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Six Ideas to Increase your Business's Cash Flow and Profitability

Posted by Jack Craven on Tue , May 21 , 2019

Managing and running a business, whether it is small or large, is tough. Although each business is unique in its own way, here are six ideas to help your business increase its profitability and cash flow..

1. Understand your cash flow. One of the biggest causes of business failure is lack of positive cash flow. At the end of the day, you need enough cash to pay your vendors and your employees. While it may seem simple to understand your cash flow, this is always not the case. Consider the following:

  • If you run a seasonal business you understand this challenge. The high season sales harvest needs to be ample enough to support you during the slow non-seasonal periods. How do you deal with the flood versus the desert in your cash flow?

  • Businesses have unique patterns of cash flow. If you are a magazine publisher that sells one-year subscriptions, you may receive one payment from a subscriber but have to deliver issues over the next 12 months. And then there is the “double-whammy”, you must spend money to sell subscriptions. Take the following example of a 15-month period—months 1, 2 and 3 are the months of investing in your marketing and promotion costs, next you have the one-time sale of 12 month subscriptions. In the following 12 months as you deliver the issues, there are book GAAP earnings with no subscription cash.

Recommendation: Create a month by month 12-month rolling forecast of revenue and expenses to help understand your cash needs each month. As illustrated above, book revenues and expenses do not always translate into cash flow. Adjust your rolling forecast of revenue and expenses to a cash flow forecast.

2. Know your Key Performance Indicators (KPIs). KPIs are the key factors that drive your business. A KPI is quantifiable. When looking at your business, there are a few factors that drive your business success. Do you know the top four drivers of your financial success or failure? By focusing on the key financial drivers of your business, success will be easier to accomplish.

Examples: A KPI related to sales may be the number of sales calls (or outbound calls for a telemarketer) made by the sales department. A KPI for e-commerce may be website traffic and the related conversion rate.

3. Minimize / optimize your inventory. Many companies require a major investment in inventory. If your business sells physical product, you need a good inventory management system. This system does not have to be complex, it just needs to help you keep control of your inventory. Be sure to turnover slow moving inventory. Cash turned into inventory that becomes stuck as inventory can create a cash flow problem.

Recommendation: Many businesses hold on to unsaleable inventory for too long. Get rid of old unsaleable inventory ASAP. Take your markdowns and move on! Develop an inventory system with periodic counts (cycle counting) to help identify when you need to take action to liquidate old inventory or research any discrepancies.

4. Know your customers. Who are your current customers? Are there enough of them? Where can you get more of them? How loyal are they? Are they happy? A few large customers can drive a business or create tremendous risk should they go to a competitor.

Recommendation: Know who your target audience is and then cater your business toward them and what they are looking for in your offerings.

5. Learn your point of difference. Why does the world need your business? Once you know who your customer is (your target audience), understand why they buy your product or service. What makes you different from/better than others selling a similar item?

Recommendation: If you don't know what makes your business better than others, an annual survey may be helpful. Ask your key customers to rate your product and services. . They will tell you. Then take advantage of this information to generate new customers.

6. Create a great support team. Successful small business owners know they cannot do it all themselves. Do you have a good group of support professionals helping you? You will need accounting, tax, legal, insurance, and employment help along with your traditional suppliers.

Recommendation: Conduct an annual review of your resources, be prepared to review your suppliers and make improvements where necessary.

These ideas sound simple but they are important to the success of your business, Call us at 212-786-7476 (NYC) or 516-280-8363 (Garden City, Long Island)

We welcome your comments and ideas. Please see the box below.

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Topics: cash flow, Profitability

QBI  The New Business Deduction

Posted by Jack Craven CPA on Thu , Nov 29 , 2018

We get more calls regarding the new Qualified Business Income (“QBI”) deduction than any other aspects of the new tax law. Simply put, the QBI deduction is 20% of your “qualified business income.” The rules, however, are not simple, they are quite complicated. If you qualify the benefit is substantial.

Complex and  Confusing New Rules

A new deduction is available to businesses with qualified business income (QBI). While that's great news, new deductions (especially ones with lots of rules) can bring anxiety and confusion. Never fear! Ensuring you receive a maximum deduction will come down to providing the proper information. Here is some knowledge to help you cut through the confusion:

What is the QBI deducton?

In short, it's a 20 percent deduction against ordinary income, taken on your personal tax return, that reduces qualified business income earned for most pass-through businesses (sole proprietorships, partnerships and S-corporations). It's not an itemized deduction, so you can take it in addition to the standard deduction. To qualify without limitations, your total taxable income needs to be below $157,500 ($315,000 for married couples) for 2018. If your income exceeds the threshold, it gets complicated.

What you need to know:
  • If your total taxable income is above the income threshold, your deduction may be limited or nullified. If your income is below the threshold, the calculation is pretty straightforward. If not, additional phaseouts, limitations and calculations come into play. The first limitation to consider is whether or not your business is qualified. Certain specified service trades or businesses (SSTBs) are excluded from the deduction altogether if taxable income is over the threshold. If your business is not an SSTB, other calculations related to W-2 wages and basis in qualified business property may be required.
  • Schedule K-1s for S-corporations and partnerships have new codes. Businesses with partners and shareholders are now required to report information related to the QBI deduction on each Schedule K-1 they issue. Based on the draft versions of the forms, the new codes will be in Box 17 for S-corporations (V through Z) and Box 20 for partnerships (Z through AD). If you receive a Schedule K-1, check to see if the new codes have values associated with them. If not, contact the issuing business to correct the mistake. Schedule K-1s without the required data will delay your tax-return filing.
  • Certain data needs to be collected. For the most part, the data required to calculate your deduction will be included on the normal forms needed to file your taxes. Here is list of common documentation to watch for that may be required to calculate your QBI deduction:
    • Business financial statements
    • Forms W-2 and W-3 issued by your business
    • Purchase information related to business assets
    • Schedule K-1s
    • Forms 1099-B with cost/basis information
  • The sooner you close your books, the better. The new deduction means more work. Knowing your final business net income as soon as possible gives you extra time to work through the additional necessary calculations. If your business is required to issue Schedule K-1s, even more time may be required.
  • More guidance is expected from the IRS. In August, the IRS published guidance to clear up some of the confusion regarding the deduction, but it didn't cover everything. The American Institute of CPAs (AICPA) responded with 11 specific items that still need to be addressed.

With proper planning and preparation, you can rest easy knowing that obtaining your shiny, new QBI deduction is in good hands.

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Topics: QBI

The IRS Loves Your Business ... and That is NOT Good

Posted by Jack Craven on Wed , Oct 31 , 2018

The IRS continues to focus their audit activities in key small business areas. The wise business owner is well advised to be able to defend the following five areas to keep the IRS at a comfortable distance:

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Topics: tax planning, IRS tax code, tax tips, Business strategies

Checklist for a Healthy Cash Flow

Posted by Jack Craven CPA on Tue , Nov 29 , 2016

Any business owner who has fended off calls from unpaid creditors or who has wondered how to meet the next payroll knows the importance of cash flow. Ironically, business success and cash shortages often go together. If growing sales are on credit, they create a larger accounts receiveable which your company is funding. Your income statement may show a hefty profit, but profit doesn't pay the bills - cash does! That's why understanding and controlling the cash flow in your business is so important.

We discuss three business strategies that will help you maintain a healthy cash flow in your company:

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Topics: cash flow, financial management, healthy cash flow, business stategies

Potential Tax Exemption for Website Designers and Software Developers

Posted by Jack Craven CPA on Wed , Sep 28 , 2016

The New York State Department of Taxation and Finance has released information for a possible tax break that can be beneficial to software and website professionals. If this applies to you, the purchase of computer hardware may be exempt from sales tax. The exemption can end up being worth several hundred dollars in savings when purchasing eligible computer system hardware.

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Topics: website professionals, tax exemption, computer system hardware

Jack Craven Speaks at GNYCC Business EXPO

Posted by Jack Craven CPA on Tue , Sep 20 , 2016

 John F. Craven CPA will be moderating a panel on Small Business Success Strategies at the Greater NY Chamber of Commerce Business EXPO that begins at 10:30am on September 23rd. Panelists include:

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Topics: Business strategies, startup businesses, hiring programs

AdMedia Survey Forecasts Positive M&A Outlook

Posted by Jack Craven CPA on Thu , Aug 04 , 2016

            AdMedia Partners, a leading media M&A advisor, performs an annual survey of senior executives. This year’s survey shows an expected deal increase for mergers and acquisitions in the media and technology industry. The following key points highlight AdMedia’s findings.

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Topics: media deals, merger and acquisition, technology deals, media forecast, AdMedia, M&A

Deter Identity Theft With Fraud Alerts and Security Freezes

Posted by Jack Craven CPA on Thu , Jul 07 , 2016

If someone steals your identity, you will begin to feel the confusion and strain that comes with trying to recover your good name and pilfered finances. Identity theft is a real and growing concern for everyone; remain alert and prepare before it happens. We have put together some ways to deter identity thieves and protect your information:

  • Shred financial documents as well as personal information before getting rid of them.
  • Protect your Social Security number
  • Remain cautious with personal information on the phone, by mail, or over the internet.
  • Protect your home computer with anti-virus guard software.
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Understanding Sunk Costs in Business Decisions

Posted by Jack Craven on Mon , Feb 08 , 2016

As a previously published post, we wanted to reissue this informative and favored piece on sunk costs!

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Topics: business evaluation, sunk costs, business management, sinking ship

Avoiding  the Wrong Decision--Selecting an Accounting Method for Your Media Business--Cash versus Accrual Accounting

Posted by Jack Craven on Tue , Dec 29 , 2015

 In the first year of a startup business, you, as a business owner, will need to make certain elections for tax purposes. These start up tax choices (elections) establish precedents for tax years to come. An important election you will make is selecting an accounting method for your business. The two methods commonly used are cash basis  accounting or accrual basis accounting. You may be reading this and thinking, “What do cash and accrual basis mean?” and “What difference does this make to me and my business?”


Making the wrong decisions could cause your business to become just another failure.


Simply put, as our whitepaper explains, under cash basis accounting, a business owner such as yourself recognizes revenue and expenses (and pay taxes) when you receive or pay cash. Under accrual basis, you recognize income and expenses (and pay taxes) when they are earned without regard to being paid. In the attached whitepaper, we provide media company tax tips and advice.


Many accountants automatically suggest that all of their small business clients automatically adopt cash basis accounting. As we discuss on the whitepaper that follows, this should not automatically be the case for many media and entertainment companies. The remainder of this paper explains cash basis versus accrual basis accounting and how they impact your business.

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Topics: Tax ideas, #startup, cash flow, tax tips