be complicated and should be based on cost accounting logic. Cannabis businesses and their tax advisors should consult with someone experienced in these areas when applying these regulations.
IRS guidance has indicated that the growth of the marijuana industry will warrant increased tax compliance efforts. Accordingly, extreme care should be taken when developing and preparing cannabis tax returns based on the recent IRS guidance.
The pandemic has stressed and challenged businesses to the limit. Survival is a real question, asking many, can we make it? These unusual times call for steps and actions where most business owners and their CPA advisors have no experience.
Assess for Areas of Pain
The first step is assessing the business and identifying the biggest areas of pain. Then quick action is needed to address the most critical areas and take action to stop the bleeding. I call this moving from crisis to stabilization. You can’t survive without cash flow so this needs to be a top priority.
Do everything to keep your creditors and lenders comfortable and share with them your plans to stabilize the business. Give them full respect and attention together with up to date information on collateral.
Creating Cash Flow
Creating cash is pulling cash from your balance sheet and the balance sheets of your customers and vendors. The cash you generate in this way will help to fund the stabilization of your business.
Analyze your cash flows and take the steps needed to stabilize and generate as much cash as possible. The obvious steps include applying for SBA loans and Payroll Protection Program loans. Do everything possible to generate sales and keep key customers. Exploit every opportunity to create cash and address the biggest cash drain areas and plug those leaks as fast as possible.
Analyze Your P&L Statement
You then need to look at your profit and loss statement to identify the problems and opportunities to eliminate cash drains or reduce their impact. Declining sales is the most obvious issue. The next question is what is your gross profit margin? Benchmark it to your industry and business model. A lower gross profit margin means that you’re either not charging enough or your business processes are inefficient. You may need to increase prices or improve your business processes or both.
The next area is overhead and how much can you reduce it. The biggest areas will be payroll, insurances, facilities, and interest. You probably need to address all these areas.
Once you stabilize sales, you need to determine a business structure that can support a lower level of revenue. If revenue is cut in half, how do you adapt? How do you reorganize your business around that new reality? Make a conservative guess on revenue and build a plan to become profitable at that reduced level. Forecast cash flows and find ways to stay cash positive.
Create a Survival Plan
Create a survival plan and then sell it to lenders, vendors, employees, and key customers. This is a better option that going through a liquidation. Keep your plan simple and straight forward.
When going through this process, it is essential to move quickly. Do as much as possible as fast as you can. These should include layoffs, reduced or closed operations, and charging higher prices. Get all this done and then focus on recovery.
During the recovery, concentrate on rebuilding confidence and morale. Restructure your debts around the newly reorganized business. Try to stretch out the debt or in extreme cases, see if your lender would be willing to reduce the amount of loan balance.
Once you have restructured your business, you’ll have a more positive framework from which to grow the business with new strategies and ideas. By taking these steps, you’ll be positioned to take advantage of new growth opportunities and increase profits going forward as the pandemic subsides and we reach a new normal.
© C. Lynn Northrup, CPA, CPIM
Change starts with a sense of true urgency and in most cases needs to be created to make things happen. The enemy of urgency is complacency. Complacent people don’t look for new opportunities and they pay more attention to their internal feelings than external feelings. They tend to move slow when they need to move fast. What ever worked in the past is what guides them.
While anxiety and fear can drive behavior that might be mistaken for urgency, the resulting actions tend to be non-productive. This is called false urgency resulting from failure. The thought process from a sense of false urgency usually is not productive and proactive. It typically is mindless wheel spinning that creates no positive results.
A true sense of urgency is created and recreated by communicating the existence of great opportunities together with the existing hazards and roadblocks. People engaged in a true sense of urgency exhibit a strong need to move and win, now. The biggest challenge about creating a sense of urgency is taking the first step in initiating the action needed to succeed in a changing world. Real urgency isn’t a natural state of affairs because it needs to continually be created to get change initiatives moving and in the right direction. In a constantly changing world, the good news is that there are an over abundant number of opportunities that can be utilized to create true urgencies.
A true sense of urgency evolves from a set of feelings that creates a compulsive determination to move right now. True urgency is a process of winning the hearts and minds of the people needed to make change happen. Mindless emotion doesn’t get the job done. Winning change strategies utilize sound, ambitious, but logical goals using methods allowing people to experience the feelings that embrace the determination needed to make things happen.
The strategy for producing a true sense of urgency focuses on creating very alert, visibly oriented action, aimed at winning with daily progress toward achieving the vision and goals targeted at core emotional feelings. Here are the four tactics needed to make this strategy successful:
- Reconnect internal reality with external opportunities and obstacles using data, people, video, and other media.
- Avoid acting anxious or angry and always effectively demonstrate your own sense of urgency in meetings, one-on-one interactions and other communication with the people engaged in the change process.
- Take the opportunity to determine if crises can be used to your advantage and always proceed with caution.
- Remove the negative and urgency skeptics and keep the group complacent to avoid destructive negative urgency.
In addition to these four tactics is the necessity of keeping up the pressure to maintain a sense of continued urgency. The trap that can occur is achieving success and then losing your momentum of continuous improvement. Short-term success does not always translate to long-term results.
Here are some thoughts on maintaining urgency after making a successful change. Always be on the alert for potential declines in the sense of urgency. Realize that complacency can set in so be ready with backup solutions to maintain momentum. Take advantage of new developments to apply to change initiatives and improvements. Essentially, building a culture acting with a high sense of urgency will focus on the strategy for producing a true sense of urgency and application of the four tactics that are needed to make a positive change become a constant.
Solving problems and making decisions go hand in hand. Here’s some tips on how to do a better job of defining problems and how to make good decisions on effective solutions. First, let’s address problem solving.
Here are the three steps to solving problems. First, clearly identify the problem. Second, clarify the problem, and then find the cause. The process of thinking or solving a problem only happens after you have captured and fully understand the problem. The biggest hurdle in solving problems is thinking you know everything and that nothing needs to be changed.
Since “perception is 9/10ths of the law,” there is a tendency to base decisions and actions on what’s perceived to be true. The key to diagnosing problems is separating truth from what seems to be true. Don’t jump to conclusions.
Learn to think out of the box and master the obvious. Look for potential mental blind spots and avoid them. Sort out the facts, avoid ambiguous and vague descriptions and don’t act on assumptions.
Here’s a diagnostic approach to dealing with problems:
- And how?
Other steps should include this five-step process:
- Define the problem.
- Clarify your objectives.
- Develop creative alternatives.
- Consider the consequences.
- Analyze the trade-offs.
Defining the parameters of a problem is essential. Dig into the issues and make sure that you’re focusing on the right things. Be flexible and evaluate all the parameters and be willing to shift based on changing circumstances.
Problems need to be captured, developed, examined, and then given a shape. Try to understand the magnitude of what you don’t know. The current reality of the situation is easy to miss, avoid, or ignore.
A key step in solving problems is carefully examining the details and writing them down. This helps to clarify uncertainty. Writing down the problem creates conciseness, accuracy, and gives you a better understanding of the problem.
Following this process helps clarify what you know, what you don’t know, and what you are trying to find out. It helps you separate problems from the details so you can better understand the nature and scope of the real problem.
Clarification lets you evaluate the size and gravity of a problem and puts you on a fast track toward finding a solution. From this point, you can address increasing productivity, improving quality, doing things faster, and reducing costs.
The next and most important step in the process is taking action to implement the solutions. Don’t procrastinate! Just act and implement the solution. Just think about how much time is wasted by thinking and talking about what we are going to do. Just doing it saves a lot of time and produces more results.
Small business owners need help managing their business. They are challenged daily with complex issues and decisions that significantly impact their profits. Having an experienced and skilled advisor help them make decisions increases profitability.
Too many CPAs are comfortable just doing the tax return. Success requires constant monitoring so key concepts and ideas are considered and not overlooked. In addition, clients get wrapped up in day to day details and frequently don’t stop to capture the big picture.
Helping small business succeed is an on-going process of education and providing them with a blueprint for success. CPAs and advisors need to be proactively engaged in raising questions and listening. This produces an action-oriented environment to identify the issues and develop effective solutions. It provides what I call, a road map to success.
The road map to success focuses on profitability and building business value. It is an approach that applies a blend of financial and non-financial measurements to make sure results are on track. It is a process of continuous assessment of the business and triggers action and produces results. A primary tool that I use with clients is a rolling forecast of financial results that considers actual results combined with our best estimate of future results. This gives a view of profitability in addition to expected cash flows.
I conduct monthly meetings to review results and go over the rolling forecast. This enables evaluation of business plans and strategies allowing for an effective and profitable business process. It also sets the stage for problem identification and implementation of solutions. From here, we create a Journey to Results with a road map to achievement.
The road map gives clients an approach to focus on their business. We can scope out what needs to be done and address the reality of economic and market conditions. Products and services are optimized and allows business owners to get the most bang for their buck.
This coaching or advisory process is what I provide to every client. It works, so why not give it a try and see what your business can achieve.
Building success in business and in life requires five essential ingredients. First, you need a vision of where you want to go and what you want to accomplish. Then you need to establish goals and objectives, otherwise you’re just wandering aimlessly with no direction. Goals and objectives form the foundation for action plans and steps that are needed. Finally, you need to measure your progress. It seems simple, but amazingly many businesses don’t follow these steps.
I have coached and taught the tools and techniques needed to achieve business success to hundreds of businesses and thousands of students over the years. Now these tools and techniques have been combined into affordable self-paced programs. The programs include Creating Success, Accounting Basics, Basics of Business Financial Management, and Basic Business Skills.
In addition, I created the Boot Camp for Small Business to establish a foundation for small businesses to grow and increase their value. These self-paced training programs provide the secrets to building business success and provide a roadmap to start a journey to results. The Boot Camp says that when you get the strategy right, the profit will follow. When there is profit potential – there is access to capital.
Accounting is the language of business. Business success is dependent on accounting. Accounting Basics teaches business how to measure results, how to analyze business transactions, and manage cash flow. It also spells out the techniques for budgeting and planning, how to understand profit and loss statements, and how to read balance sheets.
The Basics of Business Financial Management focuses on how to use financial reporting tools. Students learn how to manage debt, management of cash flow, and how to create a budget. The training program provides all the steps needed to create financial plans and forecast financial results.
The Basic Business Skills training program provides the tools needed to grow your business. Businesses learn how to sell and market their products including the techniques of pricing. The essentials of business law are spelled out. Business operations and the basics of managing inventory are also included in the program. This program helps businesses achieve success, maximize profits, and cash flow.
These training programs provide the secrets to building business success. The Boot Camp provides the following essentials:
- Attract more customers
- Get them to come back more often
- Get them to spend more each time
- Get them to recommend you to their friends
Sadly, very few businesses have a strategy focused on these growth steps.
Businesses and individuals can benefit from the knowledge provided by these programs. That’s why I created them.
I have been taking some time to listen to my own advice. What do clients and prospective clients want from me? What makes me different from all the other advisors and coaches trying to gain client trust?
This lead me down the path of trying to understand what people want from me and how can I do a better job of helping them. Here are some of the things I think business want and need.
Businesses want to get things done. They want their advisors to anticipate their needs. They want fast results because there is a lot to get done. They want advisors to tell them how to “improve profits” and “gain a competitive advantage.” Try to talk to them in language that they understand and that is not tech-talk.
Advisors and clients need to plan their work together. Businesses want help in measuring and monitoring everything, so they can achieve better results. Tell them like it is and don’t fudge the facts.
Make sure that you’re available and around. Ask them questions about non-accounting and non-technical things and make sure that you understand their objectives.
Help them learn from you. Also, train their people so they can share the expertise you have to offer. Be out front and dig into the operations. Think about the problems and give business owners access when they’re worried.
Give them something new and different. Make them stand out. Give in from time to time, but don’t ever give up. Yield on means and methods, but NOT on their goals.
Clients want your help to build better a business. They want help with their commitment to grow and create a vision of what truly can happen. Finally, help them access the resources and systems to make it happen.
Provide high quality problem evaluation, assessments, planning, education, and solutions for individuals and businesses. The solutions network ranges from tax and estate planning, business succession, financial planning, financial management, business strategy and operational guidance. My focus is on the creation and protection of wealth for business owners.
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There isn’t an individual or a business that doesn’t have problems of some type. In many instances we’re not aware of the problem or the exact nature of its components. It’s difficult to solve problems when we’re not sure that we have one or why we have it. Therefore, identifying problems and finding solutions to them is critical to success.
I’m a CPA, a consultant, and a businessman. My job is to help identify problems and find solutions to them. Developing relations with individuals and businesses enables me to provide a wide range of advice to take advantage of opportunities and tackle problems.
Achieving these objectives develops from understanding a business or an individual’s situation. By asking the right questions and listening carefully we can develop an understanding of your situation, problems, and opportunities. One of the tools used to accomplish meaningful understanding is by reviewing and assessing the situation. Information gathering helps reveal the problems and in many instances, provides solutions.
I was fortunate to be exposed to a wide range of professionals when working in the consulting department of a large national CPA firm. This experience enabled me to learn about the full range of available services offered and receive training from these pros. These experiences helped me develop programs for Thompson Reuters and the Boot Camp for Small Business.
Services for individuals include estate planning, retirement planning, risk management and educational programs. Business services include planning ranging from strategy, family business succession, and annual business planning. Other services range from marketing and sales to operations.
I have been able to take my experience as a controller and chief financial officer to help businesses improve management of their financial operations and accounting. Teaching accounting, financial management, and a business skills course through Villanova University added another level of management expertise to help identify problems and solutions to business issues.
These experiences have allowed me to help individuals and businesses succeed. It starts with a needs assessment to determine problem areas. Once problem areas are identified, the process of finding and implementing solutions can begin. In instances where I don’t have the expertise to deal with a problem, I have a network of professional resources that has the capability of implementing a solution.
It’s important to realize that finding solutions is the way to create success.
Effective thinking is what separates superior performance from average performance. It is a mindset that allows your talent to excel. Thinking effectively is not something you have or don’t have. It is developed from experience and coaching.
Effective thinking is like confidence, composure, and mental toughness. When you think effectively it shows based on how you look, feel, and behave. Think of effective thinking as a state of mind and a way of performing and reacting mentally. It is not etched in stone and can change based on the situation.
Think about what you want to have happen versus what you don’t want to happen. Thinking effectively is a choice you make every day. Try to reward your effective thinking just like you would any other performance. It takes practice and perseverance to achieve effective thinking on a consistent basis.
People tend to spend energy on things that are non-productive. It is essential to place your focus and energy on what you need to do and avoid things and situations that don’t matter and that you can’t control. One way to get control over how your energy is focused is to identify and document all the factors that you cannot directly control. Then list all the factors that you can control that impact your thinking and actions. Finally, identify areas over which you have some control.
For items where you have no control there are three ways to deal with these thoughts:
- You can worry about these factors and let them negatively impact your thinking and performance.
- You can forget the uncontrollable factors since you can’t do anything about them.
- Or you can “just let go” of the non-controllable factors and make up your mind to overcome them with your thinking and performance.
For factors where you have some control, the key is to handle these situations in the best way possible and not let them negatively impact your thinking and performance. It is important to realize that there will always be things over which you will never have complete control. This is a fact of life so do the best you can and move on.
Effective thinking requires that you regularly assess your thinking and performance. This helps to figure out how to improve and get better. By understanding factors affecting your performance you can commit and respond to them appropriately. This process will take some time, so be patient. Just remember, your decisions, not the surrounding non-controllable factors will determine your destiny, your thinking, and performance.