Keeping an Eye on Aunt Gertrude

Owning a business can be like having a family. You have a lot of love and trust for the members of your family, but that doesn’t mean you don’t keep an eye on crazy Aunt Gertrude who’s been known to swipe a few bucks from your wallet once in a while.

While you don’t want to constantly be looking over the shoulders of your employees and questioning everything they do, it is important to be aware of the warning signs of fraud to help protect your ‘family.’

Generally, in business fraud comes down to one of these three:

  • Asset Misappropriation: This can be a plethora of things from embezzlement, stealing money from petty cash or checks, stealing inventory, submitting false expense reports or timecards, or stealing intellectual property.
  • Financial Statement Fraud: Falsifying or manipulating reports, inflating costs, alter earnings.
  • Corruption: Accepting bribery or kickbacks.

There’s commonly three circumstances that lead to fraud:

  1. The pressure or incentive to commit fraud“My family is really struggling this month and I need to provide for them.” or “I have to meet my numbers this month or the boss will be upset.”
  2. The opportunity to carry it out“I keep the petty cash in my desk and no one else really pays attention to what’s in there.” or “If I just change the date on these deposits, this month will look better.”
  3. The ability to rationalize or justify the fraud“I have worked hard for this company and no one appreciates all I do.” or “I’ll work harder next month to make up the difference.”

These three circumstances come together to form the Fraud Triangle:

Fraud Triangle: Pressure, Rationalization, and Opportunity come together to form the Fraud Triangle.

Avoiding Fraud

Now that you know what most likely precedes fraud you can devote energy to avoiding it. Put procedures in place that will ensure a checks and balance system and accountability is taking place in your business. Pay attention to your employees and the circumstances around them and just maybe Aunt Gertrude won’t snag that $50 from your wallet next time.

Employee vs Subcontractor: How To Decide Who To Hire

So you’ve set up your business, compared your product to the market, found your breakeven point and your business is doing well. You even have enough work that you need to hire some help. How do you go about that? In today’s business climate there are typically two routes to take. You can either go with the standard employee or with a subcontractor.   Even though the actual work for hire may be the same, there are some significant factors that need to be considered in order to avoid potential aggravations and financial costs.

Hiring an Employee

You may want to bring them on as an employee if:

  • You, as the employer, are setting their hours
  • They work solely for you
  • They present themselves as a representative of your business (perhaps carry your business card)

In this case, as an employer you will be responsible for payroll taxes and perhaps workers comp insurance, health insurance or other benefits.

Hiring a Subcontractor

You may want to just subcontract the work out to an individual if:

  • You are okay with loss of control of how and when the work is done.
  • You only want them for one job or on a per-piece-of-work basis (this may involve fluctuating payments, unlike a steady salary)
  • They have other clients they do similar work for

Here’s the tricky part. The Department of Labor has been known to have a little beef with some subcontractor arrangements. They may contest the validity of the relationship. In other words, if you are bringing on a sub-contractor to get out of the payroll tax and insurance costs, you better be sure that the subcontractor can’t be considered in “essence” acting as an employee. For example, if the “sub” has been doing the same work solely for you over a period of time or has no other clients, then they could be deemed to be an employee. In that case, you could find yourself owing significant money in back taxes and penalties.

Making a Decision

Sometimes people make the choice between a subcontractor and an employee based on perceived liability if faulty work should be performed. While that is a consideration, it’s worth nothing that often there’s little difference when the work is performed on behalf of your company. It’s most important to evaluate WHAT work they will do, WHO will decide how and when that work is done and HOW their pay is determined.  Employee vs Sub: Consider WHAT work they do, WHO decides how it's done and HOW they get paid. Click To Tweet

These are just a few of the things to consider when trying to decide between a traditional employee or subcontractor.It may seem like an easy decision but it is important to take the time to weigh your options carefully.

Business Lunch With Coaching Clients

Business Deductions for Meals and Entertainment

The IRS tells us that a business can deduct expenses that are “ordinary and necessary” and directly relate to active conduct associated with the taxpayer’s trade or business. In layman’s terms that means there must be a valid business purpose for a purchase to qualify as a deductible expense. While meals and entertainment may meet the IRS’s definition of a business expense, the caveat is that this expense is also related to personal consumption. It’s a fundamental income tax principle that items used for personal consumption are not deductible – i.e., everyone has to eat no matter what their trade is – but what if a personal expenditure also passes the IRS’s “ordinary and necessary” test for your business activity? How can you know what is and isn’t a tax deduction?

In the case of meals and entertainment (M&E), the IRS has decided to meet businesses halfway – literally. More specifically, the IRS has allowed for a 50% deduction for meals and entertainment that meet the business deduction test. But before you pick up that tab for lunch with that 50% deduction in mind, there are a few rules to consider:

Before you pick up that tab for lunch with a deduction in mind, there are a few rules to consider. Click To Tweet

How should you substantiate your deduction?

You must be able to demonstrate that the M&E expense is “ordinary and necessary” and be able to prove that the expense was related to your trade’s active conduct or business activity. To do this, you must retain the receipt for your M&E expense along with a record stating who the meal was with and the business purpose of that meal. In the event of an audit, the IRS may ask for these records to validate your M&E deductions, so good record keeping is essential for any business owner.

What types of expenses are included in the 50% M&E deduction?

The most common type of M&E expenses are client business meeting and meetings with co-workers. This can include events such as lunch with co-workers or clients, golf outings to develop client relationships, and meals with vendors. Some other expenses that meet the 50% M&E deduction can include out-of-office meals while traveling and reimbursement for meal expenses for an employee on a business trip which is not included in the employee’s compensation.

What type of expenses are excluded from the 50% M&E deduction?

Any time that you eat out alone and you are not traveling you are ineligible for the 50% deduction. Just because you decided to eat out instead of bring your lunch to work doesn’t mean you can claim your meal; that’s a non-deductible personal expense. However, if you are out of town on a business trip eating out alone or with others qualifies you for the 50% M&E deduction.

Are there any types of M&E expenses that are fully (100%) deductible?

There are some opportunities for taxpayers to claim a 100% deduction. While it is not possible to provide a complete list of every exception, some of the more common examples of fully deductible M&E expenses include meals for the occasional in-office meeting, meal expenses incurred while attending promotional seminars or trade shows, and M&E expenses incurred for social or recreational purposes, such as holiday parties or company picnics. The IRS also allows business to fully deduct the cost of snacks and beverages provided to employees on the business premises, which can include coffee, snacks, bottled water, and similar items.

Conclusion

It’s important for any business owner or manager to develop a method to manage the day-to-day M&E expenditures. From establishing a meal allowance or a per diem plan, to keeping records and establishing a system for tracking expenses, Kuberneo can help you conduct an M&E review of your business to provide best practices for your company’s M&E expenditures.

Businessman looking at picture frames with sky and clouds

How Can I Compare My Product to the Market?

The market is saturated. It hardly matters anymore what industry you’re in, consumers have more choices for products and services than ever before. It used to be that once you got your product on the shelves the hard work was done. But while barriers of entry have gone down, consumer awareness is heightened. Even shopping for school supplies takes a turn when a simple number 2 pencil can have 1600+ reviews!

To survive in such cutthroat competition your product or service must meet market demands and the best way to know it will is through product comparisons.

The need of product comparison to the market is an ongoing process and should be done quickly and regularly. Gone are the days when you only had to study the market while choosing the business sector and launching the product. To keep up with the pace, you must keep an eye on the market day and night—one missed opportunity can hit your accounts hard!

Let’s discuss how to keep an eye on your products and services relating to the market:

  1. Identify your target audience.

    Each product and service is designed to cater to a particular segment of people. It is suicidal if you don’t understand YOUR target customers and their demographics. If you’re not aware of what portion of the population your product will sell to, then it will be difficult to succeed. You cannot use trial and error just hoping to stumble on the right answer and survive in the market.

  2. Identify your competitors.

    The market will always be stuffed with companies that sell the same product or service as yours. Knowing those companies is not a difficult task, but your focus should be to identify those companies which target the SAME customer base as yours. Always choose the right competitors otherwise it may mislead you. For example, Levis cannot consider Armani or Gucci as their competitors as they both target different segments and there is no space for comparison.

  3. Create a competitive market analysis.

    This can be conducted in a few ways:

    • Visit competitor stores and look at their product ranges, prices, specifications and so on.
    • Check their online presence and gain knowledge that way.
    • Hit up social media, forums, etc. to discover the buzz around your competitors.

    It is important to be impartial while conducting this study and see each competitor through the customer’s view. This way you will have a true idea of the positive and negative points of your product and you will be able to make your product more competitive.

  4. Analyze the transactional and historical sales data of your product or service.

    This data speaks a lot about how your product is performing in the market. You can also do a region-wide analysis to know the trend and potential growth areas.

  5. Conduct a study of consumer behavior.

    This can be conducted through small surveys—a quick set questions when they are purchasing your product or may be an online feedback form. The most important thing to remember is to formulate appropriate questions—they should be brief and should provide you insight into the consumer behavior.

Make your product comparison work for you:

These key areas of analysis will help you formulate a strong comparison of your product to the market. However like most data it’s only really useful if you put it to work. Make sure you get the most out of your efforts by tailoring your product or service to what the market really wants. Then repeat the process regularly to keep your business in top shape!

What’s the best lesson you learned from comparing your product or service to the market? If you’ve never done a product comparison what would you like to learn? Let us know in the comments below!