“It is the last part of the business I would hand over to someone who is less than qualified.”
~ Barbara Taylor, co-founder of Synergy Business Services, on the accounting function.
Category: Small Business
Small Businesses Need Accounting Help + Accountants Want Opportunities = This Should Be Easy
With all the uncertainty out there, more and more small businesses are cropping up. As anyone who has started their own business knows, there are plenty of decisions to be made, including your accounting method. While that answer may come easy, at some point small business owners have to ask themselves honestly A) Do I know squat about accounting? B) If no, do I hire someone full time or do I contract the work out as needed?
First, if you’re not versed in accounting and taxes are you really going to take the time to learn everything you need to know at the behest of growing and refining your business? Have you seen the tax code? You want to take advantage of everything you can, right? Best to call an expert.
Secondly, if you do decide to get some help, are you willing to pay for someone to keep the books, file tax forms, manage the payroll, etc. etc. full time? Are you going to pay them a salary, benefits, supplement their daycare, give them vacation? If you’ve got the resources to bring someone on, that’s great, start interviewing people. But what if you’re still in the early stages? Finding a CPA firm that can provide those crucial services for you can save a lot of headaches.
On the other hand, if you are already an accountant, maybe this growth in small businesses is your opportunity to get a little entrepreneurial yourself. CPA firms are the most profitable small businesses out there and somebody has to help those business owners keep their debits, credits and tax forms straight; it might as well be you.
It Was a Dark and Stormy Night…or: Cloud Computing and SaaS Briefly Explained
Figuring out how to sum up Cloud Computing and Software as a service (SaaS) in the space of ~800 words would absolutely require the biggest, puffiest, most cumulus metaphor that ever precipitated understanding over the dry, barren plains of ignorance EVER! Something like….
king Business Applications By Storm, or
– Burning off the Fog Around Cloud Computing, or
– Cloud Computing goes from Light Showers to Torrential Downpour, or even
– Quit Jiiiivin’ Me Turkey, You Got to SaaS it! (a Turkey is a bad person)
Why?
Because this thing is growing like a Class 5 Hurricane sucking up warm air over the Gulf of Mexico in mid-September, and you’re in the eye of the storm baby!
Enough! I can’t… I just can’t brew up another hackneyed metaphor!
All joking aside, Cloud Computing and SaaS are now “required reading” if you’re even remotely involved with technology (i.e. you use a computer). I can help you understand this stuff better, but first some disclosure:
I work for a SaaS company. My paycheck depends upon acceptance of this technology.
If you can accept this embedded bias, I’ll try to suppress any overt advocacy while providing a synopsis of this space over the course of the next few weeks. Call it Saas 101.
So, what is it?
We’ll get into this in more detail soon because there’s more to it, but very simply:
Software as a Service – A software application that you access online without having to download anything to your computer.
Cloud Computing – Provides computing power and data storage on an “as needed” basis much the same way as a public utility provides electricity.
Why should you care?
At the very least, you should care because you are already using this stuff for personal web activities (e.g. Facebook – think privacy, Twitter, LinkedIn, Gmail, etc). And I’ll bet you dollars to donuts that the next software sourcing project your company undertakes will include Cloud and Saas representation.
This is a bet I’ll win because even the big, established players in the software world like IBM, Oracle, SAP, and Microsoft are running to try and get in front of this thing on the business side.
You want to know about this.
Where did it come from?
How did Software as a Service and Cloud Computing as we know it come about?
Well, what’s in a word?
Again, there’s more to it, but without rekindling the internecine nerd-fighting I think tracing the roots of this movement back to Marc Benioff, the founder, Chairman & CEO of Salesforce.com is not unreasonable for our purposes. He was arguably the most vocal advocate for looking at software delivery in a new way back before this stuff HAD a name. Salesforce.com launched as an unknown start-up back in 1999 and is now one of the leading CRM (Customer Relationship Management) products Cloud or otherwise and is traded on NYSE with a market cap of over $10 Billion.
Along with another early entrant, Netsuite, these guys let the genie out of the bottle. Interestingly, both companies have deep, deep roots back into Oracle Corp., Oracle, a company that, according to Oracle, “would change the face of business computing forever.” I don’t dispute the claim though. And I would take it one further saying, the apple doesn’t fall far from the tree.
The creation of Salesforce and Netsuite were both extremely capital intensive. In order to host their customers (i.e. users of the software), tens of millions of dollars were required to build the data center infrastructure. You’re not required to buy servers and hardware, so where do you think all your data is residing? In a cloud? We haven’t advanced that far.
But we have advanced.
Today companies building Cloud apps don’t tend to build their own data centers, at least not right off the hop. Another important innovation in Cloud comes from companies like Amazon. Apart from books, Amazon has a whole other line of business providing computer infrastructure on a rental basis. It’s like a power grid for computing.
This changes the business model for companies who build software in the same way these Cloud app companies are changing things for you.
Suddenly, your IT goes from being a Fixed Cost to a Variable Cost.
More next week.
Enjoy!
Geoff Devereux as been active in Vancouver’s technology start-up community for the past 5 years. He regularly attends and contributes to the growing entrepreneurial ecosystem in the city through the Vancouver Enterprise Forum, guest blogging on Techvibes.com, and as a mentor with ISS of BC. Prior to getting lured into tech start-ups, Geoff worked in various fields including a 5 year stint in a tax accounting firm. He is currently working in a marketing/social media role with Indicee, a Saas Business Intelligence company, bringing B.I. to mere mortals.
Don’t Get That Excited About the Growth in SBA Loans
This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.
It’s time to dial down all the fuss about SBA loans.
First, there are the reports about increases in SBA loan dollar volume, thanks to the stimulus bill. For example, according to the SBA, over a period of about a year, average weekly loan dollar volumes increased more than 90 percent in the two most popular programs, 7(a) and 504, from the average before the passage of the stimulus bill. 7(a) loans can be used for such purposes as working capital and the purchase of equipment, while 504 provides long-term, fixed-rate financing for buying real estate and other fixed assets used for expansion or modernization.
But, a recent analysis by Scott Shane, professor of entrepreneurial studies at Case Western Reserve, shows this conclusion should be taken with a big pitcher of salt. According to Shane, the level of growth is only impressive when compared to the previous year’s poor results. That is, in 2009, the volume was about $180,000,000. So, the approximately $300,000,000 for the first 27 weeks of the 2010 fiscal year represents a big jump. But compared to, say, 2006 and 2007, it’s about the same.
Then, there’s the more important matter of just how many small businesses get SBA loans in the first place. The answer is: Not many. Take the 7(a) program, which comprises 90 percent of SBA loans. According to Shane, last year, less than one percent of small businesses with employees received one of these babies. If you look at non-employer businesses, which comprise the majority of all small companies, their share was between one tenth and one twentieth of one percent–about 50,000 small businesses out of 29.6 million.
Of course, 2009 was a lousy year. But, the data still suggests that all the attention being given to the SBA-loan program may not be warranted. That, in turn, has some pretty serious implications for government policy. Those businesses that got SBA loans undoubtedly were helped, possibly increasing their sales and, perhaps, their hiring. But, to reach more companies, the programs just aren’t enough. Another approach is needed to help the vast majority of businesses that don’t use these loans at all.
Closely-Held Corporations May Want to Take a Bullet Over the Pending Dividend Tax Hike
As a role model, Andrew Jackson has serious shortcomings, not least his penchant for genocide. But some of his policies are back in vogue, like the casual destruction of the national banking system. Taxpayers may be choosing to be like Andy in another way before the end of t had the bad fortune to get crossways with Charles Dickinson, one of the best pistol shots in Tennessee, when dueling was still fashionable. He met his antagonist across the state line in Kentucky, where duels were legal. Jackson was serious about this one, so he decided to take all the time he needed to do Dickinson in. Given Dickinson’s marksmanship, that meant accepting a bullet. Sure enough, Dickinson’s shot hit home:
The bullet struck him in the chest, where it shattered two ribs and settled in to stay, festering, for the next 39 years. Slowly he lifted his left arm and placed it across his coat front, teeth clenched. “Great God! Have I missed him?” cried Dickinson. Dismayed, he stepped back a pace and was ordered to return to stand on his mark.
Blood ran into our hero’s shoes. He raised his pistol and took aim. The hammer stuck at half cock. Coolly he drew it back, aimed again, and fired. Dickinson fell, the bullet having passed clear through him, and died shortly afterward.
Taxpayers owning C corporation stock might also want to take a bullet, figuratively speaking, this year. That’s because the tax rate on dividends will either leap or soar in 2011.
The increase in the dividend rate is a consequence of the scheduled expiration of the 2001 Bush tax cuts after this year. Prior to the Bush administration, dividends were taxed as ordinary income. As dividends are distributions of corporate income already taxed at a corporate rate as high as 35%, that meant a combined rate of 57.75%. The Bush tax cuts tied the dividend rate to the capital gain rate, now 15%.
When the Bush tax cuts expire, the capital gain rate is set to return to 20%. But without Congressional action, dividends will again be taxed as ordinary income. Given the size of the deficit, the poisonous election-year political atmosphere, and that the President promised to hold the dividend rate to 20%, it’s likely that dividends will be taxed as ordinary income in 2011. That would means a 164% increase the top dividend rate.
But wait, there’s more! Starting in 2013, Obamacare will tack another 3.8% to the top rate on investment income, resulting in a top dividend rate of of 43.4%, making the total tax increase over 189%.
This makes it tempting to take the bullet – a big 2010 dividend out of a closely-held C corporation. It will be especially attractive for shareholders who lack the ability to suck out corporate cash using the usual tricks of shareholder bonuses or rent payments.
Yes, it means taking a bullet. Taking dividends out of closely-held corporations breaks the rules of the C corporation tax planning crib book. Taxpayers go to elaborate lengths to avoid taking income before they have to. But a 189% tax increase might be enough to make some taxpayers take the bullet, like Andy, for the greater good.
TRAC’s Susan Long: IRS Increasing Efforts Towards More Small Business Audits in a Perverse Fashion
Last month we mentioned a study that was done by the Transactional Records Access Clearinghouse (“TRAC”) of Syracuse University that was critical of the IRS’ trend of auditing fewer large corporations and focusing smaller business. A major concern for not only small business owners and managers but also taxpayers since they pay for the audits that are occurring.
We recently spoke to Dr. Susan Long, co-director of TRAC and Associa Syracuse’s Whitman School of Management about the study.
Going Concern: What’s the biggest takeaway from the findings on the report?
Dr. Susan Long: The report really does two things: 1) Presents a tool [link to tool] that users can use to look up all sorts of statistics about IRS audits for any size corporation. From very small to very large, you can look at trends over a long time so that you can see how things have changed.
2) The focus of our report was to look at the continuing large drop in corporate audits even though this is a time of rising deficits. The IRS has been given more budget for agent staffing but they have not chosen to focus on the largest corporations even though that’s where, historically, the IRS gets the biggest bang for the buck.
GC: One section of the report discusses the politics of tax collection and deficits. Is the IRS and Treasury taking the wrong approach into obtaining more revenue for the Federal Government?
SL: Our role was not to judge them but to lay out what they do and look for some kind of rationale. We could not find any rationale apart from some kind of a perverse quota system. It certainly does not appear to be at all consistent with focusing where tax dollars are underreported based on their own statistics.
GC: Do you have suggestions or opinions about what the IRS can do better? Is there a way that the Service can improve the quota system or do they need to reassess their strategy altogether?
SL: The role of TRAC is not the typical policy research organization. Our role, as we see it, is to present a picture of what the government, in this case what the IRS, is doing with respect to tax audits and to leave it up to the reader to decide what makes sense.
What we did find is that IRS sets performance goals, as all agencies do, and it sets group targets, not individual targets for agents. But nonetheless they are based on how many total audits of corporations take place for the large and mid-sized industry group (“LMSB”) and then separately for the small and self-employed business unit (“SBSE”). We noticed that there was a peculiar reversal in audit rates when you got to the margin of those companies at say, with the bigger companies for SBSE audits versus what would then be larger companies but represent the small guy for the LMSB auditors. It just showed quite clearly that there was a tendency for each branch to shy away from its biggest audits and put increased efforts on its smaller guys within its unit in a very perverse fashion.
GC: Since you used the IRS’ own data to compile your study does it appear that the statistics could be the result of the flawed goals or quota system?
SL: Right. We’re all human and we respond to what we’re measured on. If those measurements are not in accord with what the priorities are [i.e. where the largest underreporting occurs], you’ll work to the measure rather than to the overall priority. This is not the first report where we’ve noticed this. In this case, what was interesting was that for a long period of time, Congress had been cutting the IRS’ budget and it’s really tough when you have more and more returns and fewer and fewer agents to cover them. You’ve really got hard choices there.
So we were very interested to see, now that we’ve entered a new era, Congress has been giving the IRS more budget for hiring more revenue agents. Therefore they have more discretion about where they will put these additional resources and they are certainly not putting them in the large corporate area.
GC: What about the IRS’ contentions that they audit 100% of companies of $20 billion in assets or more?
SL: According to their figures, the IRS audits more than 100% of all the corporations of that size. These particular figures we took from the IRS databook that is put out annually. There has only been three years where there has been a breakout with these categories.
The first time it came out the IRS said, “yes it’s over 100% but that’s because you can audit more than one year’s return in the same year” and that’s true. But then in the second year it’s over 100% and they make the same excuse. Now this is third year and it’s still over 100% [see footnote at the bottom of the study].
They’re not doing a very good job of accurately measuring that [the number of companies audited] so we presented figures that give the IRS the benefit of the doubt. They’re not measuring the size of the returns vs. the size of the audits in a consistent way, so we just grouped it with the next largest category and saw exactly the same trends in terms of the hours spent auditing the biggest companies.
Simply, there’s a tendency to spend less time on less complicated returns. As companies get bigger their businesses get more complex. When you see that sort of thing in an organization, you look at what are the goals being measured against. If they’re being measured just on quantity and there isn’t any distinguishing between that workload that takes longer to do, it’s easier to up your numbers by choosing workload that you can churn out faster. It’s human nature.
The IRS Is Ruining Its Weekend Plans for the Sake of the American Taxpayer Again
The April 15th deadline has come and gone but that does not mean the IRS’ work is done. In fact, getting money in the Treasury Department’s door is a 24/7/365 sorta deal and in case you didn’t notice, there’s a bit of a deficit problem.
Accordingly, the IRS has decided to host open houses at 200 facilities in all 50 states, DC, and Puerto Rico on May 15th from 9 am to 2 pm local time (locations here). IRS staff will be there to help individuals and small businesses sort out any issues they may have (See? Filing that extension was a good idea).
This marks the second time in 2010 that the IRS has opened its arms to public on the Sabbath, having done so on March 27th. According to the Service, that particular National Day of IRS Friendliness was a resounding success, with 88% of taxpayers getting their issues resolved that day.
Doug Shulman all but assures your satisfcation in the press release, “Our goal is to resolve issues on the spot so small businesses and individuals can put any issues they have with the IRS behind them. If you have a problem filing or paying your taxes or resolving a tough tax issue, we encourage you to come in and work with us.”
Okay, maybe it’s not exactly a 100% money-back guarantee but the Service is going to work their cans off to get you in compliance and cutting a check that day. Unless of course you’re a Tea Party type trying to get on the six o’clock news, in which case you’ll be dealt with in a swift and decisive manner.
Open House on Saturday May 15 to Help Small Businesses, Individuals Solve Tax Problems [IRS.gov]
When a Tax Time Bomb Goes Off: Repurcussions Await Some Small Nonprofits
At the end of the day on Monday, May 17, hundreds of thousands of little tax-exempt organizations will to turn into taxable little pumpkins. Under a provision of the Pension Protection Act of 2006, tax-exempt organizations that had been small enough to fall below IRS filing thresholds were required to start filing information reports. The law automatically revokes the exempt status of organizations that fail to file for three straight years. The deadline for that third year is May 17 for calendar-year filers.
Of course many of these organizations are inactive or defunct, but many aren’t. That means thousands of volunteer garden club, school parent organization and social club volunteer treasurers will unwittingly find themselves in charge of filing tax returns for their newly-taxable little corporations.
If you are an exempt organization treasurer or board member, you should find out right now whether your organization has filed. If your organization normally takes in less than $25,000 per year, the filing is a very simple on-line process, mostly just asking for identifying information. Bigger outfits will have to file a version of Form 990. If you need extra time, you can get a three-month extension on Form 8868. Some organizations, mostly governments and religious entities, are exempt from the filing and revocation rules.
But what will happen when these outfits lose their exempt status? They can ask for it back retroactively by filing Form 1023 or Form 1024 and paying a fee from $250 to $800. But many of these outfits will have no idea that they have lost their exempt status. What happens to them?
Most will become taxable C corporations or, in some cases, a taxable trust – depending on how they are set up. They will have income – for example, from contributions or dues – and they will be subject to normal Form 1120 filing requirements. If they fail to file, the normal kind and gentle penalties will accrue. Nobody really knows what the IRS will do about all of these little unwitting scofflaws.
And for what? Senator Charles Grassley explained back when the bill was passed in 2006:
The pension bill includes a good package of charitable giving incentives and loophole closers. It makes sense to tighten areas of abuse while increasing incentives for charitable giving. Americans are very generous with their donations. They deserve to know that their money helps the needy, not the greedy. Some individuals are creative about exploiting non-profits’ tax-exempt status for personal gain, and Congress has to be just as smart about shutting down abuse.
So take that, you greedy, abusive volunteer booster club treasurers! @ChuckGrassley has your number.
Deciding Between the Cash and Accrual Methods of Accounting
While the IFRS v. U.S. GAAP rages (or stalls) a far simpler (yet no less important) decision with regard to accounting methods is considered by many small businesses every year.
The cash versus accrual decision is one that all businesses have to make but small businesses have to make and depending on an entrepreneur’s familiarity with the issue, this could be a very simple decision or a “HELP!” moment.
, a quick refresher:
Cash – You get cash; you record the transaction. You pay cash, you record the transaction. Simple.
Accrual – This is what your copy of Kieso, Weygandt, & Warfield harped on in college. Accounts receivable, accounts payable, deferrals, revenue is recorded when earned; expenses are recorded when incurred, the matching principle, you know the drill.
Before we get to the pros, let’s consider a simple example. If you and some friends want to pool your money together and buy a piece of commercial property, it doesn’t make a lot of sense to go the accrual route. Your tenants pay rent, you record revenue. You pay for supplies to make improvements, you record the expense. In general, don’t make something complicated that is inherently easy.
However, depending on the entity structure of your business, you may be disqualified from using the cash method. Generally, C Corporations, partnership with one C Corp partner, and tax shelters are not allowed to use the cash method. So if any of these apply, hello accrual.
Enough with the elementary crap though, amiright? Thought so. To get some additional insight, we called on a couple of partners who have no problem sharing their opinions: Scott Heintzelman of McKonly & Asbury in Camp Hill, PA and our own Joe Kristan of Roth & Company, P.C. in Des Moines, IA.
Since Scott is effectively the visitors, he’ll get first at bat. He told us that he encourages clients to adopt accrual right away for three reasons:
1) Fewer surprises. I just met with a prospect and the number 1 frustration they had about [their] prior accountant was that CPA encouraged [c]ash but things fell wrong that next year and they got killed with a tax liability.
2) It helps to prevents “games” being played with year end cash receipts and cash disbursements.
3) It helps the company to think like a “grown up” business. Too often a small business thinks and acts small (cash basis is thinking little) when I encourage them to think bigger.
So, according to Scott, if you’re thinking about getting into business you should think BIG, thus, accrual is the way to go.
Is it that simple? Well, maybe but Joe has some other considerations including – what else – taxes, “For tax, cash is normally preferred because of the ability to control taxable income at year-end. Farmers are notorious for stocking up on feed at year-end to manage taxable income, but being able to manage income by paying off A/P at year end is useful for anybody.”
Of course, the more complex your business gets, the cash method is less available:
Where it becomes a disadvantage is in mixed structures or large entities. If you have related entities doing business with one another, accrual is nice because you eliminate a lot of Sec. 267 related party problems. You don’t have to worry about paying a related party for A/P by year-end to get the deduction because they have to accrue the income.
For a simple structure without a lot of related entities, you will want to do your tax returns on a cash basis. As the structure gets more complicated, accrual method becomes more attractive, and likely mandatory under Sec. 448 or in medium to large entities with inventories.
But for anyone that has to produce GAAP financial statements Joe concedes, “I have no idea why anybody would be cash basis. You can’t be GAAP on a cash basis, and lenders don’t like that.”
The lesson? Like everything in this world, it depends. Do you have a complex entity structure with several related parties engaging in business? Accrual might be better. If you want to be the next Google (or even a fraction of Google), then you might as well be on accrual. If your bank requires GAAP financials to get a loan, you’ll be on accrual.
But on the other hand, if you’ve got no use for GAAP and a simple business not looking to get crazy, the cash method may be the way to go. If you’re still nervous about checking one box or the other, don’t worry, nothing is written in stone. Just consult your business or tax advisor and they’ll help you figure this out. Anyone got more advice? Feel free to chime in.
PwC Report: Venture Capital Activity in New York Jumps While Silicon Valley Sees a Slide
This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.
Silicon Valley is still central headquarters for venture capital activity in the US. But it looks like the New York City area is trying to play catch up.
A new report shows an increase in the region both in the amount of startup funding and the number of deals for two consecutive quarters, while activity in Silicon Valley dropped.
The report, from PricewaterhouseCoopers and the National Venture Capital Association, found that financing for companies in and around the Big Apple increased to $566 million in the first quarter. That was an 18.9 percent rise from the previous quarter, also a 34 percent year-over-year increase. A total of 75 firms received money in the first quarter, up 13.6 percent.
In Silicon Valley the story was very different. Investment dollars and numbers still won out over New York, of course. But the trend was down. Total funding of $1.5 billion in the first quarter represented a 21.4 percent drop from the fourth quarter 2009, while the number of deals fell 24.6 percent over the same period.
Overall share of VC money also rose in New York and fell in Silicon Valley. In New York, it reached 12 percent, up from 9.2 percent in the fourth quarter 2009, compared to 32.3 percent for Silicon Valley, down from 37.5 percent.
This New York- area investment growth reflects recent efforts by venture capitalists and the New York City government to rev up funding.
A few examples:
Last spring, New York law firm Lowenstein Sandler started First Growth Venture Network, which provides mentoring for newbie CEOs from venture capital firms, angels and more-seasoned executives.
Last fall, they announced the first 15 CEO mentees. Late last year, seven successful entrepreneurs launched the Founder Collective to make $50,000 to $1 million investments in very early-stage ventures in New York, as well as the Boston area.
In early 2009, NYC Seed, a partnership of venture capital, non-profits and universities, made its first investments in several seed-stage ventures.
Last week, I wrote about trends in angel investing and noted that such financing provides more money for startups than venture capital. Still, although VCs invest in a small percentage of all new companies, they do support enterprises with potential to become real powerhouses. So, the New York area economy clearly benefits both in the short and long-term from this financing activity.
Although it’s doubtful these firms will ever match the contribution in tax dollars and jobs provided by Wall Street.
Angel Investors Continue to Shy Away from Startups
This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.
Many startups, especially ones with high-growth potential, depend on receiving at least some of their funding from angel investors. Now, a new report sheds light on what type of entrepreneurial ventures got angel money last year.
Specifically, the report from the Center for Venture Research at the University of New Hampshire found that financing for really early-stage companies declined and a larger percentage went to more-established ventures. That is, 35 percent of investments in 2009 were in seed stage companies, a decrease of 10 percent from 2008. And new, or so-called first sequence investments, were 47 percent of all angel activity, a significant decline over the last two years.
What this means, of course, is that angels are favoring proven quantities that are less risky than newer ventures. That’s been a trend for several years now and it’s worrisome. You might not know it from press coverage, but angel funding is considerably more prevalent than venture capital financing: Many more startups receive angel money than VC dollars. So, if angels shy away from early ventures, that means the loss of a significant historical source of funding for these companies.
Then, there’s the matter of what these companies mean to the economy, which I’ve written about before. The startups that receive angel money tend to be ones with high-growth potential, the kind with at least a fighting chance of becoming a lot bigger and employing a lot of people. Thus, it’s not a positive development over the long haul if angels choose to play it safe and avoid very early-stage ventures.
On the modestly good side, the report showed a decrease in investment dollars but little change in the number of investments. Total investments in 2009 were $17.6 billion, down 8.3 percent from 2008. But a total of 57,225 ventures received funding, a 3.1 percent increase from 2008. In other words, more startups got money, although deal size was smaller.
It would be more reassuring if a larger share of the $17.6 billion had gone to a different type of venture.
Three Key Reasons Why CPA Firms Are the #1 Profitable Small Business
This morning we kicked off our certification series that may or may not get you motivated to find some additional letters for your business card. However, if you’re more interested in your getting your name (with letters behind it, natch) getting on the sign/in the window sooner rather than later, there’s good news as well. Forbes 20 Most Profitable Small Businesses list came out last week (on April 15th no less) and accounting related services took three of the top five spots.
Offices of CPAs #1 – Average pre-tax margin of 17.1% and; the trifecta of “pricing power…low overhead and marketing scale,” gave CPA firms the top spot in Forbes list.
Other Accounting Services #3 – Average pre-tax margin of 15.5%; The list states that this includes, “accounting, bookkeeping, billing and tax preparation services in any form, handled not necessarily by a Certified Public Accountant.” Of course many CPA shops do offer these services so it’s not something you should dismiss outright.
Tax Prep. Services #5 – Average pre-tax margin of 15.1%; Forbes took a page out of John “I hate my old accountant” Stossel and asks “Who likes doing their taxes?”
Yeah, being the boss is tough but for accountants its a path that many take, as FINS reported last week, citing the AICPA “Roughly three-quarters of the country’s 44,000 tax businesses are one-person shops, according to the American Institute of Certified Public Accountants (AICPA).” And it’s not like everyone is going at it alone. If you’ve got one or more colleagues that you trust (and can stand to be around for hours and weeks on end) a partnership is always a solution.
And while this is great news for you entrepreneurial types, you can’t forget what you’re getting yourself into – you will be responsible for the outcome of the business, succeed or fail. As much as you hate the bureaucracy, politics and all around song and dance of the larger accounting firms, the failure of those firms are completely out of your control. But then again, maybe that’s why you took the risk in the first place – so you can be in control.
The Most Profitable Small Businesses [Forbes]
Hanging Your Own Shingle: Starting a CPA Business [FINS]