Time For A Checkup
Your sales may be up, but that doesn't necessarily mean profits are. Check out a few other indicators to determine if your business is financially healthy. The following symptoms could indicate problems:
- High expenses. You've moved into impressive offices, bought a luxury car or in other ways are emulating established big business. Or, equally problematic, your payables are growing faster than your receivables.
- Low expenses. You're not reinvesting in your business. You're ignoring the need for newer equipment, marketing programs or professional services.
- Mounting inventory. You're buying or making more goods than you're selling.
- Limited clientele. One or two customers account for the bulk of your business.
- Excess liabilities. The sum total of all your debts payable in the next year is greater than what you own plus what is due you (receivables).
- Escalating receivables. If your receivables are climbing monthly due to growth in sales, great. If they're rising as a result of slow-paying or delinquent customers, not so great.
- Tax deficiency. You haven't set aside funds to pay estimated quarterly taxes.
- Static pricing. You haven't raised prices to market levels or to allow for rising costs--or, worse yet, you've lowered prices to maintain sales volume.
- Lack of systems. You operate without a business plan, budget or bookkeeping system.
One or two of the above need not arouse concern, but multiple symptoms may mean you need to revamp operations. Consider contacting a business consultant, accounting firm or the SBA. (For more on SBA assistance, see "Team Effort" on page 40 of our April 1998 issue.)
Paul DeCeglie is a former staff reporter for Journal of Commerce and American Banker. He can be reached at MrWritePDC@aol.com
New And Improved
Eight months after its introduction, the Roth IRA continues to prompt questions, particularly among new business owners.
In essence, the new retirement account option is available to anyone with adjusted gross income of less than $95,000 ($150,000 for couples). You can contribute up to $2,000 per year ($4,000 for couples) of after-tax income, even if you participate in an employer-sponsored retirement plan.
Roth IRA contributions aren't deductible, but after five years, all withdrawals are tax-free once you reach age 591¦2.
If you're still in a job with a 401(k) plan, "max out the 401(k) first to take advantage of matching contributions from your employer, then channel excess funds into a Roth account," says Ed Slott, a CPA in Rockville Centre, New York.
"But if your business is generating so much profit that you need a deduction--yet so little that you're tight on cash--a traditional IRA is preferable," Slott says, "unless you're [also] employed and qualify for a pension with your employer, in which case you're not entitled to deduct IRA contributions. In this situation, again, the Roth would be your choice."
Dollars On Disk
Want the inside track on funding sources? Small-business owners needing between $50,000 and $10 million can get not only names and addresses of hundreds of lenders and investors, but also helpful profiles and advice on securing funds from each source.
DataMerge Inc.'s VentureTrack 2000 CD-ROM searches a database for the financing sources that best match your needs. The "Inside Track" section shows you how to tailor your business plan and presentation, posing specific questions and objections a particular investor will likely raise and suggesting appropriate responses.
"We tell you who to contact, what their backgrounds and personal interests are, how to best approach them and so forth," says Spencer Kluesner, a former securities advisor who founded Denver-based DataMerge in 1989.
"If your business plan and financials are together, you can expect an answer in about two weeks--and financing in 30 to 60 days," says Kluesner.
VentureTrack 2000 costs $495. The Entrepreneur Version, which omits the "Inside Track" section, costs $149. To order, call (800) 580-1188.
DataMerge Inc., (800) 580-1188, http://www.datamerge.com
Ed Slott, c/o Ed Slott's IRA Advisor, (800) 663-1340.