Can a business grow too fast?

Most businesses hope to grow. They consider themselves successful if growth is taking place, and the faster the growth the better. Can too much business growth be bad for a company? It can be if the growth is not adequately planned.

For example, an established company that doubles its sales volume in a year may find itself strapped for cash, for working space, and for trained personnel.

For most established companies, a 12% to 15% annual growth rate would probably be manageable. The ideal growth rate for your company depends on the unique circumstances in your firm and industry.

A new company (starting with zero sales) must obviously grow more rapidly than an established one. Some new businesses may double their sales each year for the first five years or so before reaching the level where a 15% annual rate is healthy.

Rapid growth often requires more inventory and more space. And it may require money to fund additional work-in-process or accounts receivable. Who will fund the growth? A 15% growth rate can probably be funded by retained earnings. A more rapid rate may require an injection of outside capital. If the owners can’t provide the money, will it be the suppliers (increasing the accounts payable) or a banker (new short-term debt)?

Every business should have a written business plan with its growth projections clearly identified. The plan should include provisions for the finances, space, equipment, and personnel that such growth will require.

Your company’s growth should be both workable and profitable. Please contact us for assistance with your business planning.

David Bradsher, CPA

Smart business people learn to delegate work

As a business owner or manager, you may think that if you want things done “the right way,” you have to do them yourself. But that isn’t always the best approach at work, even if you firmly believe you’re the best person for the job. There simply isn’t enough time in the day – not if you have a business to run.

Like it or not, you must learn how to delegate work to subordinates. Here are some helpful hints.

* Get organized. Start by deciding which tasks to delegate and which employees will be assigned responsibilities. The workload doesn’t have to be etched in stone, but you should develop a game plan for subdividing jobs.

* Focus on self-starters. You will need to rely on people who can think for themselves. Don’t rely on employees who you anticipate will be constantly seeking your guidance. If you have to show someone what to do every step of the way, it defeats the entire purpose.

* Give workers authority to act independently and make decisions on the fly. Don’t hinder the process by requiring employees to obtain your approval on every decision. This will only turn into a variation of doing things the same old way.

* Monitor work progress. This aspect must be handled with sensitivity. You’ll want to keep an eye on employees, but you can’t keep looking over their shoulders either. Find the proper balance.

* Analyze the results to determine if the work met your expectations. If it didn’t, offer constructive criticism for improvements. Make this a learning experience for both of you.

As you become more comfortable delegating work, you can continue to loosen the reins. When you spend less time on routine matters, you’ll have more time to devote to growing your business profits.

David Bradsher, CPA

Should you be making estimated tax payments?

During the tax year you must prepay a substantial amount of the taxes you’ll owe for that year, or you risk being hit with an underpayment penalty. If you’re an employee, that’s usually not a problem. Your employer will withhold taxes from each paycheck. You can adjust the amount withheld so that it covers your total tax bill, even if you have extra income from moonlighting or investments. But if you’re self-employed or retired, you might need to make estimated tax payments.

To avoid a penalty, the total of your withholding and estimated tax payments must generally be at least 90 percent of your tax liability for the year, or 100 percent of your last year’s tax liability. There’s no penalty if your underpayment is less than $1,000. Special rules apply to farmers, fishermen, and higher-income taxpayers.

You pay your estimated taxes by making four payments, due in April, June, and September of the current year, and in January of the next year. You can’t just wait until the last date to pay what you owe. You must start paying estimated taxes as you earn taxable income. You can either pay all the tax you owe on each quarter’s earnings, or you can pay it in installments over the remaining periods. But you must be sure to pay enough to avoid an underpayment penalty for each period. Again, special rules apply to farmers and fishermen.

Please contact our office if you think you might need to make estimated tax payments. The quarterly calculations can be complicated, and we can help you figure out how much you need to pay at each date.

David Bradsher, CPA

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David Bradsher, CPA