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The Newsletter
 
 
FINANCE
Details Matter in Tax Accounting for an Asset Sale
There are so many variables surrounding the sale of a business asset that it can be confusing.

Money received from the sale is only one element in the transaction; it's not simply added to income as if you were selling a small item that was categorized as an expense when originally acquired. The cost of a fixed asset, such as equipment or a vehicle, is expensed over time as depreciation.

Understanding how this difference appears in financial statements helps you identify the underlying details for your tax accountant when the asset is sold.

The original cost for a fixed asset and the part of that cost already expensed as depreciation over time form an interlocking network with the sale proceeds. The difference between the asset's cost and its accumulated depreciation is carried on the balance sheet as a net book value. A sale price that's greater or less than book value is recorded as either a gain or a loss.

Book value is what the business is giving up in the sale. The asset's original cost and accumulated depreciation are moved from the balance sheet to the income statement as a cost of sale.

The selling price is recorded on the income statement as sale proceeds. Both the cost and proceeds typically appear in the same account as gain or loss; however, your tax accountant needs both figures for accurate reporting.

Finally, repaying the asset's loan doesn't impact the gain or loss; it affects the amount of the sale price received as debt reduction rather than as cash.

 
HOT BIZ TRENDS
GIGO Is Impacting Decision Making - and Not in a Good Way
 
Big Data
Some decision makers will talk the talk about leveraging data to increase revenue and better serve their customers. But when it comes to walking the walk, they stumble.

Although the data ecosystem has spawned a dictionary of buzzwords such as "predictive analytics," "Hadoop," and even the term "Big Data" itself, many remain skeptical about the quality behind the buzzwords. It's the GIGO syndrome - Garbage In, Garbage Out - and it's affecting businesses both small and large.

In a study of more than 1,400 data professionals, conducted by information services company Experian, 84% of US respondents say Big Data is essential to successfully executing their business strategies.

But while they recognize the power of data, they lack confidence in their own information; the study noted that businesses believe 27% of their data is inaccurate.

To be reliable and valid, data input must be complete and linked across all input sources, as well as accurate, consistent, and timely.

Unfortunately, many businesses are hampered by legacy data collection methods or siloed corporate structures that undermine the confidence in the quality of the data they collect.

Obviously, conclusions based on faulty data are useless or even misleading, so strategists are reluctant to base new initiatives, fiscal decisions, or significant operating changes solely on their own data.

However, even with data of proven quality, many still rely on educated guesses or gut feelings when making critical decisions or planning future strategies.

The result: The GIGO syndrome is slowing or eliminating many business growth opportunities, and with that, success.

 
MANAGING
Desperately Seeking Leaders ... for Today and Tomorrow
Young People Leaders
Real leadership requires two things: a vision of what's possible, and a talent for motivating others to make that vision a reality.

But how do we recognize leadership when we see it? And more important, how can we build those all-important leaders of tomorrow, today?

In a recent Entrepreneur article, writer Nicolas Cole describes leadership as a set of steady-state personality traits: "It's not something you choose to be one minute and then choose not to be the next."

Cole believes leaders know what they don't know, which inspires them to be good listeners, smart thinkers, and conscientious seekers of information. As he tells us, a leader doesn't want to be the smartest person in the room; leaders prefer to surround themselves with those who are experts in their fields.

Cole identifies nine behaviors of real leaders, ranging from never acting on the spur of the moment to always doing what needs to be done to making criticism constructive rather than negative.

Of course, some of these behaviors are innate. But business leaders hope they are teachable, too. In an article for People Matters titled "Creating Tomorrow's Leaders," author Guillaume Gevrey describes the latest approach to building tomorrow's leaders: "(Companies) are now looking at creating leadership incubators to impart the required leadership and management skills... . Leadership incubators, also popularly known as greenhouse (programs), are based on action learning."

Convinced that action learning is the essential ingredient required for creating tomorrow's leaders, Gevrey adds: "For participants, it is a more engaging way to develop critical skills that they will need as they grow in the organization but also a sign that their leadership trusts them to solve mission-critical problems."

Positively visionary!

 
FINANCE
Monitor Your KPIs at Least Twice a Year
 
The midyear financial assessment is a common practice among entrepreneurs who have successfully navigated both the ups and downs of their small business. They know that regularly assessing accounting measures will validate management decisions and uncover areas for improvement.

Fortunately, evaluating your financial data isn't difficult when you know where to find the numbers that are crucial to your own small business.

The key performance indicators (KPIs) you will need to monitor reflect the nature of your operation: does your success depend on increasing sales, maintaining profit margin, collecting accounts receivable in a timely manner, or turning over inventory promptly?

Knowing the ratios that measure these factors allows you to make informed decisions throughout the year. And by watching these ratio trends, you'll avoid being blindsided by circumstances that could have been foreseen - and prevented.

Reviewing revenue

The rate of sales growth is especially vital in a young enterprise. Greater sales volume is needed to ensure your resources are fully utilized. Measuring the sales increase in a recent period - such as sales in a calendar quarter compared with those in the previous quarter - is the first step.

Then compare that rate of increase against the rate measured in earlier periods. Eventually, revenue will flatline, as all your resources are being utilized to their full capacity. Until then, you'll want to maintain your growth rate or find out why it has slowed. Later, the addition of more resources - such as staff - may be required to accommodate continued growth. As sales increase, profits should keep pace. Ideally, your profits should rise at a rate that is the same as or higher than that of your revenue.

Identifying inventory

Inventory turnover of items acquired for resale is an often overlooked but important measure. From the balance sheet, identify the cost of inventory currently on hand, and divide that figure by the cost of inventory sold in a recent period, which is found on the income statement. This is the inventory turnover.

For a clearer picture, multiply inventory turnover by the number of days in that period. This yields the number of days' worth of inventory you have on hand based on recent sales. In this calculation, you will be looking for low numbers as an indication that your cash management process is unfolding as it should; you should have only sufficient money tied up in inventory as is required to meet upcoming sales.

Referencing receivables

The process of invoicing your customers after a sale doesn't generate cash flow; the payment must be received. Meanwhile, the business has bills to pay. By measuring the accounts receivable turnover, you can determine whether the collections process is functioning in a timely way. Do this by dividing the current accounts receivable on the balance sheet by sales from a recent period from the income statement.

Then multiply receivables turnover by the number of days in the period to find the average number of days customers take to pay your invoices. When this number is consistent or diminishing over time, it's a sign your cash flow management system is effective.
 
 
Michele Ball
 
 
 
 
 
Perfect Additions
 
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Worth Reading
Exactly How to Spend the Last Hour of Your Workday
By Larry Alton
 
Fast Company
 
When your workload is lighter than usual, or you've lost focus, the end of your day can seem endless. You can't sit and do nothing, and anyway, you don't want to look like a slacker. The answer is soft projects - simple activities that don't demand serious concentration but fill the final workday hour productively. Don't fritter away that last hour. Follow Alton's list of sixty-minute tasks, and wrap up every day of the week usefully.

Lost Your Biggest Customer? Here's Your Survival Plan
By Helaine Olen


Inc.com

Losing a major customer can be devastating - especially if you rely on one or two clients for the lion's share of revenue. But times change and customers leave; as Olen notes, "There's only so much you can do to protect those relationships." Fortunately, there are things you can do to prevent a crisis if your biggest client goes.

Seven Steps to Winning New Customers
By Tallat Mahmood


Entrepreneur.com

The best response to losing a big customer? Win more customers. Mahmood notes that a continuous and reliable flow of new customers is essential to the success and longevity of your business. And while there are endless possibilities for finding and enticing new clients, some are more costly and less effective than others. Mahmood cuts to the chase with seven simple steps.

LINKS YOU CAN USE
SMBs Can Benefit from Big Data
Do your eyes glaze over when looking at piles of data? Do you believe analytics are only for big businesses? Surprise! Big Data is for small businesses, too. And if you're not using it to your advantage, you may be missing out. The links below can help you discover the implications and applications of Big Data for your SMB:

Big Data can boost your bottom line. Try these tips:
7 Ways To Leverage Your Small Business Data For Enhanced Revenues

Big Data isn't only for big businesses. Consider its importance for smaller businesses:
Making Big Data User Friendly For Small Businesses

Not sure how to use Big Data in your small business? Here are some additional ideas:
6 Clever Ways Small Businesses Can Use Big Data

To truly benefit from Big Data, you have to move beyond simple data collection to true analytics. Here's how:
This Is How You Move From Reporting Into Serious Data Analytics

There are several systems that can help you get started. Try one of these:
8 Big Data Solutions for Small Businesses
This newsletter and any information contained herein are intended for general informational purposes only and should not be construed as legal, financial or medical advice. The publisher takes great efforts to ensure the accuracy of information contained in this newsletter. However, we will not be responsible at any time for any errors or omissions or any damages, howsoever caused, that result from its use. Seek competent professional advice and/or legal counsel with respect to any matter discussed or published in this newsletter.
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