Wednesday, January 18, 2006

Singing the 1099 Blues

An important deadline is looming for small business owners who use subcontractors to work in their businesses. January 31st is the deadline for the filing of IRS form 1099-Misc for all unincorporated subcontractors who were paid $600 or more and all fees paid to lawyers during the past year.

This is often a time of scrambling for small business owners as they try to figure out a) who they need to do 1099’s for and b) what the Social Security Number or Employer ID number is for each contractor.

Often, a small business owner will hire a subcontractor to get the job done without thinking ahead to that day of reckoning in January where they need to provide the subcontractor and the IRS with pertinent information.

This lack of planning causes many business owners to begin singing the 1099 blues as they try to collect the necessary information before the deadline. In some industries, subcontractors suddenly disappear when they hear the phrase “1099”. They try to avoid getting a 1099 detailing their income, preferring to take the “fly by night” express.

So, how do you avoid singing those down and dirty, IRS cursing, disappearing subcontractor blues?

1. When you start to work with a subcontractor (or any new vendor for that matter), have them fill out a form W-9. Form W-9 captures all the information you need to make the decision as to whether you need to prepare a 1099, the subcontractor’s address, and the subcontractor’s Social Security Number or Employer ID Number. Get this information before you cut any checks to the subcontractor.

2. The IRS wants to know about any of your unincorporated subcontractors who you pay more than $600 to in the course of a year. The intent is to keep tabs on self employed subs who may be trying to hide income from the IRS. Failure to file these forms puts the business owner at risk for fines and penalties for failure to file or filing late. By being proactive in getting your subs information ahead of time, you avoid the risk of missing the deadline or not including subs who should be getting forms.

3. If you find yourself in a situation where you have no idea who is incorporated or not or who should get forms or not, send W-9’s to all your vendors and give them a deadline for returning the form to you. Don’t wait until the last minute to do this because you won’t get your forms back in time to meet the Jan. 31st filing deadline.

4. If you need help preparing the forms contact your CPA or a local accounting service to give you a hand. Remember though, their existing clients may already have dibs on their time so don’t wait until Jan. 31st to ask for help.

Until next time,
Caroline Jordan
Get Knowledge. Get Focus. Get Results.
The Jordan Result

Monday, January 09, 2006

Taking the Stress Out of Financial Management

A lack of understanding about the numbers side of your business can cause you tremendous headaches. For a case in point, let me introduce you to one of my new clients who I’ll call John. John is a contractor who has been in business for more than twenty years. He hired me to come in and clean up a mess caused by 1) his lack of knowledge about small business finances and 2) his reliance on marginally competent bookkeepers.

It’s a classic small business scenario. A business owner who doesn’t understand the financial side of his business hires a bookkeeper to handle “all that”. But, because he doesn’t understand the financial side of his business, he doesn’t know what to look for in a bookkeeper and he has no way of knowing whether the bookkeeper is doing a good job.

This is the perfect set up for all sorts of unpleasant consequences including inaccurate financial records and tax returns, missed or inaccurate filings of mandatory forms and payments, useless financial statements, lack of information about how the business is really doing, and a potential for fraud and embezzlement. Scary, huh?

So, what’s a business owner to do? Here are some tips to help you stay out of trouble.

1. Understand that the numbers side of your business is a critical factor in your quest for a successful and prosperous business. You can hire someone else to do the work but you still need a basic understanding in order to run your business.

2. Know the difference between hiring a bookkeeper and hiring a financial professional. A good bookkeeper will understand how to accurately enter information like payables and receivables, process a payroll, make collection calls, and reconcile a checking account. All those are important and necessary tasks. Notice I call them tasks. Bookkeepers are task oriented. A professional finance professional may also perform these tasks but their real value is in taking the information that has been entered and translating it into knowledge about your business and then communicating it to you in a way you will understand. Financial managers are analysis and knowledge oriented. Two different ways of looking at your financial information by two different professionals.

3. Sometimes you can find someone who can perform both sets of competencies but individuals like that are few. Generally, it is more cost effective to have a competent bookkeeper perform the task oriented pieces of the financial puzzle—entering vendor and customer invoices, receiving payments, processing payroll, etc. and then use a financial manager to help you understand what the numbers mean.

4. A financial manager can be someone like your CPA (certified public accountant--they’re not just for taxes anymore) or you can use a CFO (chief financial officer) who specializes in working with a number of different smaller businesses. Usually you can get the information you need by hiring someone to look over your financials once a month, do some analysis and report back to you on trends and operating efficiency, and give you solid advice on how to improve your business. Be sure to find someone who understands the ins and outs of managing cash flow since this is such a critical challenge for small business owners.

5. When you set up your accounting system, get professional help. Again call your CPA or CFO to help with this. How you set it up is directly related to how useful the information is. Part of the problem my client is dealing with is a very poorly set up QuickBooks company. The set up was done in such a way that all the useful features like bank reconciliation and job costing have been rendered un-useable. Getting it set up right in the first place costs a pittance compared to having someone come in and spend hours or days fixing it later.

6. Make sure you have internal controls to protect your business from theft and fraud. Some examples: never have the same person who signs checks also reconcile the bank statement, always scan through cancelled checks or your bank’s check copies for any checks that look out of the ordinary, protect your passwords, keep checks (including the ones from your credit card company) in a secure place, know the basics of navigating your accounting system so you can at least appear knowledgeable, have a trained professional looking over your books regularly to deter fraud and to pick up on any clues that fraud may be happening.

7. When you hire a finance person for your business whether it’s a bookkeeper, a CPA, or a CFO, find one with experience in a business like yours. If you are a contractor like my client, find professionals who have worked with other contracting businesses. If you are a lawyer, find one who has worked for a law office or other professional service office. Check references. Ask for a few customers/employers you can contact to find out more about how the person is to work with. Red flag—an unwillingness to provide any information demonstrating their ability to do the job.

My client John now has a plan to move beyond the days of chaos and stress. He will use a bookkeeper to enter his invoices, receive payments, and keep his job folders under control. He will use my CFO service on a monthly basis to help him learn about the numbers side of his business, to get the information he needs to run his business, and to provide oversight and professional input for his bookkeeper. My involvement brings the stability and consistency that his business has needed for years. With a big sigh of relief he is able to say, “Goodbye Chaos! Hello smoother sailing.”

For more tips, techniques, and services to help you develop “strength in numbers” in your small business visit

Monday, January 02, 2006

Celebrating a Small Business Milestone

There are many milestones on the long road of business ownership…one of the most important milestones is the five year mark. Many businesses never make it to that milestone, somewhere along the way they fall by the wayside. Other businesses make it to the five year mark barely hanging on. Those who make it to the five year mark with a strong, healthy business and their own sanity, have something truly worth celebrating.

And so it is with great pleasure that I celebrate today for my own business, founded five years ago. My business is strong and growing. My cash flow is positive. And (arguably) I remain in full possession of my sanity…opinions may vary.

For those of you who know my story (see more about it at, you may guess that this is a very meaningful day for me. You see, I haven’t always been a small business success story. In fact, I was once a small business failure statistic. But, through a great deal of intestinal fortitude, hard knocks education, and sheer, dogged determination, I have arrived at a point many business owners never experience. I’d like to tell you it has been a breeze and I never made any mistakes. I’d like to tell you that…but I can’t. Just like you, I’ve had my challenges, missed opportunities, and uphill climbs.

Here are some of the valuable lessons I learned along the way:

1. Life (and business) is like a compost heap. The more you heap on it, the richer it gets. Mistakes, successes, new skills…keep mixing them in and you end up with a powerful mixture that helps you and your business grow.

2. Focus relentlessly on the problem you solve for your customer. No one will hire you or buy from you just because they like having you around. Find ways to solve their problems and they’ll keep coming back for more.

3. Develop relationships by making other people look good. Saying something positive about another person or business is a great way to make friends. That web of friends, colleagues, and acquaintances is the core of your business. Enjoy it. Nurture it. Spread it around.

4. Attract friends. When you describe your business to others in your marketing activities, speak to the people you want to work with. Imagine the person you want to attract to your business is your best friend. Working with great people is a lot better than working with people who make you nuts. How you talk about your business is a key factor in attracting good customers.

5. Know thy numbers. The finance part of your business is critical to your success. Knowing what your breakeven number is, how to manage receivables, and the basics of taxes are all a part of building a successful business.

6. Plan your business based on where you want to be 5 years from now. Most business owners toss about all day in stormy seas, never charting a course for where they want to be. Consequently, they never make to smoother sailing.

7. Act like the success you want to be. If you want your business to the leader in your industry, act like the owner of a company that is the leader in your industry, dress the part, reflect that in the way you treat your customers and employees, make decisions for your business that reflect your goal.

8. Make being a business owner work for you. One of the main reasons we become self employed is to have more control over our lives. Then, we promptly fill our days up with every imaginable task only to find ourselves even more exhausted than when we worked for someone else. It doesn’t have to be that way!

9. Learn (or hire) the skills you need to succeed. None of us gets up the mountain alone. Running a business today is more complex than it ever has been in the history of humankind. To really succeed you’ll need a team of professionals to guide you along the way. Lack of professional expertise will cost you far more in the long run than spending a bit now.

I want to thank you for joining me on my journey and for allowing me along on yours. May the next five years be successful and prosperous for all of us!

Until next time,

Caroline Jordan
Get Knowledge. Get Focus. Get Results.
The Jordan Result

Need help writing your business success story? For the month of January get a one hour consult with me on how to move your business forward—regularly priced at $195, specially priced to celebrate my anniversary at $125. Just send me an email at and I’ll send you the special link to sign up!