Are You Paying “Use Taxes?”

Alright, every state is looking for ways to generate more money and ways to shave off superfluous expenses this year. Thus, it’s not surprising to hear that state governments are cracking the whip at resident businesses for not paying certain taxes. In particular, Washington state is after businesses that have not paid “use taxes,” and it’s trying a new approach – a gentle nudge toward voluntary compliance.

What are use taxes? A use tax is a state tax on goods purchased in another state (i.e., Oregon, where there’s no sales tax) for use in the taxing state (i.e., Washington), to make up for (in lieu) local sales tax. More specifically,

“States and municipalities impose use taxes on purchases or rentals that are made outside the taxing jurisdiction but would have been taxable had they taken place within it. Such transactions escape the normal sales tax collection because retailers outside the state or municipality are not required to collect the sales tax. The use tax protects retailers located in the state or municipality because it removes the incentive for consumers to shop outside that locality in order to avoid paying the sales tax.”

Basically, it’s a business tax that’s a complement to sales tax. Washington particularly relies heavily on sales and use taxes as the state does not impose an income tax. One study stated that one of the main reasons for noncompliance with the use tax is ignorance; it’s commonly misunderstood. So the Washington Department of Revenue’s Taxpayer Services Division has tried a new approach to informing businesses about use taxes, and encouraging payment thereafter. Starting in 2003, they sent letters.

The department knew that businesses getting these compliance letters would say, “It’s a lot of work to go through my records and see what I owe.” So, it looked at what the average company in each recipient’s industry owed, and told them that if they didn’t want to go through all their purchases, they could use this table that shows annual gross business income and average their annual use tax reported. For example, a company with $250,000 gross income tends to report $563 in use tax. Thus, companies could use this table to get current rather than go through their records.

Overall, collections attributed to this program have been in excess of $17 million over the past five fiscal years. And, for every $1 spent — mainly staff time, printing and postage — the department received $300 in return. Voluntary compliance as a result of sending “information” to taxpayers, instead of an “assessment,” is at the heart of the program. The letters mainly initiate the opportunity to catch up on past taxes without paying a penalty.

Have you received one of these letters?

Photo courtesy of FedStats.gov.

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Budget vs. Financial Plan.

It’s the start of the year. Forecasts are shaping up and we’re all hopeful for the potential that 2010 may yield. But given the economic fluctuations in the past couple of years, putting together a financial forecast may be an even harder project to accomplish. That’s why a refocus on budgeting may lend a clearer picture of what it will take to achieve your business goals. A budget takes a little work, but, if done right, it is not a major chore and the benefits are enormous. The process is much like recognizing the puzzle pieces that contribute to successful performance, and putting them all together for a broader outlook.

So what’s the distinction between a budget and a financial plan? One example presented the difference to be that budgeting explains the effort utilized to row a boat forward, while financial planning may be equated to steering the boat in the right direction. Budgeting and financial planning go hand in hand; a budget helps propel your business closer to meeting it’s strategic financial plan. And to recognize the value of both, it’s important to acknowledge these ten budget vs. financial planning distinctions:

1. Purpose, compliance vs. fiscal stewardship: Budgets are usually developed to match revenues against planned expenditures, meeting reporting requirements. Strategic financial planning projects long-term sources and uses of funds, evaluates the effectiveness of programs and departments, and focuses financial resources on programs that help attain business goals.
2. Process, routine vs. evaluative: The budgeting process usually involves routine review of annual expenditures. The financial planning process identifies areas in which business funds are being overspent or spent on ineffective programs – or effective ones otherwise.
3. Focus, tactical vs. strategic: The focus of a budget is on taking care of day-to-day operating needs, such as staff, supplies, utilities, and benefits. Financial planning focuses on allocating resources efficiently, making long-range plans for new funds, and ensuring that funds are directed toward goals and priorities of a strategic plan that is well thought out in advance, implemented and followed.
4. People, middle/lower level employees vs. top administrators: Budgeting and financial planning are often distinguished by the people who design and implement them.
5. Information, revenue projections and budget allocations vs. spending trends, performance benchmarks, goals, and performance: Most traditional budgets focus on the collection of minutiae, from head counts to supply use to salaries. Strategic financial planning uses this information as a foundation and builds on it.

OPEN Forum by American Express.

In generating content for my blog, I do a lot of Googling. Given that we’re at the start of the year, I’ve been interested in learning about the trending topics of interest for small businesses in the coming year. And in my search, I found a great article listing the “Five Trends That Will Shape Small Business in 2010” on American Express’ OPEN Forum website. With a title like that, it’s hard not to look (and it’s actually a pretty good forecast).

After reading the article and looking around at the tabs and additional columns on the site, I became really intrigued at what American Express had to offer small business owners through it’s OPEN Forum site. What is it actually?

Chris Brogan recently wrote about it and explained the site as “a blog area that aggregates interesting business content, with the mindset of gathering a conversation in a sponsored area.” Spot on. It’s a place to find insight and perspectives from business experts on current issues. And  it’s also a way for American Express to spread its brand across select blog content. Regardless as to whether you’re an AMEX card owner, this is a great site to peruse for information about running a successful small business.

And in recognition that 40% of the nation’s businesses are owned by women, representing 16% of jobs in the U.S., American Express is partnering with Count Me In, Women Impacting Public Policy, SCORE, eWomenNetwork, National Association for Women Business Owners, Women President’s Organization, and Women’s Leadership Exchange to produce the American Express OPEN Women’s Business Summit in February 2010. Even if you’re not attending, I’m sure that the OPEN Forum site will post lots of related discussions and articles surrounding the event to read.

I’m really excited about OPEN Forum. Yes, it’s a place for AMEX to bolster it’s presence and attract new customers. But it’s also a great example of how a company can use it’s own metrics and resources to build a content network of information curated by leading experts, and become a facilitator for succeeding conversations therefrom. It’s an extension from the blogs and social media relied upon by small business owners, and it’s unique community oriented site. You can also stay up to date by following OPEN Forum on Twitter, where they post much of their aggregated article content.

Photo courtesy of Chris Brogan.

Green-Up Your Workplace Inexpensively.

Going green. It is undoubtedly one of the most popular and important terms these days. And in the age of cutting back and working leaner, it seems that making operations green can easily come at the cost of more green-backs that anyone would prefer. So what are some easy and inexpensive changes that afford the opportunity to go green?

At the start, I will mention that I am by no means a green expert. As I began my research for this post, I quickly realized the breadth and depth of this topic – and how little I knew. From environmental regulatory agencies, to different types of certifications, to private organizations marking their eco-friendly stamp of approval, there’s a lot to take in. Perhaps the best advice would be to pick an initiative and run with it, rather than spreading yourself and your resources thin by trying to accomplish too many things.

Probably the three most discussed ways to go green include the following:

1. Lighting and Energy. Replace incandescent bulbs with compact fluorescent and LED bulbs. “Shut down” computers at the end of each day rather than using the “stand-by” setting which continues to draw power. Power off or unplug printers, scanners, and other peripheral equipment when they’re not used. Turn off lights in spaces that are unoccupied. FACT: Commercial buildings consume more than one third of all energy generated in the U.S. and energy use is the largest operating expense (about one third of the budget) of commercial office buildings.
2. Paper Use. Don’t print unless you must. If you do print, use both sides of the page or print drafts on the blank side of already printed documents. Whatever paper you do use, recycle if possible. Check out the GreenLine Paper Company, it offers a Green Office Certification to organizations that meet certain environmentally-friendly criteria.  FACT: A study by the Environmental Defense Fund (EDF) and Citigroup estimated that the real  price tag of a $2 ream of office paper is 31 times that—$62—when you add in the costs of paper storage, printing, copying, recycling, disposal and postage. So, saving paper has a multiplier effect—and not just financially: The pulp and paper industry is the second-largest consumer of energy in the U.S. and uses more water to produce a ton of product than any other industry.
3. Travel and Commuting. Consider a more efficient option for commuting to and for work and business meetings. Carpooling, taking public transit, biking, and walking are all good methods of energy saving transportation – some offices even give a bonus to bike and carpool commuters. Telecommuting or having telepresence technologies (teleconferencing/videoconferencing, webinars, etc.) can also contribute to big energy and travel budget savings. FACT: In the U.S., roughly a third of total greenhouse gas emissions stem from automobile, air, train and bus travel. Both business travel and employee commuting represent opportunities to save time and money.

If you think the above methods are feasible, you might consider implementing a few more:

How hard are we working? An economic forecast.

How hard do you work? How many Russian, Indian, or Chinese workers does it take to equal the labor of one American? Fast Company recently reported a comparison of U.S. worker output, on a per-person level, to people in other countries. Using the world GDP numbers for 2009 and growth rates for each country, it appears that the percentage of U.S. produced output has remained remarkably stable, even with recent economic troubles. I love the illustration.

With regard to the status of the U.S. retail sector, Reuters announced that U.S. retailers reported a fourth consecutive monthly sales increase in December 2009 – with a 1.3% increase from a year earlier (via 30 retailers tracked by Thomson Reuters Data). These December results reflect an improvement from last year, when same-store sales fell 3.6 percent, but not an economic recovery. As the 2010 spring season begins, analysts remain cautious about predicting continued sales increases as consumers return to saving money. Year-end strategizing is even more essential now because of the economic slowdown; it is also a boon for small-business owners who seize the opportunity to reposition their companies.

In Washington, analysts forecast that the economy will build steam through the spring and summer of 2010, but total employment won’t return to the peak levels of 2008 until well into 2011. The good news is that Washington is still in better shape than the national economy – this is largely because the highest wage sectors, aerospace and software publishing, are relatively stable. However, there is a worry that the regional banks’ exposure to bad loans in the construction sector will force them to raise reserves, making less credit available to businesses in the state. Regardless, the Puget Sound area (King, Snohomish, Kitsap and Pierce Counties) is expected to grow faster than the nation because of these 5 reasons:

The Home or Virtual Office.

“The home is the new hotbed of entrepreneurial activity.” I love this quote, it’s from a recent Wall Street Journal article about people who have lost their jobs and are taking on free-lance assignments, contract work and short-term projects – recessions breed creative risk-takers.

Whether you’re interested in working from home or utilizing a virtual office (off-site live communication and address services, including a business meeting space), there’s a lot to think about with regard to your professional environment and personal work habits.

If you’re thinking about a new career as a home-based entrepreneur, consider these questions first:

1. Are you passionate about my product or service? The start-up phase is stressful. You’ll need zeal to get through the rough patches, especially in the early days when hours are long and initial profits (if any) are lean.
2. What is your tolerance for risk? There’s no guarantee of success — or even a steady paycheck. If you’re risk-averse, entrepreneurship probably isn’t the right path for you.
3. Are you good at making decisions? No one else is going to make them for you. Consider how you might handle these early decisions: Do I incorporate? Do I advertise? Do I borrow money from friends or family?
4. Are you willing to take on numerous responsibilities? A start-up entrepreneur must juggle many roles – from chief salesperson and bookkeeper to head marketer and bill collector.
5. Will you be able to avoid burnout? Many entrepreneurs find it hard to step away. You’ll need to develop a work/life balance to avoid working seven days a week, losing touch with friends and upsetting loved ones.

In addition to the easy commute and informal dress code, working from home can present several tax write-offs: As long as you use a portion of your home exclusively and regularly for business, you can deduct a percentage of your rent or mortgage interest, utility bills, repairs and other costs. Though it may sound appealing, you’d be surprised with the number of expenses that are not tax deductible. Read this article by Start-Up Nation to get a view for the types of expenses that can be deducted and those that you might be cautious about including as a business expense.

If you’re considering establishing a virtual office in order to present a business-like image, there are several useful tips to acknowledge when choosing a virtual office provider. Here are ten tips to help guide your research: