JoAnn Laing's Blog - All About Small Business

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All About Small Business
Updated: 22 min 53 sec ago

Regulatory Requirements Growing

Sun, 02/11/2024 - 20:29

In their desire to increase tax revenue, improve oversight, and strengthen its regulatory grip on small businesses, governmental agencies are close to adding major regulatory requirements.

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Designed also to help identify companies being used to spy on American companies to gain trade secrets, efforts to date for informing small business leaders have been spotty at best.

Let’s start with the change already law and which estimated 20+ million American small businesses are already in violation.  Charged with implementing these new requirements is the Financial Crimes Enforcement Network (FinCEN).  Under the law that went into effect January 1, of this year, FinCEN is bringing into new databases registered information which more substantially disclose who are the beneficial individual owners of the millions of small businesses.  Failure to comply, can result in hefty fines.

Approved by Congress in by the 2021 Corporate Transparency Act, individuals can no longer hide under opaque private companies, foreign entities and other subterfuges when owning, investing, or managing small businesses with less than 20 employees.  Companies must provide additional background, verifiable personal data, and financial information on any person who benefits from the operation of a small business.

In the first months of 2024, only about 400,000 of the nation’s estimate 22 million small businesses had complied with the law’s requirement.  FinCEN intends to step up its educational efforts after the April 15th Tax Deadline.

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While this registration program poses additional burdens, perhaps the more worrisome issue facing small business leaders is the expanding effort by the Department of Labor and the IRS to further limit the use of casual workers.  It is estimated that in 2022 more workers received 1099s forms than W2 forms.  The former wage reporting mechanism reports to the government of wages earned but requires no contributions to social security or other deductions usually taken from paychecks of full-time employees.

The definition of who is a full time worker and who can claim 1099 status has been under attack for 10 years and the latest series of proposed regulations go far forward of anything previously proposed.  These changes are currently up for review and it behooves any small business leader to become aware of them quickly.

Plus there are two other regulatory issues threatening small business employer-employee interaction. The first concerns franchise workers.  There the Department of Labor is still trying to dictate that an individual franchise owner is part of a large company made up of franchises.

The second, and more ominous, is extending its authority into such areas as home-based childcare and Uber-type businesses.

Staying abreast of these trends is another management requirement facing small businesses this year.  Stay tune, more may be coming.

Bankruptcy

Sun, 01/07/2024 - 14:30

Because by nature they are optimists, small business leaders tend to avoid talking about bankruptcy of their company and/or themselves.

Yet, in 2023, commercial bankruptcies increased by 72% year-over-year, and filings for the discharge of personal debt increased by 18%.  With experts expecting these numbers to go up in 2024, the good news is that they remain below pre-pandemic levels.

Storyset

However, small business leaders should still be cognizant of the growing cloud as bankruptcies are becoming more frequent.  “Bankruptcies in all filing categories climbed last year amid the evaporation of pandemic emergency responses, increased interest rates and tougher lending standards,” said ABI Executive Director Amy Quackenboss.

Having identify the trend, there are ways to identify potential issues which could affect your company’s future.

Experts warn that as interest rates remain elevated, financing requirements become more stringent, weakening customer loyalty, increasing geopolitical tensions affecting global supply chains, and growing debt loads, even the strongest companies must remain alert to maintaining financial strength.

Johnstocker

Based on studies of small business bankruptcies, there are four keys to identifying possible future problems.  This is the so-call company ‘FQ’ of financial quality.

  1. Weekly cash summary: Does the company have enough cash to finance the coming week’s financial outlays?  Including payroll, expected materials delivery, loan repayment.
  2. Line of Credit: Is there a source of funds available to immediately cover any shortfall in the company’s cash position?
  3. Accounts receivable: Are 60% or more of all outstanding debts within 80 days of initial rendering?
  4. Accounts payable: Are 60% of bills owed outstanding more than 80 days?

If the answer to any of these four questions is yes, small business leaders should highlight them and take steps to alleviate.  If they persist beyond two months, it is time to institute remedies.

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Because many companies, particularly in their early stages, operate on thin margins, FQ guidelines often appear.  This doesn’t mean the company is headed for failure.

However, should they persist for long periods of time, it may suggest that bankruptcy be considered.

As Winston Churchill said: “Success is based on a long series of failure.”

Struggling businesses and families can turn to the proven process of bankruptcy for a financial fresh start.

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Optimism For Next Year

Sat, 12/09/2023 - 17:09

Small business leaders should be looking at a more positive economic environment in 2024.

This bold statement is beginning to echo across the nation as we approach the New Year. While there are still pundits arguing for a possible recession, more and more, the nation is seeing signs of positive growth in 2024.

Some advisors are beginning to urge smaller enterprises to begin building resources that enable companies to fill increased demand from clients.  Right now, overseas suppliers of goods have added capacity after three years of slower growth. Locking in costs-of-goods sold should be a priority along with commitments for added inventory in the first quarter.

One harbinger of increased economic activity is advanced bookings for such trade shows as CES for the latest in computer technology for goods and services across industries and the National Homebuilders Show. Both of these massive gatherings report they are sold out in terms of both space and events.

Another possible clue is the first reported reduction in home interest rates reported for so-called Jumbo Mortgages, for large, mansion properties.

For small business leaders, the most important statistic has been credit card sales used to buy business related items. This number, closely guarded by the big card issuing companies, was revealed to be steady according to a report in The Wall Street Journal. More importantly, companies offering operations management services closed the third quarter with a surge of activity, averaging 9% year-over-year.

Card services offering one-year before payment is due contracts for goods or services said new accounts jumped 11 percent in the third quarter.

For small business leaders, there are three key choices in the first quarter of 2024:

1. Be prepared for an economic rebound.

2. Have enough cash or credit quickly available to fulfill increased client demand.

3. Don’t be afraid to jump on any economic expansion.

It is easy to be like Chicken Little and think the sky is falling. Being more optimistic takes courage.