Friday, September 15, 2017

When are Business Taxes Due in 2018? Every Date You Need to File Your 2017 Tax Return

There are two reliable tactics to avoiding tax penalties: having a stable year-round accounting system and being on time. In this article, we’ll focus on the latter to help you build a simple but structured 2017-2018 calendar for both your business and personal tax returns that can help you keep up with your filing responsibilities and avoid paying more than you have to when you file your 2017 tax return.

Fiscal Year Disclaimer:

For simplicity’s sake, we’ve based the dates listed in this article on the use of the calendar year. If December 31 is your business’s end of the year, you’re in the clear. Otherwise see below to see how an alternative fiscal year affects your business tax return due date.

*Adjusting Your Tax Calendar Based on Your Fiscal Year:
If your business uses an alternative fiscal year instead of the calendar year, all it takes is some simple arithmetic to adjust the dates to fit. We’ve done (some) of the math for you in the following image from our previous blog article (How Choosing Your Fiscal Year Affects Your Business Taxes). This chart depicts the general tax due dates for any given year:

When are business taxes due in 2018?

Your business’s tax return deadline is based on its entity type, whether or not you plan on filing an extension, and if there are any weekend or federal holidays in the picture.

The table below details when each type of business entity needs to file 2017 taxes in 2018 (using the calendar year)

2018 Business Tax Deadlines for 2017 Tax Filing

Entity Type Tax Deadline                          Due Date
Original deadline for partnerships (Form 1065)                          March 15, 2018
and S Corporations (Form 1120S

Original deadline for C Corporations (Form 1120)                     April 17, 2018
and individuals (Form 1040)

Original deadline for exempt organizations (Form 990)             May 15, 2018

Final deadline for partnerships and S Corporations                   September 17, 2018
(with extension)

Final deadline for C Corporations and individuals                     October 15, 2018
(with extension)

Final deadline for exempt organizations (with extension)          August 15, 2018

Typically, the tax return due date for flow-through entities is the fifteenth day of the third month of the company’s fiscal year. So the S Corporation and LLC tax return due date in 2018 will fall on March 15 (for partnerships that follow the calendar year). The extended due date for flow-through taxes will be September 17, 2018.

The tax return due date for individuals and corporations typically falls on the fifteenth day of the fourth month of the company’s fiscal year. For calendar year companies, this date tends to fall on or around Emancipation Day, which can impact the deadline. (Emancipation Day is April 16, but the government recognizes it on a Friday if that day falls on a Saturday and Monday if it falls on a Sunday.) So the corporate and individual tax return date in 2018 will fall on April 17. The extended due date for corporate and individual taxes will be October 15, 2018.

Exempt organizations, such as nonprofits and charities, must file taxes on the fifteenth day of the fifth month of the organization’s fiscal year. The 2018 due date for calendar year nonprofits is May 15. When an exempt organization files for an extension they get three months instead of six months (like other entity types, so the 2018 extended due date for exempt organization taxes is August 15, 2018.

Wondering if the tax extension is right for you or your business in 2018?

Need extra time to get your books organized? Did your business activities have major tax consequences? Feeling overwhelmed with the beginning of the year rush or just plain busy? There’s no shame in extending your tax return deadline if you genuinely think the extra time will help gather absolutely everything you and your CPA need to file your taxes.

Think of the extension as a lifeline. If you are worried you might miss your deadline or make mistakes because you’re in a rush, you should file the extension. Otherwise, you may have penalties and interest on any taxes you missed or weren’t aware that you had to pay. Which sounds better, an extra few months to cover your bases, or asking for mercy from the IRS?

To request a 6-month extension, partnerships, S Corporations, and C Corporations all use Form 7004 and individuals use Form 4868. Exempt organizations, such as nonprofits and charities, use Form 8868 to request a 3-month extension.

If you’re planning to extend your tax return deadline, be sure to consult with a tax professional and pay your tax liability on time. The extension of a time to file IS NOT an extension for paying any tax liability due. 

But First, Make Sure You Know the 2017 Estimated Quarterly Tax Payment Dates for Profitable Businesses

Ultimately, state and federal tax authorities expect all taxpayers to pay tax on income periodically throughout the year. For employees who file a W-2, these taxes are taken out of each paycheck automatically, but profitable businesses need to take the initiative to pay their portion of estimated quarterly income tax throughout each year before filing their tax return in the following year. Self-employed individuals have this responsibility as well.

So, if your business is profitable, you will be responsible for paying these installments by the fifteenth day of the fourth, sixth, ninth, and twelfth* months of the tax year (see IRS Form 1120-W). (You do have the option to wait until the end of the year, but will likely be subject to costly interest and penalties on what you owe.) If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next regular business day—see First Quarter Tax Estimate Deadline which is adjusted for 2017 because of Emancipation Day.

2017 Estimated Tax Payment Due Dates (Based on Calendar Year):

Quarterly Deadline                                        Due Date
First Quarter Tax Estimate Deadline                                       April 18, 2017

Second Quarter Tax Estimate Deadline                                   June 15, 2017

Third Quarter Tax Estimate Deadline                                      September 15, 2017

Fourth Quarter Tax Estimate Deadline (Corporations)            December 15, 2017

Fourth Quarter Tax Estimate Deadline (Individuals)               January 16, 2018

*Individuals have the option of waiting until January of the following year to pay their final quarterly tax installment, but can opt to pay on the December deadline with other businesses.

Other Things to Consider When Filing Taxes in 2018

Does your business have any foreign relationships or activities?

The stress and uncertainty of tax season are enough when your business is based strictly in the U.S., but get even more complex when you have affairs overseas. 

For example, U.S. partnerships who have shareholders that are not U.S. citizens or residents who own more than 25% are required to file Form 5472. Filing late or failing to file a correct or complete a 5472 for each qualifying foreign shareholder along with your company’s income tax return can amount to a monetary penalty of at least $10,000 per required shareholder per period. 

Was your business around for just part of 2017? (Did you start or stop business this year?)

There are tax implications of starting or stopping business.

If you started your business this year, make sure you know the date you began operating as a business and consult with a tax professional to see what you can and cannot deduct. You’re not able to deduct most costs from before you started your business, but you might be able to capitalize and deduct the costs over 15 years.

If you stopped operating as a business this tax year, be sure to track the exact date your business officially ends. You should be able to account for all operational transactions before the dissolution of the business. The only cash or property that should remain in your business is the amount that you plan to distribute to investors as you liquidate and the amount you retain to pay your final taxes.

In both cases, the entity will file a short year return and is only responsible for filing taxes for the time it conducted business that year. The short year return is also applicable for some seasonal businesses.

Did your business start 2017 as an LLC but convert to a C Corp?

If you converted your business from an LLC to a C Corporation, you’ll want to work with a tax professional (and a corporate lawyer).

Once the LLC stops existing and turns into a C Corp, the IRS gives all the partners just three and a half months to file a short tax year return. At that point, they may also have to pay income taxes on any debts that transfer to the C Corp. Fail to do so, and each partner will owe $195 per month on top of his or her income tax liability.

Did you receive notice from a state or federal tax authority?

All federal or state tax notices will have a deadline by when the taxpayer must respond. Be sure to respond promptly and consult a tax professional about how you should proceed. But also, don’t freak out! If you get a notice from one of the major tax authorities—whether for a correction or an actual audit—contact your tax professional to assist you with preparations and tips for working with the IRS.


Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

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You'll Be More Thankful If You Stick To A Thanksgiving Budget. Here's How.

Thanksgiving is the start of the holiday season, but without careful planning it can also become a stressful and expensive time of year. Take some time to think ahead, get organized and celebrate Thanksgiving in style - without going broke.

Determine What's Important 
Before you begin pulling out the cookbooks, take a step back and think about your priorities. Is it a priority to:

  • Spend time with immediate family?
  • Have friends or extended family over?
  • Create some new traditions?
  • Put on a lavish meal and try some new recipes?

Let your priorities determine your day, then decide how much you can afford to spend and create a budget to make the day financially feasible.

Create Your Budget
If you don't already work from a budget this could be a good time to start. Budgeting - even if just for a Thanksgiving dinner and festivities - provides you with a blueprint for planning and making choices. It can also simplify the process by providing you with boundaries for your decision-making. 

In planning for Thanksgiving, sketch out a basic budget for how much money you can afford to spend on the following categories:

  • Food - Include the main dish, appetizers, side dishes, dessert and beverages.
  • Entertainment/Activities - Do you want to play board games or go to the movies? Factor those costs in to your budget.
  • Decorations - Include both interior and exterior home décor items.

Smart Shopping to Save Money 
There are simple strategies you can use to save money when shopping for your Thanksgiving festivities. Consider implementing a few of the following shopping tips:

  • Plan your menu - Without a plan for what you're going to serve for Thanksgiving dinner, you are likely to spend more money than you would with a set menu. Make a menu and stick to your list in the grocery store. You'll save both time and money!

  • Buy in bulk - Even if you're not already a member of a local warehouse club (like BJ's, Sam's Club or Costco) you can usually shop at the stores for a one-time fee, or take advantage of frequently offered one-day complimentary guest memberships. But avoid being tempted to overbuy, or you'll fail to cash in on the savings you were hoping for! 

  • Become a coupon clipper - There's a reason millions of people use coupons - simply put, they're free money. After you've made up your menu, look through your local Sunday paper and clip coupons for any of the items on your list. You can also use online coupon sites like, or manufacturers' sites for coupons on your favorite items. Check to see if any of your local stores double or even triple coupons to save even more.

  • Go solo - Leave the kids at home. Grocery shopping with young kids is bound to take significantly more time and cost you more money as they pine for (or just pick up) additional items that aren't on your list.

  • Buy generic - There are some things where it doesn't necessarily make sense to buy brand name. If the only difference between the generic item and the brand-name one is the price, the choice is easy!

  • Be a price inspector - Before you start loading up your grocery cart, check the unit pricing on items (the cost per serving, unit or pound) to find the best deal. You might want to bring along a calculator to help you do this math.

  • Watch the circulars - Grocery stores often run special holiday promotions, such as free turkeys when you use a club card.

  • Buy the leaders - Loss leaders, that is. Loss leaders are items that stores put on sale at a deep discount and prominently display to entice buyers. They are usually positioned on the ends of aisles and can save you a significant amount of money if they are items on your list.

  • Shop early - This doesn't just mean shopping early in the morning (to avoid the crowds), but also shopping sales well before the holiday to buy items when they go on sale to store or freeze until you need them.

  • Cook once, eat twice - Comparison shop and buy larger portions, with a plan to use leftovers for quick meals during the weeks following Thanksgiving.

  • Save dollars by buying discount - Consider buying paper items and inexpensive serving items or decorations at discount stores; you can use the money you save to splurge on items that are more important, like a special dessert or nice bottle of wine to have with your meal. 

More Ways to Cut Costs and Stretch Dollars
In addition to having a strategy for smart shopping, try a few of the following tips to stretch your budget:

  • Trim the menu - In the excitement of the day it can be easy to plan for more than you'll need … or even want. Don't overload the table with food that'll just become leftovers (or be thrown out). Think quality instead of quantity.

  • Go vegetarian - Meat is typically one of the most expensive grocery items. If your family is up for a change, try cutting it out of your Thanksgiving menu.

  • Think homemade - Make your own desserts and side dishes instead of buying premade ones, as premade items will typically cost more. The same goes for decorations - get the kids in on the fun and create your own holiday decorations or borrow items from a friend.

  • Share the load - If you're hosting guests, there's no reason you have to do it all on your own. Split up some of the work and cut the cost from your total bill by asking guests to bring a side dish, dessert or beverage.

  • Go "dry" - Opt out of serving wine and alcoholic drinks, which can quickly run up the grocery tab.

  • Rent, don't buy - Do you think you'll really need that chafing dish more than once a year? Look into renting equipment and supplies for your Thanksgiving dinner instead of buying them. 

By doing a little pre-event planning, budgeting and smart shopping you can enjoy a fun, festive Thanksgiving without spending more than you expected.

Image Credit:

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

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7 Ways to Save Money on Halloween

You don’t have to play trick or treat with your budget this Halloween when you plan those candy purchases and flex your crafting muscles to make decorations. The National Retail Federation estimates that consumers will spend $7.4 billion on Halloween this year, with the average person shelling out about $77 on decorations, costumes and candy. But it's possible to make savvy purchases to bring down the cost. Follow these seven tips to save money on Halloween this year.

1. Buy Halloween candy from a warehouse club. Buying your Halloween candy in bulk from a warehouse club can help you save money and avoid the hassle of making multiple trips to the grocery store to stock up on popular types of candy during the weeks leading up to Halloween. Pick up a few mixed bag varieties to give your trick-or-treaters plenty of options. If you’re feeling generous, go with regular-size candy bars that are also priced at a discount at warehouse clubs.

2. Shop at online party stores for Halloween decorations. Whether you're hosting a Halloween party or want to deck out your home in Halloween décor, peruse the inventory of online party stores for some great deals before you head out to your local big-box store. Many party stores will offer discounts on bulk buys and run specials on Halloween items throughout the season. Keep an eye out for coupons and online-only offers to save even more on your purchases. 

3. Buy arts and craft supplies at the dollar store. If you’ve caught the crafting bug this season, head to the dollar store or other discount stores in your area to round up basic supplies to make your own decorations. Be creative with ready-made treat bags and other Halloween decorations that you can repurpose to make wreaths, centerpieces and other festive decorations.

4. Search for free activities in the community. If you don’t have room in the budget to host a Halloween party for the kids or even to stock up on holiday candy this year, plan on taking everyone out for some free Halloween fun at your local community center, school, museums and other local venues. Take a look at the events page in your local newspaper, find events on the Facebook pages of organizations you are a part of or review the community calendar at civic centers and other local organizations to find low-cost ways to celebrate Halloween.

5. Hold off on the pumpkin roundup. Waiting until Oct. 30 or a few days before Halloween to buy pumpkins could save you some money. Plan on carving the pumpkins on Halloween instead of earlier in the season when the pumpkins are prone to rot. Many stores sell pumpkins at deep discounts right around Halloween to clear out some of the inventory before the big post-Halloween price drop. Keep in mind, you could still use uncarved pumpkins as decorations for Thanksgiving.

6. Make your own Halloween costumes. You’ll find plenty of tutorials and tips for making Halloween costumes with inexpensive materials online, so get inspired by perusing some Pinterest boards and posts from crafty bloggers. Even something as simple as a decorative mask or a cape embellished with Halloween motifs can be enough to get you in the Halloween spirit. Buy items you can reuse for next year’s Halloween events or even for a costume party this upcoming holiday season.

7. Shop at surplus stores. Stores that carry overstock, surplus and slightly damaged or irregular merchandise can be a treasure trove for bargain hunters and typically carry a large selection of holiday-themed merchandise. Whether you’re in the market for a Halloween-print tablecloth, candelabras or a festive door hanging, surplus stores may have just what you need to create a spooky space at home or in the office. Some of these stores also carry a line of Halloween costumes for kids and accessories you could use to put together your own costumes. If an item is visibly damaged but still usable, don’t be afraid to ask for a discount – some stores will take 10 percent or more off the sticker price to make the sale.

Image  Source:

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

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Monday, September 11, 2017

Business Credit Cards Carry Hidden Risks

What’s not to like about a business credit card? You can take clients out to dinner, buy office supplies and pay for your business trips without running up your personal card. Not only do business credit cards have higher lines of credit, their statements are ideal for tracking business purchases for taxes. But if you’re a small business owner, these cards carry some risks -- ones not always apparent in the glossy ads for them.

Business credit cards, as it turns out, don’t offer the same protections as personal credit cards. Because of intense lobbying from banking interests, business cards were excluded from protection under the Credit CARD Act of 2009, which was designed to put a stop to the most abusive practices of credit card issuers. This leaves small business cardholders exposed to everything from unpredictable rate increases to constantly shifting due dates.

Here are the major business credit card problems to watch out for:

  • Higher interest rates. Interest rates on some business credit cards can be painfully high. Many charge interest rates of about 16%, but depending on your credit score, interest rates can climb to 29% or higher. And since the Federal Reserve raised a key benchmark interest rate in 2016, the cost of credit surged in 2017.

  • Overnight changes in terms. In a 2011 report, Pew Charitable Trusts noted 80 percent of business credit card issuers could change the terms of the card agreement at any time – something prohibited in regular consumer cards. To protect the millions of small business owners and consumers from deceptive practices, the non-profit has urged the government to expand safeguards in the Card Act to all cards for which cardholders are personally liable.

  • Changing due dates. Unlike a consumer credit card, a business card issuer can set a different due date every month, making it much easier to miss a payment.

  • More penalties. If you do miss a due date, the business card issuer can immediately raise the rate on your entire balance. Unlike the interest rate on a personal credit card, which can’t increase the rate on current balances until you’re 60 days delinquent, the credit card company can raise the rate on your business credit card and slap you with a penalty APR (fees + interest) if you’re even one day late.

  • Unpredictable rate increases. Unlike consumer credit cards, which require a 45-day notice, the rate on a business credit card can be changed without notice. Most of them are variable, so the interest rate depends on how the prime rate changes.

  • Liability for employee purchases. It’s important to track employee purchases and have written policies on what the cards can be used for, because you’re the one who’s liable for the purchases.

Even if you read your credit card agreement to check for these problems, it may be hard to decipher: Joe Ridout of Consumer Action has called them “mind-numbingly obtuse.” And that works to the advantage of the issuers.

Does this mean you should forgo a business credit card? Not necessarily. They can be invaluable in managing cash flow, and the rewards and sign-up bonuses are often much more expansive than those offered by regular cards.

“Business credit cards are surprisingly more affordable than many other business financing options,” said Priyanka Prakash, a loan specialist at FitBiz Loans and Fit Small Business, in a recent interview with “Many cards also offer zero-percent promotional periods. If you can buy and pay back during that period, it’s like borrowing interest free.”

But like a regular credit card, business credit cards should be paid off at the end of every cycle. If you’re planning to use a credit card to fund your business and pay it off down the road, it’s much safer to use personal credit cards for funding purposes and a business credit card for purchases you can pay off within the month.

“Remember, even though these are business credit cards, you typically have to provide a personal guarantee of repayment,” said Prakash. “That means that if you cannot pay back the balance, the issuer can repossess your personal assets, such as your home and car.”

In addition, the best business credit cards have voluntarily adopted some of the Credit CARD Act protections, so look for one of those cards. Bank of America, for example, doesn’t hike the rates on existing balances. It also gives you at least 25 days between the bill mailing date and the date that it’s due, so you won’t get a bill and realize it should have been paid yesterday.

Another good model is American Express, which offers a 21-day period between the statement date and payment due date and the same payment due date each month.

Keep in mind, though, that business card protections from these issuers are voluntary and can be rescinded at any time – another good reason to check your statement every month.

Image Credit: Shutterstock

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

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How to Prepare Your Business Partnership for New Rules for IRS Audits

The IRS will begin a new way of auditing partnerships starting in the 2018 tax year. Partnerships need to develop a roadmap before venturing into this new frontier.

The IRS will begin a new way of auditing partnerships and LLCs (as most are treated as partnerships) for tax years beginning after Dec. 31, 2017. With these new rules comes the potential for a host of new disputes among partners.

Various strategies for mitigating effects of the changes will require cooperation from partners who may not be compelled to work together. Partnerships need to develop a roadmap before venturing into this new frontier. Like going to the dentist, an update to the partnership agreement may be a dreaded but necessary task to provide for this roadmap.

In this article, I outline the basics of the new rules, their impact on partnerships and actionable steps businesses can take now to prepare.

A brief history of partnership audits
Since 1982, the IRS has audited partnerships under the Tax Equity And Fiscal Responsibility Act (TEFRA) by making adjustments to partnership items, and then generally determining and collecting tax deficiencies from (or issuing refunds to) the affected partners. As the complexity of ownership structures has grown, so have increasingly imaginative partner profit-sharing strategies, which has diminished the practical ability of the IRS to audit partnerships.

The Bipartisan Budget Act of 2015 repealed the current TEFRA procedures and special rules relating to electing large partnerships. The new rules establish audit procedures that apply to all partnerships. Now, the default rule will be that underpaid taxes, penalties and interest will be assessed against and collected directly from the partnership.

This was done with multiple goals in mind. First, the rules will simplify the role the IRS plays in administration of partnership audits. Second, the rules are intended to solve the disparity in audit rates between partnerships and other business forms. For example, according to a 2014 report issued by the U.S. Government Accountability Office, the IRS audited less than 1 percent of 2012 income tax returns of large partnerships, and two-thirds of those large partnership audits resulted in no changes. By contrast, over 27 percent of large C corporation tax returns in 2012 were audited, where only a quarter resulted in no changes. So, one of the goals of the new audit rules is to level the playing field, and the rules are expected to raise an additional $9.3 billion in tax collections over the next 10 years.

Key changes proposed under the new rules
Starting in the 2018 tax year, the IRS will collect tax deficiencies, penalties and interest by default from the partnership during the year an audit concludes. The maximum rate of tax in effect for any type of taxpayer will be used to calculate the tax deficiency (for example, the current maximum rate would be for individuals and the rate is 39.6 percent). All partnerships are subject to the new rules by default.

Non-positive (favorable) adjustments do not result in refunds to the partnership. These are captured as income adjustments on the partnership’s tax return to be filed for the year during which the exam concludes.

Partnerships must designate a partnership representative. The partnership representative will be the sole person with whom the IRS will communicate audit-related notifications. The partnership representative will have unilateral authority with the IRS to bind the partnership and the partners to decisions affecting them. He or she has no statutory duty to involve the partners in partnership audit decisions.

The partnership’s liability can be modified in several ways. The partnership representative can request that a lower rate be used to compute a liability, if a lower maximum tax rate would apply at the partner level. The partnership representative can also use varying procedures to shift the tax responsibility for exam adjustments onto the partners, thereby reducing (or eliminating) the partnership’s liability for such.

Eligible partnerships can elect to opt out of the new rules. Eligible partnerships are those that do not have any partners classified as partnerships, trusts (including grantor and revocable trusts), disregarded entities, foreign entities that would not be classified as corporations had they been domestic, nominees and estates not belonging to former partners. Eligible partnerships must also issue 100 or fewer Schedule K-1s. Shareholders of S corporation partners count toward this Schedule K-1 limit.

How partnerships can prepare
The partnership’s liability for audit adjustments places the economic burden on the current partners during the year the exam concludes, regardless of whether they are the same persons or entities that were partners in the tax year being audited. Modification strategies can be used to change this result, but they often will disadvantage the prior partners in favor of the current partners or vice versa. Considering the level of authority the partnership representative has to implement these strategies, contentious situations could emerge between the partners or with the partnership representative.

Also, certain modification strategies may not be available unless partner data is available on a timely basis. Many choices will be complex and require lengthy analysis to determine which is the most desirable. Further, an opt-out election subjects the partnership and the partners to separate audits of the partnership and each individual partner, potentially creating disparate treatment among the partners.

A revised partnership or member agreement is the only way to contractually address and diffuse these potential issues before they arise.

Image Credit: Shutterstock

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

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Friday, September 8, 2017

The Best 10 Life Lessons I Learned by Running My Own Business

Starting a business is almost worth it just for what it teaches you about life, and yourself.

When we are in school, everything feels super important. Most of us work toward a degree, and make every effort to get out into the “real” world so we can finally become successful, happy and financially free. But once we graduate and enter the working world, we realize that things aren't always what they seem. After spending almost a decade in the corporate world, working in advertising agencies all around the world, I felt lifeless and bored. It felt like my job was suffocating my soul. When my doctor diagnosed me with depression, I saw it as a wakeup call. I left it all behind to follow my heart, start my own business and become my own boss. After running my own successful company for almost a decade, I can now reflect on some major lessons learned.

1. The people you admire don't have it figured out, and that's okay.
We often think when we graduate or start our own company and make money doing what we love, we’ll be graced with instant clarity and acute focus. We see others who look like they have it all worked out. They seem successful, they have the perfect social media posts, but in the real world, we are all just figuring it out. Well into your 20s, 30s, 40s, 50s and even 60s, things are still evolving and falling into place. Life is an evolution of changes; you can reinvent yourself and change your mind at any time, and it’s okay. Learning who you are is a lifelong journey and a radical adventure at that.

2. The older you get, the harder it is to change a habit.
When we are young, we take for granted our nonchalant habits and change quickly when we desire. As you age, your brain is hard-wired to fall back on habits, and it is harder to change -- much harder. You get set in your ways. Be honest with yourself. If there is a habit you want to change, it’s never too late, but be patient with yourself as the change is harder to make the older you get.

3. Burned bridges stay with you for life.
When you work for yourself, you realize how important all relationships are. A burned bridge will stay with you forever, and you quickly learn forgiveness is the most essential tool for success. Who can you forgive today?

4. Your beliefs aren't as important as your behavior.
Your beliefs and values are important to you, but how you act and talk to others about what you believe in is more important than the actual belief. Treat others with kindness and respect no matter how different their views are. Contrast can bring clarity.

5. The more you believe in yourself, the less you need others to. 
You don’t need to lean on others for support. When you have a dream or goal, the most important thing is that you believe in yourself. People are going to tell you it can’t be done, but when you connect with your own dreams, you will be unstoppable.

6. Almost everything is simple, but almost nothing is easy.
As you start to grow your own business, you begin to learn most everything is relatively simple. You recognize that you don’t have to work so hard or worry so much, and that things seem to fall into place. Learning this and accepting it as truth, however, is never easy.

7. People and situations in your past were never random.
You quickly learn how everything is connected. Instead of looking at your life as a random experience and unconnected occurrences, start to see that life isn’t happening to you, but actually it is happening for you.

8. Sometimes not getting what you want is the biggest blessing of all.
Everything is part of a larger plan. You quickly learn that rejection is actually protection.

9. Everything tends to work out the way it is supposed to.
Once you start getting into the rhythm of running your own company, you may realize that you are always changing, growing and becoming more of who you really want to be. Many of us often stress about things that are out of our control. As you become more established, you learn that the things you have always worried about turned out fine. In life, things always work out the way they are supposed to, so there is no need to worry.

10. Trust yourself much sooner.
Learning to trust yourself -- sooner rather than later -- is something that will help you feel more free. Stop fighting yourself, and trust your gut instincts. Trust your heart -- it knows what your head has yet to figure out.

Image Credit: Hero Images | Getty Images

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

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Thursday, September 7, 2017

How to Calculate Return on Investment for Your Business

You want a good ROI on your business, but telling what it is can be harder than you think.

You're an entrepreneur and have put time, money, and effort into your business. You want a good return on investment for all your work. Who wouldn't? But knowing your ROI isn't as straightforward as you might think.

The reason isn't some inherent difficulty with the basic ROI formula. It's a straightforward calculation. But even when you're talking about large companies, determining value can be tricky. When you have multiple ways of determining value, understanding which one to use can be a challenge.

The ROI formula
The basic idea of ROI is to express the additional money or value you have received -- the benefit or return you gained -- as a percentage of your initial investment. Here's the formula:

(Return/Initial Investment) x 100 = ROI

You multiple by 100 to convert the ratio into a percentage. So far, so good. As an example, you purchase a small business for $200,000. Through hard work, you build the business and sell it for $300,000. The return is the final sale price of $300,000 less your purchase price, the investment, of $200,000.

You've gained $100,000 in value. Divide that return by the investment and you get 0.50. Multiple that by 100 and your ROI was 50 percent.

Things get more complicated
That was a simple example. But chances are you've had to invest more in the business, reinvesting profits to grow it. That amount has to be considered part of the investment. If you put $20,000 of profits into the business, your investment is now $220,000, because the profits from the business you own is your money.

Now the return is $300,000 less the total investment of $220,000, or $80,000. Divide that by the $220,000 and then multiple by 100 and you get an ROI of just over 36 percent.

Here's another twist. The initial investment is still $200,000. You still put $20,000 of profit back into the business and eventually sell it for $300,000. But there was an additional $50,000 in profit that you took out of the business at the same time. So, the return has become $80,000 plus $50,000 for a total of $130,000. Your ROI has become 59 percent.

This is still a simple example. You'd likely have paid professionals like lawyers and accountants to help with the transaction. That would be considered part of the initial investment. Perhaps you took out a loan to make the purchase. Loan payments might come from the company, but it's still your investment, both the principal (the amount borrowed) and the interest you owe on the principal.

Bring time into the equation
Up until now, we've treated the purchase, sale, and profit extraction of the business as something happening virtually instantaneously. However, that isn't the case. You'll have owned the business for a period of time and the return spread out.

Using the last variation, with the $50,000 in profit, the total investment of $220,000, and the sale price of $300,000, add in a period of five years over which you own the business. The 59 percent ROI becomes 11.8 percent return a year.

Consider the time over which you invest as another way to look at the return. You could buy one of two businesses. When you sell one of them, you'd see a 59 percent ROI after 5 years. The other will only give you a 40 percent ROI, but that will come after two years, when you sell that business.

The first business seems to offer more, but it takes longer to do so, with an 11.8 percent a year return. The other company gives you 20 percent per year ROI. You won't make as much in total, but the higher annual amount lets you obtain your return more quickly so you can reinvest it. Depending on your circumstances and inclinations (like the amount of risk you're willing to take), one deal or the other might make more sense.

Time value of money
You can more directly comparison between two such opportunities with the concept of net present value, or NPV. It's a way of acknowledging that if you're getting a return on your money in general, an amount in the future grew from a smaller amount today. The higher future amount has enjoyed the chance to grow in value over time.

But when it comes to actually calculating the NPV of an investment, you'll more likely use the built-in functions in a spreadsheet like Excel or Google Docs or use an online calculator.

Another convenient ROI formula for small businesses
If you've been in business for a while, it might be tough to pull together all the numbers to calculate an ROI based on initial and ongoing investments. There's another way to get to a number that you can more easily update.

Working with your accountant, look at your company's balance sheet. Add long-term debt and owner's equity together from the liabilities half of the sheet. This shows the combination of the portion of company value that is yours and the value borrowed in the long term.

Together they are the equivalent of what you current have invested -- your money in the company and that which is borrowed. Divide the company's after-tax income, taken from the income statement, for the year by the combination of equity and debt you obtained above.

The advantage of this approach is that you can get the current value at any time by pulling a recent copy of your financials.

Image Credit: Getty Images

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

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