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The Business Side

February 1, 2005
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Managing the small surveying or engineering company.



My first column this year will be dedicated to those of you running a small business (15 employees or less). I have been pulling together a cadre of ideas to help you make a profit and hopefully make your life more enjoyable! Here are some tips.

Long-term Planning

I recommend that small business owners do a little planning. Write out a plan for what you want your company to look like in five years. Highlight items that will make you more successful-better-trained employees, modern equipment, offering more profitable services (such as ALTA surveys and engineering surveys), expanding geographically, or taking on a business partner or merging with another firm. Monitor the plan on a yearly basis to see if you are making progress. One day you may wake up to find that you are at the end of your career with very little to show for your work! Part of your plan should include plans for retirement. And of course, many of the items in this plan should relate to becoming more profitable.

Controlling Cash Flow

I read once that income can be increased infinitely, but expenses can only be reduced to zero. So, I recommend working on getting better cash flow. One problem I see often is that the survey does not get billed when delivered. Remember, the money will never arrive in the mail if the work hasn't been billed!

Instill a sense of urgency into your company employees to get jobs out the door and delivered to the client. Some employees at firms work on a half dozen jobs and never get any finished. Have your employees focus on one job at a time, and get it finished and billed. Keep in contact with your client base. Make sure the survey you are delivering is the product the client wants.

Other areas of cash flow concern are monies owed and monies earned but not received. If you are choking on making payments on borrowed money, see if you can restructure a loan. Attack the collection of accounts receivable beginning with the most recent first and work back to older accounts as time is available.

Other ideas for controlling cash flow are to sell off idle assets, such as older, unused instruments, unused vehicles, maybe even real estate you have been hanging onto that is at its highest and best value.

Detect and Deter Fraud

Unfortunately, fraud is common in small businesses (as it is elsewhere), but it often goes undetected or unreported. Review all the checks written in the last month. Make sure that bookkeepers have not authorized checks to themselves and recorded them as other expenses. Review credit purchases to make sure the purchases are for the proper items and not being used (unnecessarily) for employees. Create and maintain a culture of honesty and ethical behavior. It is up to the owner to set the example.

Tax Write-offs

Title 26, Subtitle A, Chapter 1, Subchapter B, Part VI, Section 179 of the IRS tax code allows a write-off of up to $100,000 in the first year for vehicles used for more than 50 percent of the time in a business and that exceed 6,000 lbs gross weight. This section of the tax code also applies to "off the shelf" software for 2003, 2004 and 2005. This code accelerates depreciation (since write-offs are done in the first year), but if tax deductions are needed in the first year, then this may be a good option.

Hiring Your Children

You may already work your children into the business, but did you know that there could be real tax benefits available that apply to your company in doing so? The first $4,750 of your income can be deemed tax free from any federal taxes if a child is at least 18 years old. And if you operate a sole proprietorship or have a single-member partnership, the wages paid to your child are exempt from FUTA (Federal Unemployment Tax Act) taxes. If the child is under 18 years old, he or she is exempt from FICA (social security) taxes. (Note: This does not apply if you own an S or C corporation.) Fringe benefits can be provided to the child tax free and be used as a deduction for the business.

Keeping Good Employees

Be creative with fringe benefits. Think outside the box and provide low cost or no cost benefits that improve productivity: casual day, flexible hours, half-days off on children's birthdays, one extra day off per year at the employees' choosing. And try to pay a fair wage. A small increase each year to wages states that you understand the increase in the cost of living. Also, consider giving monetary gifts when the holiday season rolls around.

If you don't have a section 125 cafeteria plan, consider starting one. This is a way for employees to use tax-free money to pay expenses. The employer sets up a fund where employees can contribute tax-free money to an account that can be later used to pay medical related expenses. This money can be used to cover the items not covered by medical insurance.

The Retirement Plan

A SIMPLE retirement plan is a prime type of plan for small businesses. It is designed to be easy to operate. There are two types of SIMPLE plans: a SIMPLE IRA and a SIMPLE 401(k). In these plans, the company has to have less than 100 employees earning $5,000 dollars or more. A SIMPLE plan allows employees to make elective contributions to an individual retirement account rather than receiving the amount in cash from the employer. The employer has the choice of making a matching contribution or non-elective contribution to the IRA annually. There are limits set by law on how much a company owner and employee can contribute to the plan. One main difference between this plan and other plans is that in a SIMPLE plan the employee is immediately 100 percent vested. You will need some accounting help to put this program in place. Also, if you are still operating as a sole proprietorship business, consider looking into becoming a single member LLC. There are many advantages to this structure in accruing retirement.

Now Is the Time

I hope you will apply some of these ideas to your small business. The surveying market seems to be robust in most places around the country. Take advantage of this healthy time to get some affairs in order.

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