Determining your sales tax liability when you operate in more than one state is always complicated. Now it has gotten even trickier. Last week the US Supreme Court made, what I consider, a monumental decision in the case of South Dakota v. Wayfair, Inc. (Wayfair). This decision could turn small businesses, especially e-commerce businesses, upside down and have far reaching effects on how buy and sell products and services. At issue is whether a state can require an online retailer to collect and remit sales tax in a state where it does not have physical nexus. Prior to this decision, a company was only required to collect and remit sales tax in a state where it had either property or payroll, referred to as physical nexus. Now, solely having sales in a state could create nexus.
Let’s go back a bit in history, say a little over a week ago. Prior to Wayfair, a business only had to worry about those states where it had a physical presence in determining its tax nexus. Physical presence has long been the means for determining the taxability of sales in a state since the 1960s. This ruling was upheld and solidified in 1992 when the US Supreme Court ruled in the case of Quill Corp. v. North Dakota (Quill). In Quill, the US Supreme Court ruled that the catalogue retailer was not required to collect and remit sales taxes to the State of North Dakota because it lacked physical presence in that state. Wayfair has changed this in South Dakota and is expected to change this in a multitude of states.
In 2016, South Dakota passed a law requiring online retailers, with sales in the state of more than $100,000 or more than 200 transactions annually, to collect and remit sales taxes. In the wake of revenue shortfalls in many states, it is not a surprise that states will look for, and find, alternative revenue sources. This is the path that South Dakota took. As soon as they passed the law, the state sued four retailers, including Wayfair, Inc., for not complying with the law and won their case. This is huge!
Will other states follow suit? Most likely. Could this reach farther than just e-commerce? Maybe. We’ll have to keep a close eye on this issue as it unfolds. Whether you are an online retailer, SaaS based technology company, brick and mortar store selling occasionally online, or a company that just provides services to its customers, you need to keep a close eye on what other states will do in the wake of the outcome of Wayfair.
By Susan Nieland, CPA
They sit across from you: nervous, anxious, excited, apprehensive. They’ve had this idea and dream all their lives and now they have taken the first step to make it a reality. But, they are just not sure what their next step should be and how to make it all work. They are an entrepreneur. Maybe for the first time or maybe for the third or fourth time. They have a vision unlike anyone else and a drive to make that vision a reality. They will do anything and everything to make it work. They will make mistakes, learn from them, and continue to move forward. They will have successes great and small. They are tenacious, passionate, and driven.
As you sit with them, they talk. They talk about their dreams, struggles, and hopes for the future. What will get them the next breakthrough? They know their idea works. They’ve tested it, but now are struggling with reaching the right customer base. They may have customers and have grown their revenue base, but now their growth has outgrown their bank account. How are they going to convince an investor to join their seed round? They’ve got their pitch down, but do they really? Where can they improve? Do their numbers make sense? They may even be thinking “Should I give up? How can I keep going? “
They have a million questions and you sit intently listening. For that is what they really need, someone to listen, just listen. As you listen you reflect on your experiences as a business owner and entrepreneur. The mistakes you’ve learned from and the success you’ve had. Read the rest of this entry »
Although formal budgeting and forecasting are thought to be reserved for, and only needed by “BIG Business”, they are important tools in growing your small business too. We often think of budgets as very time consuming to develop, complicated and we may even think of them as a waste of time. But before you write them off as worthless, let’s explore what they can do for your business. We’ll also look at 5 budgeting tips to help drive your business down the road to success.
Do I REALLY Need a Budget?
One of the reasons that small businesses fail, is the failure to plan. Market conditions, new competition, the outcome of the coming presidential election, the weather, the rise and fall of interest rates. These, among many other factors, can have significant impact on our businesses. Yet, for the most part, we have little to no control over them. Having so little control over critically important factors that can determine whether our businesses succeed or fail can be frustrating to say the least and may tempt us to throw up our hands in surrender. But I’m here to tell you that having a plan, a solid budget, that is well thought out and flexible can help you navigate your business through stormy and uncertain times. No, it’s not your crystal ball and no, you don’t need a crystal ball to prepare one. Think of it this way, trying to run a business without a budget is like trying to sail a ship without a map. You can do it, it’s just much riskier. You may hit an iceberg before you realize that there’s an iceberg in your path.
5 Budgeting Basics
Your budget is your map to the future. You know where you are today. Right? But where do you want to be in the future, say 12 – 18 months from now? And, once you figure out where you want to be, how will you get there? That’s where your budget comes in, it’s your map.
1. Take Inventory of Your Environment
Knowing the environment that your business operates in and anticipating the changes that may happen to this environment will help you make sure that your budget (your map) is well thought out. You may decide in this step that you need to make a change to your business. Now’s the time to consider this. In this step, take stock of the significant risk factors that may affect your business. Consider the impact on your business of an increase in the minimum wage, changes in the interest rates, new technology, and the entrance of new competitors. This is the landscape of your map.
2. Determine Your Destination
Now that you’ve taken stock of your environment and you know the risks you’ll be facing, take a deep breath and determine whether you want to plan to grow your business. If growth is where you want to be, quantify what that means to you. Does growth mean an increase in customers, increase in revenues/sales, launching a new product or increasing your profit? Consider this your destination.
3. Sketch Out Your Sales Volume and the Driving Forces Behind Your Sales
If your destination is to grow your business, determine where this growth will come from and how it will impact your sales volume and revenue. If you’ve got historical experience in sales and proven marketing strategies, you can leverage this information to help you prepare your map to the future. Although this is a good strategy, I would caution against strictly using historical performance to forecast future results. Always consider your environment inventory when determining your projected sales and revenue growth. If possible, prepare “best”, “worst” and “most likely” cases. This will help you see the impact of changes in sales volume on your business and you can track your actual results to these cases. This will be your main road on the map to your destination.
4. Plan for Your Expenses
Now that you know what your sales plan will be and how you intend to reach this goal (marketing, acquisition, new product launch, etc.), you can start layering in the expenses that will be incurred to drive your sales volume and your business operations. Things to consider here will be marketing spend, sales commissions, purchases of product to sell, costs to develop new products, salaries, taxes, rent, utilities, supplies, dues and subscriptions. You get the picture. Here again, if you’ve got historical data to work with, that would be great and will help to make sure you don’t leave anything out. Regardless, I would highly recommend adding in a percentage of your revenue or a flat amount as a cushion for the unknown. This is the construction materials that go into your main road on the map to your destination.
5. Communicate Your Plan & Consult It Regularly
Communicate your budget (road map) to your staff or other stake holders. Get their input and revise it as you see fit. Your budget is your map to the future. Don’t put it down on paper and file it away, take it with you as you journey to your destination, it will help you stay on track and succeed. Use your road map and it will guide you to success!
There you have it! 5 budgeting tips for your success. Now go out there and budget with confidence.
© Susan M Nieland, CPA
Time for a shout-out to entrepreneurs and small business owners!
According to the Small Business Administration, “Small Business is BIG!”. The 28 million small businesses in America impact the economy by providing approximately 55% of the all jobs and are growing steadily while big businesses are downsizing. Small business accounts for 54% of all sales. This is HUGE! There is a lot riding on the shoulders of small business owners. Entrepreneurs and small business owners have many of the same concerns as big businesses, but have fewer resources and often tackle these issues alone. Small business owners’ concerns can range anywhere from the balance in their bank account, to the impact of a potential increase in the minimum wage on their profits, to the rising cost of healthcare, to the best way to minimize their tax liability, to name just a few.
Don’t go it alone, get yourself a Trusted Advisor.
As an entrepreneur and small business owner, you probably find this a difficult concept to get your head around let alone actually do. You know your business better than anyone because you built it from the ground up. How can you bring in an outsider and trust them, really trust them, with the most intimate details of your business? How can you be sure that they will hold your finances, bank balance and trade secrets in strict confidence? All valid concerns, but I am here to caution you against holding out and going it alone. A trusted advisor, like a CPA, can be a valuable asset to you and your business. Before you start objecting by saying that a CPA is too expensive, or that you only need them at tax time, or that they don’t understand you and your business, let’s take a closer look, then at the end you decide.
What is a CPA?
A Certified Public Accountant, CPA, is someone that has passed a rigorous exam, maintains a certain level of continuing education and follows a professional code of ethics. CPAs are more than just accountants that balance the books. CPAs often serve in many different roles in corporate America, big and small. They not only help companies with their income taxes and tax compliance, they have an intimate knowledge of accounting principles and provide companies with financial planning, forensic accounting, management consulting, corporate governance and estate planning to name a few. With their wealth of experience and knowledge, a good CPA can offer objective, non-biased views and advice to small business owners that is invaluable. Sure, CPAs know the numbers inside and out, but they also have an ability to see beyond the numbers and into the truth about what is going on in your business. It is this ability to see into what is driving business today, projecting where the business is going in the future and effectively communicating this to you in an honest and truthful manner that often places a CPA in the role of Trusted Advisor.
Why Do I Need a CPA?
A CPA can help guide you through the treacherous waters you encounter in running and growing your business. They understand business at a level that is different than non-CPAs. One of the main issues debated during the upcoming US Presidential campaign was whether to raise the minimum wage, and if so, by how much. A CPA can provide you with visibility into the impact such a change could have on your business. Are you looking to grow your business, but need to find capital to fund your growth? A CPA can provide guidance on the type of capital that is right for your business, help you obtain this capital by providing solid financial statements and show you the impact this will have on your business through insightful and easy to read forecasting models. Need to make sure you are complying with all the payroll, sales and income tax laws? A CPA well versed in tax laws can easily help you navigate through these complex issues, as well as help you to avoid costly penalties as a result of missing important filing deadlines. These are just a few examples of where a good CPA can provide value to you and your business.
How Do I Choose the Right CPA?
Now that you see the value a CPA can bring to the table and are convinced that you need one, how do you go about finding one? Here are some tips on finding a CPA that is a good fit for you.
- First, understand what your greatest need is right now. Is it tax related? Do you need help keeping up with your books and records so that your tax accountant can get your taxes done? Do you need help figuring out how to fund your business growth? Once you know what you need, you can get referrals from business associates, attorneys or other CPAs to start your search for your CPA.
- Now that you’ve been referred to a CPA you’ll want to make sure that they have an active license (you can look them up on the state licensing website, for Florida it’s http://www.myfloridalicense.com), their communication style is compatible with your own and they have the experience that you need.
- You’ll also want to make sure that you get along with the CPA you ultimately choose, and actually like them. If you don’t like the CPA personally, even if they are known for being the best in their field, you probably won’t use them or trust them.
- Most reputable CPAs will be members of the American Institute of Certified Public Accountants and/or their state society of CPAs. These organizations have strict rules of membership and monitor their members regularly. Make sure the CPA that you work with is a member of one or more professional organizations.
Once you’ve found a CPA that you’d like to work with, don’t hesitate to take it slow. You may want to start out with a small project to see how well you work together before engaging them on a larger scale. A reputable, and good CPA will understand and will be happy to work with you. It’s your business so make the CPA earn your trust first!
Don’t Go It Alone! Get your Trusted CPA Advisor!
The success of your business relies on you! The growth of the American economy relies on small businesses and entrepreneurship. Don’t go it alone! Bring a Trusted CPA Advisor along with you!
Susan M Nieland, CPA
So, what does it take to succeed as an entrepreneur? Just ask anyone and they will tell you anywhere from three to thirty things you need to know in order to succeed.
- You need a great PRODUCT that people (your customers) want to buy.
- You need lots (and lots) of MONEY to fund your company and develop your idea into a product your customers want.
- Your timing needs to be impeccable.
- You need CUSTOMERS (hopefully lots of them)
- You need EMPLOYEES (good employees if you’re lucky enough to find them)
- You need to know your numbers and be able to recite them at will
Sound familiar? I know, this is not only a short list, it’s obvious and everything you’ve heard before. But, something is missing. What? Character. The character of the founder, the entrepreneur. I’ve worked with, talked to and observed many entrepreneurs throughout my 25+ year career. One trait that I’ve noticed that most of these CEO/Founders had in common was strong character and a will to succeed. They persisted. They never gave up. One CEO/Founder that I worked with had an idea to turn the payments industry on its ear and create something new. Trying to revolutionize an industry that began more than 100 years ago and was well established is an undertaking that most people would never have thought of, let alone attempted, but this founder took it on. The road was rough to say the least. Designing and developing a prototype system, convincing investors that it could work, finding the right partners to work with you in creating the system and enticing employees to come work for you at your startup. A road fraught with obstacles and challenges. And, at every turn, the temptation to give up and quit. This founder never gave up, he fully believed in his idea and kept moving forward regardless of how many times it appeared as though failure was just a step away. You see, his unwavering character pulled the company through. It was eventually sold to a major credit card company in a multimillion dollar deal. Success!
This is just one story, but there are many more you can draw from to inspire you to continue on and keep going. If you look at the great successes of our time, they didn’t let failure get in their way of success. Let’s take a look at what some of them have said:
- “Many of life’s failures are people who did not realize how close they were to success when they gave up.” Thomas A. Edison
- “Failures, repeated failures, are finger posts on the road to achievement. One fails forward toward success.” C.S. Lewis
- “Success is often achieved by those who don’t know that failure is inevitable.” Coco Chanel
- “For every failure, there’s an alternative course of action. You just have to find it. When you come to a roadblock, take a detour.” Mary Kay Ash
- “I’m convinced that about half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance.” Steve Jobs
- “Do the one thing you think you cannot do. Fail at it. Try again. Do better the second time. The only people who never tumble are those who never mount the high wire. This is your moment. Own it.” Oprah Winfrey
If you fall down, get up. Keep falling down and getting up until you figure out why you fell down so that you can learn to stand and not fall. Persist and you will succeed. It may not be what you originally envisioned success to be, but it will be success.
Thank you for reading, please leave me a comment to let me know what you think.
Susan Nieland, CPA
Do you cringe when you hear the phrase “cash flow statement”? Probably makes your head spin. Does the phrase “cash flow statement” evoke images of a stern accountant staring at you through horned rimmed glasses with a look of disdain on his face as he attempts to explain, in nauseating details, how to calculate cash flow from a GAAP perspective? As a business owner, entrepreneur, or the CEO of an early-stage company, the last thing you want to hear about are adjustments, accounting entries, depreciation, and amortization. You just want to know how much cash you have, how long it will last, and where all your cash is going. Knowing your cash burn rate and the length of your cash runway are critical metrics you’ll need in managing and growing your business. Pair this with a dynamic cash forecasting model and you’ve got a winning formula for success. Running out of cash may be one of the most prevalent reason startups and small businesses fail. According to Bill Carmody, an INC.com contributor and Founder/CEO of Trepoint, approximately 96% of businesses fail within the first 10 years as a result of poor cash management practices. These are pretty grim and sobering statistics. Here are some tips and tricks that I’ve gathered from my many years working with startups, early-stage, and high-growth companies while helping them manage their finances and cash.
- Know your cash burn. Think of your cash burn as the amount of cash coming into your business from sales less the amount of cash you pay out. As a startup or early-stage company you are most likely using far more cash than you are taking in which is why we call it “burn”. I’d recommend updating this at least monthly, more frequently if your business is moving along at a rapid pace. Pinpoint precision is not necessary, but capturing the “big ticket” items is (rent, employee salaries & benefits, travel, cushion for the unexpected). Knowing, being in tune with, and managing your cash burn could save your company.
- Keep an eye on your cash runway. Now that you know your cash burn, you can use it to determine your cash runway. Your cash runway is the amount of time, usually months, that your cash balance will last before you’ll need to get your next round of funding, obtain additional cash from investors, or rely on profits to fund your business. The formula is simple, but making sure you have the right cash burn number is key. Let’s assume you’ve just landed $1 million in angel funding, you’ve been in business about a year and are still in the startup stage. Let’s see how it looks under two different scenarios.
(a) With no revenue or sales yet, your cash in number is $0. You have just hired your first employee, a software developer ($120,000 annual salary and benefits), you recently signed a lease for a small office space ($24,000 annual rent & utilities), you estimate travel costs of $5,000 per month to pitch your product to customers and other office related expenses are $1,000 per month. Your cash burn is $18,000 per month and your $1 million in angel funding should last about 56 months or 4.5 years.
(b) But, you anticipate growing and hiring additional employees down the road, eventually moving into a larger space and adding advertising and marketing to your budget. Now, your monthly cash burn is up to $50,000 per month which means that your cash runway is down to 20 months, less than two years. You’d better start your fund raising now!
- Have a solid and dynamic cash forecast. Having a solid, dynamic cash forecast will take your cash burn to the next level. Although by no means a crystal ball, your cash forecast, if done right, can provide you with insight into your business and bring structure and discipline to your planning processes. You can use the cash flow worksheet provided by SCORE as a good starting point. You may want to map out some historical data first to get an idea of trends in your business and use these trends to project future results.
- Control your expenses. This probably seems like a “no brainer”, but it may be hard to resist incurring, what could be, unnecessary expenses once you’ve gotten a windfall of cash from your first round of funding. It may be tempting to fly first class, eat at the best restaurants, hire high level executives at hefty salaries or spend exorbitant amounts of money on advertising and marketing all in the name of launching or building your business. Here is where I would advise you to take a step back and ask yourself “what benefit will the business derive from this?”. Close your eyes and remember why you took the path to entrepreneurship and business ownership in the first place; remember your vision. Treat your business as you would your child or favorite pet. Feed it with good food, nurture and care for it. It will grow and you will be one step closer to your dream.
These are four easy steps to help you manage your cash and hopefully provide you with the means to succeed. Odds are against most small businesses, but that shouldn’t deter you from striking out and following your dreams. If Oprah Winfrey and Steve Jobs can do it, why not you, why not me? Have I inspired you to take hold and take control?
Susan Nieland, CPA
You may have heard of the movie “What a Girl Wants” staring Colin Firth and Amanda Bynes, but do you know about “what a VC wants”? As a startup or early-stage company, you are probably more intrigued and interested in what a VC (venture capitalist) wants. So, what does a VC really want? We do know that they want to realize a return on their investment, “get their money back, and then some”, but how do you win them over in the first place? That’s the REAL question. You need to launch your product, reach customers, and grow your business. To do all of this, you need capital. Initially, that capital may come from friends and family, but eventually you will need capital from outside sources, investors, and venture capital funds. How do you break the code and get the capital you need to grow your business?
With this burning question on my mind, I spoke to a few investors, venture capitalists and CEOs that have “been there, done that”. They were kind enough to share their experience and knowledge with me. Here’s what I found. Read the rest of this entry »