5 Reasons Why Every Business Should Have a Strategic Plan

Some great TV comedy moments were achieved during the David Letterman shows when he did the top ten lists. Some examples were: “Top ten least popular Broadway Shows: #10, Oprah-homa! ,” “Top ten least-loved Christmas Stories: #9, The Sweatiest Angel ,“ and “Top ten courses for athletes at SMU: #10 Subtraction: Addition’s Tricky Pal.”

Letterman’s writers and producer must have had a strategy when creating this idea, just like a business owner should have a strategic plan when running a business.  If you are a small business owner without a strategic plan, here are the top five (not ten, because we’re on a budget, here) reasons why you should have one:

  1. Businesses without a plan probably lack a purpose: Why does your business exist?  Just to make money doesn’t cut it.  Sure, we are in business to make money, but each business must also have a purpose.  This purpose should infuse all business practices and should be obvious to clients. For example, if your business purpose is to bring integrated wireless technology to small businesses at an affordable price, your prospects must know that.
  2. Businesses without a plan probably lack a vision: Instead of dream, strategize. Dreaming is a vision with no road to the rainbow.  Strategy is dreaming using realistic facts concerning yourself and your industry.
  3. Businesses without a plan probably lack a direction: You may think you know where you are going, but can you imagine where your business will be in ten or twenty years?  Small business owners usually cannot see past the end of the month, or worse, past the next pay date.  You may have a vision, but there are four horizons.  Which horizon are you moving toward?
  4. Businesses without a plan probably lack a culture which supports change: Owners cannot change a company unilaterally. They need to foster a culture that flexes with change in the direction of the vision.  If business owners cannot design a plan, they cannot communicate it to their employees, and therefore, they cannot execute it.
  5. Businesses without a plan probably lack meaningful tactics: If you don’t know where you are going, any tactics you establish will get you there.  Businesses usually focus on tactics (how to do something), as opposed to strategy (where they are going).  Therefore, the tactics are set up in a void.  Just doing things, like increasing your advertising budget, is not strategic planning. There are many steps you must place together before implementing your tactics and establishing your metrics to measure them.

Small business owners must go through their own top 5 (or 10) lists when creating their strategic plans.  If they don’t, the end result with be like a joke without a punch line.

(Reprinted from Money for Lunch–September 16, 2014)



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Don’t use a Pineapple Upside down Cake Strategy to Increase your bottom line

Have you ever baked a pineapple upside down cake? It was one of my favorite desserts as a kid. You start the recipe with laying pineapple rings and cherries on a brown sugared baking pan base.  You then pour the batter over this sweet foundation before placing it into an oven to bake.  When you turned the baked cake over on a plate the pineapple is displayed on top.

Most small businesses seem to build their businesses like a pineapple upside down cake.  They start with the items that are most visible in a business, like sales, the inventory, and purchase orders, and ignore the biggest part of a business like the processes, structure, and culture.  Then they turn the business upside down expecting it to operate efficiently and to increase profits.  However, the foundation of the business (the batter) falters.  This may cause problems and decrease the bottom line.

I tell small business owners that the best way to increase your bottom line is to increase their top line.  Not cut, cut, cut your payroll and operating costs.  Oh, sure they should operate a business as efficiently as possible, but no business ever shrunk itself to greatness.

For example, let’s say a small business owner is not making as much money as she wants.  So, to increase her bottom line, she “lays off” a couple of employees and shifts the excess work to the remaining employees.  The benefit is that she may have a more efficient company earning 10% more net profit.  The negative impact might be as follows:

  1. Culture: Working employees harder unnecessarily might disrupt employee morale.  The change also may lead to employee carelessness, quality-control issues, and theft.
  2. Processes: If the company originally operated efficiently, a reduction in the workforce could disrupt that process.  Quality control issues, again, may be affected, but not only because of a decrease of moral, but because of a process that requires “more hands.”
  3. Structure: Employees need to know their responsibilities.  A good structure (like an organizational chart), helps lay out responsibilities and accountabilities in a visual format.  When you reduce your workforce unnecessarily, you may disrupt the known chain of command, thereby creating little vacuum pockets where nobody is responsible for certain steps in the overall process.

So what is a small business owner to do to increase the bottom line?

  1. Act while business is booming: Don’t wait until there is an economic downturn before taking action to increase your business size or increase profits.
  2. Think Strategically: The example above demonstrates the pitfalls of tactically thinking, as opposed to strategically thinking.  Strategic thinking is what to do, tactical thinking is how to do it.  A business should design and implement a strategic plan that projects to ten or twenty years.
  3. Build from the unseen: As shown above, the underlying processes, structure, and culture were ignored when the business owner decided to increase her net profit.  Start with what is not seen in a business and make that solid before moving on to more obvious tactics.  Strategically set tactical pieces in motion.

With a growing business, you can have your cake and eat it, too, but you have to make sure you bake it properly.

(Reprinted from Money For Lunch–September 16, 2014)




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IRS Phone SCAMS and How to Protect Yourself

Scam Phone Calls Continue; IRS Identifies Five Easy Ways to Spot Suspicious Calls


I just found this on the IRS site.  I get calls from my clients every now and then who are contacted by a scam artist.  The main thing is to call your tax adviser.  Never, ever give your bank or credit card numbers over the phone.  The IRS doesn’t work that way.


WASHINGTON — The Internal Revenue Service issued a consumer alert today providing taxpayers with additional tips to protect themselves from telephone scam artists calling and pretending to be with the IRS.

These callers may demand money or may say you have a refund due and try to trick you into sharing private information. These con artists can sound convincing when they call. They may know a lot about you, and they usually alter the caller ID to make it look like the IRS is calling. They use fake names and bogus IRS identification badge numbers. If you don’t answer, they often leave an “urgent” callback request.

“These telephone scams are being seen in every part of the country, and we urge people not to be deceived by these threatening phone calls,” IRS Commissioner John Koskinen said. “We have formal processes in place for people with tax issues. The IRS respects taxpayer rights, and these angry, shake-down calls are not how we do business.”

The IRS reminds people that they can know pretty easily when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam. The IRS will never:

  1. Call you about taxes you owe without first mailing you an official notice.
  2. Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  3. Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  4. Ask for credit or debit card numbers over the phone.
  5. Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

  • If you know you owe taxes or think you might owe, call the IRS at 1.800.829.1040. The IRS workers can help you with a payment issue.
  • If you know you don’t owe taxes or have no reason to believe that you do, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1.800.366.4484 or atwww.tigta.gov.
  • If you’ve been targeted by this scam, also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

Remember, too, the IRS does not use unsolicited email, text messages or any social media to discuss your personal tax issue. For more information on reporting tax scams, go to www.irs.gov and type “scam” in the search box.

Additional information about tax scams are available on IRS social media sites, including YouTubeand Tumblr where people can search “scam” to find all the scam-related posts.



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Strategy and the Exploration for the Non-Customers

I met with one of my clients and friends, Armen Alajian, co-owner of Artobrick. Now Armen runs this business with his brother, Vod with the respect and tradition of a family business that has been passed down to younger generations.

However, one of the things that makes me proud to have them as a client is their  aggressiveness to continue to test new ground.  The latest is the “Ceramic Paintings” shown on this page.  They brought an artist into their game to paint original artistic works on ceramics that can cover any size of walls and floors.  Basically, Artobrick has merged the art world and the ceramics world.  But what they don’t realize is they have increased their market space to the “unexplored” non-customers. This is  a concept discussed in the Blue Ocean Strategy by Kim and Mauborgne.

Kim and Mauborgne lay out three tiers:

1st tier, “Soon-to-be” non-customers who are on the edge of your market waiting to to jump ship;

2nd tier, “Refusing” non-customers who consciously choose against your market;

3rd tier, “Unexplored” non-customers who are in markets distant from yours.

I would argue that these tiles will attract a 3rd tier customer who loves art.  These customers may not consider installing bricks, but may consider installing a Jackson Pollack-type tile just for the artistic addition to their home or business.  This attraction gives Artobrick a distinct advantage over other tile/brick manufacturers who cannot compete in this market space because they don’t have the strategy to see buyer needs.

The initial step for this to venture to be successful is for Artobrick to distinguish a buyer utility.  Some companies do surveys or venture into a new concept slowly gauging buyer and market response.  I don’t know if the brothers took this step, but assuming they did, the next step is to make a price easily accessible to buyers.   Third, at this price point, can they make money?  And lastly, what other hurdles can restrict the market roll out.

According to the Blue Ocean authors, if Armen and Vod get past these steps, then they can have a viable Blue Ocean idea where competition becomes irrelevant.  All small and medium-sized businesses should take this approach in their businesses by thinking about the non-customer.


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CPA Tax Tip: Late Payroll Taxes?

During my CPA career I have seen business owners shirking their responsibility to withhold and pay federal income taxes, too many times.  The taxes can be both federal and state. On the federal side, FICA (social security), Medicare, income taxes, and unemployment insurance (FUTA) can add up to large amounts that these employers cannot seem to part with when their business is in a bind.  Penalties and interest usually compound the problem.

Not only are the owners responsible, but any “responsible party.”  See The Consequences of willful failure to pay payroll taxes by Vani Murthy for a more comprehensive discussion on the responsible party.  There has been limitations on who these people are, but just because you delegate the duty does not mean you are off the hook. If you are the owner or officer, the responsibility may put your personal assets at risk.  Worse yet, in the most egregious cases, the IRS has imposed criminal penalties including jail time.

So, what can a business owner do to avoid falling into this situation?  And, if in it, what can they do?

  1. Manage your cash flow: This is always the first step.  Too many business owners look at payroll taxes as a necessary evil that can be placed on the back burner.  Instead, place this item at the top of your cash disbursements along with the payroll.  Pay them at the same time as your payroll, not the 15th of of the following month, or any time before that just because it is mandated by law.
  2. Defer your personal payroll to the next month:  As a small business owner, if you can personally afford paying yourself for a few weeks, defer your personal paycheck to the next month.  That can be only one day when you pay payroll on the last day of the month.  This could delay your payroll tax liability due date.
  3. Understand the danger signs: If you are using your business credit line to “make payroll,” then your business model is probably broken.  It could be for a number of reasons:  Uncollectible receivables, too low of a gross profit ratio, unproductive sales employees are just to name a few.  I have seen all of these sink businesses.
  4. Talk to the IRS: If you find your company without funds, rectify the problem as stated above but  also open a dialog with the IRS.  Keep the communication open and implement a payment plan for back taxes.  This may keep them from levying your bank account thus sabotaging any efforts to save your business.
  5. Take your head out of the sand: There is a type of business owner that I have come across that uses the ostrich method.  They just put business problems out of their mind and don’t plan on rectifying them.  When I would make recommendations they would delay until forgotten.  Please try to avoid this.

Meeting a challenge before it happens, and after it happens will usually be the best route to take with payroll taxes.  Since all situations are unique, please consult a tax adviser before making any decisions.


IRS CIRCULAR 230 DISCLAIMER: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein. Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, (Firm) would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.



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Business California Sales Tax: Why Pay More When Buying Equipment?

On July 1, 2014, a new law will allow manufacturers and certain research and developers obtain a partial exemption of sales and use tax on certain qualified equipment purchases and leases. You must meet all three requirements:

  1. “Qualified Person” : These are enterprises that are engaged in certain types of businesses.  A “qualified person” means a person who is primarily engaged (50 percent or more of the time) in those lines of business described in the North American Industry Classification System (NAICS).  These industries generally include those primarily engaged in the business of all forms of manufacturing, research and development in biotechnology, and research and development in the physical, engineering, and life sciences. (NAICS was developed under the auspices of the Office of Management and Budget (OMB), and adopted in 1997 to replace the Standard Industrial Classification (SIC) system. It was developed jointly by the U.S. Economic Classification Policy Committee (ECPC)Statistics Canada, and Mexico’s Instituto Nacional de Estadistica y Geografia , to allow for a high level of comparability in business statistics among the North American countries.)

To be primarily engaged as a legal entity or as an establishment you must, in the prior financial year, either derive 50 percent or more of gross revenue (including inter-company charges) from, or expend 50 percent or more of operating expenses in a qualifying line of business.  Alternatively, an establishment is primarily engaged if, in the prior financial year, it allocates, assigns or derives 50 percent or more of either of the following to a qualifying line of business: (1) employee salaries and wages, (2) value of production, or (3) number of employees based on a full-time equivalency.

2. “Qualified Properties”: Machinery, equipment, and tangible personal property.  However, look at the description because there are some exceptions.

3. Use Qualified personal property for uses (50% +) allowed by law:

  • Any stage of manufacturing, processing, refining, fabricating, or recycling.
  • Research and development
  • Maintaining  qualified personal and tangible property.
  • Contractor’s purchases of property  used in construction for a qualified person if that person uses it for a qualified purpose.

Make sure you understand the rules. These are explained on this site: http://www.boe.ca.gov/sutax/manufacturing_exemptions.htm#Qualifications


IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.


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Tax Records Advice:Early Preparation Can Save Headaches Later

Most people I know live at a very fast pace.  Planning ahead for a wedding, graduation, or a baby usually get priority in life.  Planning and organizing tax information usually doesn’t.  However, if you are one of those people who want to change your method of tax readiness before April, here are a few IRS tips with our comments:

  • What to keep – Individuals.  In most cases, keep records that support items on your tax return for at least three years after that tax return has been filed. Examples include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks or other proof of payment and any other records to support deductions or credits claimed. You should typically keep records relating to property at least three years after you’ve sold or otherwise disposed of the property. Examples include a home purchase or improvement, stocks and other investments, Individual Retirement Account transactions and rental property records.  We believe one set of items that you should keep forever is the support for all improvements made to your home or any real estate.  When the time comes to sell your home, these improvements may reduce your capital gains tax.
  • What to keep – Small Business Owners. Typically, keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Also, keep records documenting gross receipts, proof of purchases, expenses and assets. Examples include cash register tapes, bank deposit slips, receipt books, purchase and sales invoices, credit card charges and sales slips, Forms 1099-MISC, canceled checks, account statements, petty cash slips and real estate closing statements. Electronic records can include databases, saved files, e-mails, instant messages, faxes and voice messages.
  • How to keep them - Although the IRS generally does not require you to keep your records in any special manner, having a designated place for tax documents and receipts is a good idea. It will make preparing your return easier, and it may also remind you of relevant transactions. Good record-keeping will also help you prepare a response if you receive an IRS notice or need to substantiate items on your return if you are selected for an audit.  We find that digital copies of receipts and checks help organize and preserve your records.


IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.


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Strategic Planning Taken to An Artistic Level

I was interviewed in the San Fernando Business Journal in their Hollywood Math article.  What the author thought was more interesting is our firm’s movement into the strategic planning area for artists.  It starts on page 11. My intent of this interview was to promote the concept that strategic planning principles exist in many contexts and industries.



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The Magic of Disney: Where Business Theory Does Not Have To Be Just Theoretical or Theatrical

Have you discussed something on a theoretical level with someone only to realize it was just mental calisthenics?  In other words, did that conversation deal with the REAL world?

I came across a Harvard Business Review article, What is the Theory of Your Firm? by Todd Zenger that put teeth into strategic planning.  His article discussed Walt Disney’s 1957 Theory of Value Creation in Entertainment (seen here).

As I studied this 1957 vision, I realized that it fit well into one of the major steps of strategic planning: the vision. As Zenger said, “It’s founder had a very clear theory about how his company created value, which  was captured in an image held in the company’s archives.”

As a small business owner or an artist, how you can integrate this into your strategic plan resulting in a single sentence that projects a 10-20 vision using horizontal or vertical integration?

Using Disney’s map as a template, it seems his original core were films.  However, I could have argued that the theme parks had risen as a second core.  In any event, they complimented each other.  Next Disney drew satellite profit centers like TV, music, merchandising, etc.

But the magic of Disney were the lines that connected the main core to the satellites.  They were his animated characters.  It is like the theatrical film was the heart, the satellite profit centers (or assets) the organs, and the connecting Disney characters the veins and arteries.

From this, Zenger imagined that Walt Disney’s theory (or vision) could have been, “Disney sustains value-creating growth by developing an unrivaled capability in family-friendly animated (and live-action) films and then assembling other entertainment assets that both support and draw value from the characters and images in those films.”

The interesting historical fact pointed out by Zenger is that the power of this theory was revealed within 15 years after Walt’s death when the core film machine shifted away from animation.  The whole empire slowed to a crawl.  In my words, the heart stopped pumping, anemia set in and the organs suffered.   Michael Eisner took charge in 1984 as the surgeon and rediscovered the theory generating film greats as The Little Mermaid, Beauty and the Beast, and The Lion King.

Zenger laid out three “sights” of strategy that compliment our strategic planning sessions:

  1. Foresight: Projects where the industry and customers are heading in 10-20 years. Our Opportunities step addresses these developments.
  2. Insight: Theory must be company specific so as to discourage copycats. The Threats step questions the competition’s abilities to steal market share.
  3. Cross-sight: The combining of assets and theory, or as I like to say, Praxis (marriage of theory and practice.) Many don’t see this, but accounting can play a large role in this implementation.

Many strategy books deal with similar concepts from different points of view. The important part is that without a vision (theory) a business just flounders hoping to fall into a lucky opportunity.

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Learn from the Big Shots When Designing Your Business Strategy

I recall reading Bill Gate’s book in the early  1990s about a device that will come to the market that you can use as a phone, a personal computer, a device to buy merchandise, and many other useful tools.  And, it would be the size of a pocket book.

I could not have imagined that an iPhone would be such a big part of my life in about 15 years.

Well, another harbinger may be here in Apple’s purchase of Beat according to Owen Thomas’s article, Apple Bought Beats because Music is Dying.  The article discussed Apple’s purchase of this steaming software as a growth mechanism.  Beats is trying to bring back the “album-like” experience, not the soup of individual songs.  Young people are not being moved by random song by song and are abandoning music as we once knew it.

This actually rang true for me yesterday when my 15 year old daughter discovered the Beatles and requested a phonograph player for her birthday so she can play our old albums.  She experienced a new concept, “the Beatles album” and the various messages the Beatles were trying to bring across in one tight two-sided package.

These concepts can help any business when conducting their business strategy.  Stop, trying for the home run and focus on winning the game. Regardless if you are an accountant or an artist, your customer should be feeling the message of what you are trying to get across.  Here are some suggestions:

  1. Always put yourself in the customer’s shoes.  You must be honest.  What are they feeling?  What attracts them to your industry? What are they missing from you and others in your industry?
  2. Don’t repeat history just for the sake of history.  We always did it this way is not a reason to keep a product or service.  The big shots in your industry may help you with their publicity.
  3. Discard services and products that don’t  meet the customer’s needs.
  4. Refine your short list of services or products.
  5. Project your company strategy and see if these decisions match.
  6. Project the financial needs to implement your strategy.

When a large player in your industry predicts a change, you should take note.  If you had told me thirty years ago that a coffee shop would be one of the leading “fast food” franchises, I would have laughed.  Little did I know that the public had a need to hang out with good coffee.

Learning for big shots can help you aim better with yours.


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