Remote work has exploded since the onset of the pandemic, especially in professional services. Now that companies have seen that remote work models are both productive and feasible, they’re realizing the benefits of an expanded pool of potential employees, too: some firms are hiring employees that live several states away from where the office is located. While this is an exciting opportunity for both employers and professionals, it comes with a few ramifications for employers. Below, we’ll walk you through what these could look like for your state.

Let’s say your business is based in Texas. Already, you file quarterly payroll reports and pay federal payroll taxes for your Texas-based employees. You also file all the required state payroll reports and have Texas workers’ compensation.

Now let’s imagine that in May, you hired an employee that lives in Cleveland, OH. And in June, you hired another that lives in San Francisco, CA. In both cases, you’re required to complete a few extra steps to run payroll for your new employees.

• You may need to get set up as a Foreign Corporation in these states (the exact paperwork depends on your type of entity as well as the state’s requirements and where your business originates). This means filing legal paperwork and complying with annual tax filings and information statements. You may also need to hire a firm that can be your registered agent and legal contact in that state.
• You must get workers’ compensation in those two states.
• You must sign up with the unemployment agency in those states. For California, it’s the EDD (Employee Development Department), and for Ohio, it’s the Ohio Department of Job and Family Services.
• You’ll need to work with your payroll provider (think: QuickBooks Payroll or ADP) so they can accurately create paychecks for your new team members with the appropriate state withholdings.
• You’ll need to file the correct quarterly payroll reports (in addition to your federal ones) for both states.

It’s important to note that each state has its own forms and requirements with precise filing requirements. Some states that are smaller and closer together may have exceptions you can follow to save time, since it’s more likely that workers crossed state lines for work before the pandemic, but this is not often the case.

Nexus

Nexus is the connection between a company and a state that requires the company to register and then collect and remit sales tax in that state. Having an employee in another state establishes nexus for your organization, which means that you may have additional tax and legal requirements beyond payroll taxes. For example:

• If you have sales in these states, you may also need to collect and remit sales tax on those sales and file sales tax returns, where you otherwise might not have unless you met certain sales thresholds. Your first step is to register with the sales tax agency in the state where your new employee resides.
• As the business owner, you may even need to file a state income tax return and pay state income taxes as an individual, even if you’ve never set foot in that state!

Making the job offer to a remote worker may seem easy, but the paperwork that follows will be anything but. Ensure you comply with all tax and legal requirements brought on by hiring an out-of-state worker. You may need some lead time in getting all this setup, so be sure to consider this in establishing your new employee’s start date.

As always, if you need help with any of these tasks, please feel free to reach out to us any time.

When starting a business, most entrepreneurs excel at the specific technical skills they need in order to deliver their services and products to customers. It may seem like an obvious example, but a bike shop owner probably opened their store because they had an expertise in bicycles. If you own a law firm, you are probably good at practicing law (or at least smart enough to pass the bar exam). In either case, your core skill is closely aligned with the services your business provides.

But starting a business means putting on hats you wouldn’t normally wear at first, like marketer, bookkeeper, or administrator. And while you might outsource these tasks to new team members as your business grows, you’ll also need to develop new skills beyond your core strengths in order to thrive. That new skill depends on the type of business model you want to succeed at. Below, we’ll discuss the biggest strengths you’ll need to master in order to continue your business’s growth and become outrageously successful.

People-Based Business Model = Leadership

If your business is one of the 25 percent of small businesses that have employees and you have a team that serves customers, then you most likely have a people-based business model. The revenue you earn is dependent on how your people perform and serve customers.

Some examples would be a mid-sized law firm, a nail salon, a marketing agency, and a mid-sized plumbing company. Each one has a team of people that generate revenue.

These people need to be hired, trained, and motivated, and that is where the skill comes in. If you have a business model like this, you need to excel at leadership, which includes managing people as well as hiring and firing. You need to be great at developing a productive, happy team in order to reach your highest pinnacle of success. Your core skill is still needed, but without leadership skills, you won’t grow as much as you could.

Acquisition-Based Business Model = Negotiation

Some companies grow through the acquisition of other companies. In this case, your top skill should be negotiation; you will need to execute great deals to keep your business growing.

Project-Based Business Model = Project Management

If your job revolves around delivering large projects, such as construction, then your business model might be project-based. While knowing how to be a general contractor might be your core skill, your top skill should become project management.

How well you manage the project timeline, delivery of materials, and oversee the management of the right number of people with the right skill at the right time are all factors required to complete the project as quickly and profitably as possible, with the quality needed so you can move to the next one.

Volume-Based Business Model = Merchandising 

If moving high quantities of products or services is your business model (think: grocery store, software company, certain retailers and wholesalers), then your revenue depends on volume and how much you can sell. How you display and market your products will affect how many customers you can get in the door and how fast you can sell. Your top skill should become merchandising and all things marketing.

Your Top Skill Is No Longer Your Core Skill

These four types of business models serve as a sampling to show that once you achieve some level of success, your core skill may no longer be the keystone to further success. Developing professional skills beyond your core skill will take you farther than you ever imagined you could go with your business.

Your favorite number on the balance sheet might just be Cash. It’s easy to understand and something every business has. But there is a more meaningful number, at least in the long-term sense, and that’s equity. Below, we’ll dive deeper into this part of the balance sheet.

The Equity Section

As a reminder, the balance sheet has three major sections: assets, liabilities, and equity. When it comes to equity, the accounts displayed depend on the type of entity of your business. Your business could be a sole proprietorship, a partnership, a corporation, or something else. In this article, we’ll focus on the example of equity in a corporation.

Every corporation should have at least three equity accounts:

1. Stock.

This account should reflect the amount of stock issued by the corporation. The amount and price of each share are usually detailed in the Articles of Incorporation, which is the initial legal document of the corporation. For example, if the amount of shares the corporation can issue is 100,000, and they have a par value of $.01, then your stock account balance should be $1,000, which was paid in by cash by the corporation’s owner(s).

This account might also be named Capital Stock, Common Stock, or something similar. This account’s balance typically doesn’t change much over time for a small business. It’s only when new stock is purchased (issued), sold, retired or repurchased by the corporation that the account will see changes.

2. Additional Paid in Capital (APIC)

Additional Paid in Capital occurs when investors and business owners pay in more than the par value price of the stock. The balance represents the difference between what owners/investors paid into the company and the par value of the company stock.

3. Retained Earnings

Retained Earnings is where the action is and it is an important number to understand. It’s the accumulated earnings of the company less any dividends paid to shareholders over all time that the business has been in existence.

For a small business, retained earnings will change once a year at the end of the fiscal year when net profit (or loss) from the current year is rolled into the retained earnings account. At this time, all of the income and expense accounts are zeroed out to start over for the new year, and the balance (which is profit or loss) is added (or subtracted, in the case of loss) to retained earnings. Your accounting system automatically does this for you, and you can check it out by running a balance sheet as of the last day of your fiscal year, then running a balance sheet on the following day – the first day on the next fiscal year and comparing what changed.

You can reconcile retained earnings by adding up all of your profits and losses for each year you are in business. Then subtract any dividends paid throughout the years, and you should come out with your retained earnings balance. You can have a negative retained earnings balance.

The retained earnings number is a measure of the long-term value of the business. It also plays a large role in determining your basis, or investment, so to speak, in the company, which is used for tax purposes.

An S Corporation will have an additional fourth account in its Equity section.

4. Distributions

Distributions represent the money that the S Corporation owner has taken out of the business. This money is over and above the salary that is paid to the owner. It must be tracked for tax purposes, which is why it has a separate account on the balance sheet.  In simple terms, distributions are generally not taxable as long as the owner has enough basis to cover them. In this way, distributions are different from dividends that are issued in C Corporations, since they are taxable.

Last, if you run a balance sheet report in your accounting system on any date during the year, you may see an additional account:

5. Current Year Earnings

This is the sum of all of your income and expense accounts. It should be the same number as net profit or loss on your income statement from the beginning of the year to your balance sheet date. On a formal balance sheet for external purposes, this number is rolled into the retained earnings account.

The equity section can be the most difficult section to understand on the balance sheet. Hopefully, the explanation above will provide a bit more clarity as well as shine a light on the significance of the retained earnings balance.

Every business has competitors of some kind, and in most industries, it’s crucial to know what your competition is up to in order to ensure your own products sell. A great deal of information can be gleaned from researching your competition’s online presence, but there’s another tool you might consider adding to your marketing toolbox: a mystery shopper. 

A mystery shopper is a trained observer with significant customer service experience who is hired to shop your competitors. Their sole purpose is to share information with you about their shopping experience. While most of this article will focus on the example of mystery shopping at brick-and-mortar retailers, the tactic can be useful beyond this specific industry from professional services to health care, real estate, restaurants, and beyond. You can also adapt the idea to industries such as construction and manufacturing.

Mystery shoppers provide value by helping you collect intel you can’t determine from an internet query, like the shopping experience, quality of products offered, or accessibility. This data will help you perform a Competitive Analysis – a report on who your competitors are and what they are doing, informing your business of where it can (or already does) stand out. A competitive analysis report should be part of your marketing plan, as it can help you optimally spend your marketing dollars.

Let’s say you own a fabric store and want to know what other stores in your area are doing. You can make a list of a few fabric retailers in the three zip codes around you, providing that list to your mystery shopper, who would visit each of the stores. You could also provide your mystery shopper with a list of questions or a checklist of what to observe and/or purchase. The mystery shopper will take detailed notes about their experiences at each retailer and report their findings back to you.

From your mystery shopper’s notes, you can determine a variety of things, like:

• how their storefront looks and what their curb appeal is.
• if it was easy or not to find parking. 
• what their opening hours are and do they open on time? Is there a queue of shoppers waiting to get into the store? Are you required to schedule an appointment to use their services? 
• Did employees provide a greeting when entering the business? How friendly or approachable are the employees?
• How does the store look? Is it crammed full of items or sparse?
• What kind of displays do they have and how attractive are they?
• Is their inventory broad, deep, or both? What type of items and brands do they carry compared to your store? Are there brands, items, or product lines your company should be carrying?
• Were there a lot of customers in the store? How long were the checkout lines?
• How clean is the store? Do you feel comfortable with the level of cleanliness?
• Taking a sample of items and comparing pricing, how does your company’s selection stack up?
• What was the purchase experience like? Were you offered an upsell or a coupon? What does the checkout area look like? Were customers offered a bag for their items?
• What was it like to return an item? How strict is the return policy, and was the service friendly or hesitant?
• For service providers, does their waiting area look inviting and professional? What do their service areas look like?
• Was there any follow-up, such as an email promotion or thank-you note?

Once you have compiled the information on your competitors, you can look for ideas to improve your business that align with your brand and culture. These improvements are often in the area of customer service, but can also include adding inventory, updating hours and availability, adding store features or sales events, and more. You may even be able to find ideas to implement at a lower cost than your competitors, giving you an edge on profits.

Now, where can you find a mystery shopper? You can hire individuals or a company that specializes in providing this service. While many business owners might consider asking a friend to mystery shop in an effort to save money, a friend might not be able to articulate their experience with the detail you need, or they could fail to observe important aspects of the shopping experience.

So, consider recruiting a professional for the job. You’ll need a budget to pay the shopper(s) for their time, plus funds to make any purchases on your behalf. But hiring a mystery shopper can be well worth the investment, as it provides valuable access to your competition.

Whether we’re headed for a recession or not, it’s always a good time to squeak out more profits from your business books. We’re not talking about drastically slashing expenses or spending a lot to raise revenue; the tips in this article are long-term ideas to lift up your profits gently.

Timing on Capital Purchases

The timing of asset purchases, such as equipment, a truck, or even a PC, can be tricky. Understanding the best timing for asset purchases and replacements can make a difference in your profits.

When purchasing a new asset, gain a good understanding of the return on investment so that you’re prepared from a cash flow standpoint. With more complex businesses, it’s a good idea to hire an accountant who knows your industry and has capital expenditure experience.

When replacing an asset, it should be timed so that the asset is replaced before you have to begin spending a lot on repairs, but not so soon that you maximize your use of the current asset. 

Rent and Utility Contracts

When rent and utility contracts come up for renewal, it’s time to negotiate. If your landlord hasn’t fixed something, you can at least use this as an opportunity to have the discussion and hopefully accelerate the repairs.

For certain utility contracts, like internet and phone, the price will often increase when your contract runs out. However, it can also be the best time to ask for a better deal, or even a new customer deal. The adage “it’s always easier to keep a customer than find a new one,” can apply to new carriers, too. Communications companies are constantly creating new deals and packages, so try to jump into one of those to keep your costs from going up.

Profit in Leftovers

What assets do you have that aren’t working for you?  Put them to work!

Here are some examples:

1. Cash – make sure your excess cash is safely invested or at least in an interest-bearing checking or savings account.
2. Extra space – rent out space that you are not using or only using some days. This solution can have many different looks to it beyond the monthly renter. As an example, virtual workers looking for a conference room for a day could be a money-maker for you.
3. Manufacturing firms can sell the scrap from their assembly lines as well as their obsolete inventory.
4. Excess construction materials can be sold, donated, stored for the next job, used on a new small project, or used as firewood.
5. If the inventory on your shelf needs to be dusted, you’ve had it too long. Find a way to move it now, and replace it with something that sells faster.

Training

If employees are wasting time, they are wasting money–yours, to be exact. There are three good solutions:

1. Offer training – perhaps they haven’t been shown what to do correctly or how to do it efficiently. Or maybe they need to break bad habits.
2. Re-energize employees with incentives, new benefits, or motivational training and events.
3. Redesign your processes and automation, then retrain – it could be your workflow needs revamping to make it more efficient. For accounting processes, New Business Directions can help with this!

If these options don’t work, it may be time to face the reality that your employee could be a bad fit. You know what you have to do in that case.

Stop the Subscriptions

Those recurring monthly charges just keep adding up. The average small business uses dozens of apps, meaning they also likely have dozens of $20 to $50 automatic monthly charges going on a credit card somewhere in your business. This includes magazines, memberships, dues, conferences, newsletters, gadgets, and software.

If you’re making a lot of money, you may have trouble finding the time to research what subscriptions you really need versus what you don’t. But in the long run, you will retain more revenue sooner if you sit down and examine this area of spending. Stop the $20 to $50 madness by reassessing what subscriptions you really need and then either opting for the annual subscription discount or canceling the apps that aren’t essential.