Planning To Improve Your Profitability
We often say that “what you measure you can manage.” This is especially true when it comes to achieving greater profitability for your business. You should begin by focusing your profit improvement strategies into three key areas that can be measured by their impact on overall profits. Aim to increase:
1) The number of desirable customers
2) The number of times each customer makes a purchase, and
3) The average amount they spend on each purchase.
The next step to improving your profitability is to identify your Critical Success Factors. In other words, what must you achieve in your business to be successful. In order to answer that question, ask yourself the following:
1) What are your most profitable products/customers and what makes them so profitable?
2) What resources are required to support your business?
3) What are the things that keep your customers coming back, recommending you and paying a good price for your product or service?
Once these questions are answered, you will have a good idea of the factors that are critical to improving your profitability. You should then determine how you can monitor the effectiveness of your new profit improvement strategies. For example, you may establish Key Performance Indicators that you can measure on a daily, weekly or monthly basis. Be ready to adjust your strategies depending on the trending of your KPIs.
At the end of the day, a profit improvement plan is only effective if your return on investment (ROI), your net profit margin, and your bank balance are improved simultaneously. Constant review and management of your Critical Success Factors is the key to increased profit and ROI over the long term.
For help creating a profit improvement plan for your business and monitoring the results, please contact our office at 9317) 782-3070 and schedule a complimentary consultation.
Corporate Minutes Support Tax Position
Writing up the minutes of board of directors’ meetings is not usually a high priority for most business owners. Yet well-documented corporate minutes can provide valuable supporting evidence if your tax positions are ever questioned.
Minutes are especially important where any kind of related-party transactions occur, such as payments, loans, or distributions between the company and its owners. For example, the IRS may challenge the amount of compensation paid to a business owner as unreasonable. Corporate minutes that document the factors considered by the board in approving the compensation can be a strong defense against such a challenge.
Another area that receives close scrutiny from the IRS is the amount of earnings that are retained in the business rather than distributed as taxable dividends. A penalty applies to retained earnings over a certain limit unless they can be justified by business needs. Corporate minutes can be a strong piece of supporting evidence if they clearly spell out the reasons that the company needs to retain funds — for example, to purchase assets or for working capital.
If your company has a tax-qualified retirement plan or a stock option plan, the minutes should show decisions by the board adopting or modifying the plan. They should also document annual decisions on the percentage of contribution to profit-sharing plans and any decisions on fringe benefits, such as medical reimbursement accounts.
Corporate minutes need not be lengthy, but they should provide a clear record of corporate actions and the business factors that were considered when those actions were taken. You should think of your minutes as a key element of your tax planning strategy.
If your corporate minutes need updating, contact your attorney and take care of this important bit of business housekeeping. With questions about tax planning throughout the year, please contact Simons Bitzer at (317)782-3070 and speak to one of our tax specialits.
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