How Healthy Are Your Sales?

There are many ways of measuring risk, but did you know that your sales concentration may be placing an unnecessary risk to your business? This also applies to sales professionals as well.

I have seen it over and over again, whereas a small business relies heavily on one or several large customers, and then the customer disappears. Sometimes multiple large customers disappear at the same time. Either they go out of business, cut-back due to a slowdown, have management changes, or other various changes happen that are beyond your control. This will all impact your business as your sales now plummet.

As a good rule of thumb, you don’t want to have more than 10% of your sales from one customer. It creates more risk than necessary because you never know if or when things will change. There is an adage known as Murphy’s Law that states, “Anything that can go wrong, will go wrong.” Additionally, you don’t want to rely heavily on one referral source for new business either. Murphy’s Law applies here as well.

What should you do to minimize your risk? First, never build your business around one or a few customers. This may be the case when a business is relatively new, but over time it is a huge risk. Secondly, assess sales per client to acknowledge who the large customers are. And thirdly, you need to market your business to decrease your risk of serving a few large customers.

A healthy business is constantly looking for ways to reduce risk. This not only decreases your chance of set-backs, but increases your odds of insuring ongoing success.

Children and Tax Benefits

With the recent birth of our twins, I thought it would be appropriate to write about the tax benefits of raising children. The rules can get tricky, and your children must meet certain criteria to become your qualifying children for tax purposes. Here are a few highlights:

Dependency Exemption: For each qualifying dependent child, you can exempt from your income $3,650.

Child Tax Credit: For each qualifying child under 17 years of age you can receive a credit of up to $1,000 per child. The credit phases-out after your modified adjusted gross income is greater than $110,000 for filing jointly and $75,000 for filing as single or head of household.

Child Care Credit: If you pay for daycare, after-care or preschool so that you can work, you may be eligible for a credit of 20% to 35% of the cost, up to a maximum of $3,000 of qualified expenses for one child and $6,000 for two or more. Your children must be under age 13 to qualify.

Education Credits: There are three credits available for education expenses. The American Opportunity Credit provides a credit of up to $2,500 per eligible student for the first four years of college (100% of the first $2,000 of expenses and 25% of the next $2,000). The Hope Credit provides a credit of up to $1,800 for the first two years of college (100% of the first $1,200 of expenses and 50% of the next $1,200). The Lifetime Learning Credit provides a credit of up to $2,000 for an unlimited number of years (20% of the first $10,000 of expenses). There are income limitations for each credit which range from $120,000 for the Lifetime Learning Credit for joint filers to $180,000 for the American Opportunity and Hope Credits for joint filers. The income limitations are half for all other filers.

Income Shifting: If you are self-employed, you may be able to hire your minor children, pay them wages, and not have to pay income taxes or payroll taxes. Even if you do not own a business you may still be able to shift investment income to your children to minimize taxes. It takes a lot of planning, but strategizing can save a lot of taxes.

These are just some of the tax benefits to having children. Hopefully this will help to offset some of the cost of raising a family.

The 1099 Nightmare is Coming

In addition to income tax filings, sales tax filings, and payroll tax filings, businesses need to also file annual 1099’s. Generally, a 1099-MISC is an information report that needs to be prepared by a business when they spend $600 or more on services from a non-employee. For example, if you are a contractor and you pay $600 or more to a subcontractor that does not own a corporation, you will need to issue him a 1099 at the end of the year.

Depending upon how many subcontractors you compensate, if any, you may not have to prepare and issue that many 1099’s during any given year. It may not be much of a burden, except for the new changes due to the Patient Protection and Affordable Care Act . . .

After December 31, 2011 business will have to report all payments totaling $600 or more to any vendor during the year, with almost no exceptions. If you go to the same gas station to fill up your tank, you will need to issue a 1099. Purchase supplies from Staples? Have a telephone and a cell phone bill? Take clients to the same restaurant often? Business owners will also need to obtain the taxpayer identification number of all of their vendors, along with their address to comply with the new regulations.

The main reason for these changes is because the federal government is trying to increase compliance with the tax laws by having businesses report all income that is received. But these reporting requirements are still being clarified by the IRS, and the obvious result of these changes is an increased time and expense burden to small business owners.