Month: July 2017

Preface: A well-trained talent pool is consistently aligned with premium business valuations and appraisals. This blog provides 6 reasons why you should invest continuously to train your talent in order to build business value.

 

Investing to Double Your Businesses Value – Part II

Donald J. Sauder, CPA

Reducing investment risk to a potential buyer increases the probabilities of the business likelihood and probability of success, and therefore increases value. Management and the talent pool of the business is one such risk factor. Successful companies have well-trained, expert and talented management and staff that are adept at performing critical functions. This can be from customer service to strategic decision making, e.g. inventory and stocking decisions, or say purchasing. Assessing your intangible assets – your talent pool is imperative. Unless your business is asset based, i.e. rental properties, talent is key drive to long-term success. Given entrepreneurial interests, we’d say the chances of a coach services or carpet sales are more likely. In those two instances, safe drivers and friendly staff are as important as price. In fact, most customers would rather pay a premium to work with a business they like. I’ve heard one business advertise that their team is “good natured guys” or simply easy to get along with technicians. You’d call them because you want a good attitude solving your problem.

The premise is training. While good attitudes aren’t always easy to consistently maintain when stress levels climb, proper training and management prevent problems from ballooning. That prevention begins with a well-trained management team that can quickly identify and adeptly resolve problems.

Does your business have the expertise and talent to run without you? If you can’t step outside your business for a week, without a business as usual attitude prevailing, you’ve got work to do on value drive number two – an expertly trained talent pool. Your business will be more successful with talent that is well trained. While sometimes challenging to hire, it often requires costs and time to train and development that expertise. Studies show that training is worth the investment. Why?

1. It promotes your business successes from better customer service to more closed sales;

2. It promotes job satisfaction and nurtures employees to be more engaged in working for you, therefore, leading to more financial rewards;

3. It is a recruiting tool for the promising talent looking to excel in their careers;

4. It is a retention tool, that instills loyalty and commitment from good talent, and provides them with opportunity and challenge, and a fast paced current;

5. It adds flexibility for cross-training to help with schedule setting and absences;

6. It provides knowledge transfer that is vital to successful craftsmanship.

The benefit of not investing in a trained talent pool – short term cost savings. Forty percent of employees who leave their jobs in the first year, make the decision because of a lack of training and upward mobility. As an entrepreneur, you appreciate more than your employees, what employee turnover costs – the training is therefore the less expensive alternative.

It likely is not easily perceived, but nearly all business with a premium value — and that value expands with the employee count – has an expertly trained workforce, from top management to clerical administrative tasks. The value of investing in a well-developed talent pool is too often overlooked in the entrepreneurial community, yet it’s proven to hold substantial and incalculable value. Your business must have the expertise to succeed without you daily involvement to be truly valuable. That often requires at a minimum, appropriate training for management to be expert decision makers and supervisors.

Step two in doubling your businesses value – investing in continuous training for a well-developed talent pool.

Preface: A CPA provides more value to an entrepreneurial business owner than is often perceived. Here’s one more reason why an investment in expert accounting and tax services is cost effective – it increases or supports business value at time of appraisal.

Investing to Double Your Businesses Value – Part I

Credit: Donald J. Sauder, CPA 

Prudent and principled savings and investments are frequently heralded as the straight path to successful retirement planning; yet for many business owners, the largest investment asset in a portfolio is business ownership. There usually is a time for every business owner to sell a minority or majority share of a business interest, and appropriate planning of that interest’ sale is the purpose of this blog. Predicting business success is like investing, a long-term approach is usually advised.

Let’s say you never thought about selling any share of your business before. Maybe you’ve only launched your business 4 years ago, and success is easy, or perhaps you’ve plans to never retire. Either way, what would prohibit you from planning how you could strategically double the value of your business. After all, your personal balance sheet would give you more credit access. Well, omitting the time to plan and thinking through the possibilities is a likely reason.

Although business value is subjective, there are some standard characteristics relevant to business value. To start, you need a base line. What is your business worth today? What are the value drivers and what are the risk drivers? Do you know what your ownership interest is worth?

Business Value– the foundation is good accounting. A properly prepared business appraisal will include documentation relevant to the key metrics of that value. Without good accounting records for the businesses financial history, a business appraiser will not be easily able to accurately value your business asset, especially not with a premium. Therefore, the first value driver of business value is good accounting. Now, some business owners think of their accountant as mainly an advisor for tax planning and advice. After all, entrepreneurs understand how to use QuickBooks or say Eagle Business Software. Why pay an accountant thousands of additional dollars to review your bookkeepers work? Well, here’s why. In the auto industry, used vehicles sell for a premium when they have dealer certified warranty or service. That business premium is typically worth more in a business transaction than a vehicle sale. Errors in tax filings and accounting software files discount value in due diligence. A CPA say is that certified warranty of your business financial records.

Let’s consider for instance a business due diligence team, e.g. the buyer’s accountant and attorney, say, checking and comparing the prior five years’ data from tax returns to accounting software files. If the financial balances agree, you’ve added a possible value premium, or certainly avoided a discount to transaction, through the trust and assurance in accurate historical financial performance.

Yet many entrepreneurial businesses lack that level expert of accounting and tax compliance. It’s not that entrepreneurs don’t appreciate accurate records, it’s often they don’t realize the value or take the time or make the investment in expert accounting, neither realize that it is the first step towards a premium in business value. Expert accounting includes accuracy and consistency. If your accountant doesn’t require you to count inventory and document values, or request confirmation of balance sheet accounts, your records may appear accurate, yet have a problematic flaw perceptible to a skilled due diligence team preparing an independent appraisal of value for a potential buyer.

Working with a credentialed business valuator and experienced accountant, you can prepare your accounting and tax records for that due diligence team years ahead of gearing up your business for the marketplace.

Step one in doubling your business value – investing in expert tax and accounting services for your business, every year.

 

Preface: A CFO is a trusted advisor to your business. The trust factor is vital. A CFO provides in-house financial and strategic counsel. Discussion, management, and decisive resolution of these business themes can be as easy as a visit to your CFO’s office. What does a CFO do – this blog answers that question.

Your Business Needs a Chief Financial Officer (CFO)?

Credit: Donald Sauder, CPA

A Chief Financial Officer (CFO) is a strategic financial partner for your business. A CFO’s primary responsibility is oversight of the financial decision making of a business. This oversight includes: planning, reporting, strategizing, and managing financial performance. A CFO reports to the CEO (Chief Executive Officer) and the board of directors.

 The role of a CFO has changed over the years, from solely financial management, to helping develop company plans and being a strategic partner and advisor to the CEO.

 A Chief Financial Officer needs to understand not only financial concierge and managing volatility, but also the strategy of developing the business position in the marketplace.

 A CFO will help provide answers to questions such as: are the financial statements timely and accurate? What is driving profits? How do we manage key assets such as receivables, cash, employees? How should we make decisions about capital expenditures? What are our measures of financial performance? What are the company’s overhead costs and break- even points? Are revenues trending up and why? Where should we invest excess cash? Should we develop a strategic plan? What information do we need to assess market conditions and make decisive business decisions? How will we finance expansion of the business? How can we manage the business more efficiently? What do key performance indicators indicate? Are we meeting cash flow projections? What does the balance sheet show as a strength or weakness in the business? What does our business do right, and what does it do wrong? How do we develop strategy? How do we provide our accounting staff with oversight? When should we obtain financing or refinancing for the business? What are our objectives and long-term goals?

 A CFO is a trusted advisor to your business, on payroll or with contract. The trust factor is vital. A CFO provides in-house financial and strategic counsel. Discussion, management, and decisive resolution of these business themes can be as easy as a visit to your CFO’s office.

 If your business is growing, a CFO can act as a trusted advisor and assist in developing a strategy–financial, operational, managerial–that prepares and positions your business for the future. A CFO is more than a numbers person. A CFO will work with your bookkeeper or accountant to understand what is important to business performance. They will monitor business performance indicators, financial statements, and environment, to prevent financial fires. They will also help with strategic business planning and pinpoint areas for improvement.

 If your business is exceeding $10 million in revenue, you likely need a CFO full time. If your business revenues are $3 million, a part-time CFO will likely provide you necessary pillar to your developing business framework. If you begin signing international contracts or complex deals, a part-time CFO probably cannot keep up with those pleasant surprises.

 If you think a CFO, either part-time or full-time, would benefit your business, talk with your CPA. Often small businesses begin with a CPA as the strategic CFO partner, and develop into a part-time or full-time CFO on contract or payroll. A CPA will also have the expertise to help you make the decision about what is in the best interest of your business when hiring a CFO–the expertise and experience required. You need a CFO who understands your business industry. A CPA can guide your decisions on the development and fulfillment of the CFO role in your business.

 In summary, a Chief Financial Officer or CFO is a strategic financial partner for your business. A CFO provides additional management of financial decision making and business strategy. CFO’s can be either part-time of full-time. For small businesses, a CPA can fill that spot well. If you think your business may have a need for a CFO, talk with your CPA.

 

Preface: Good business attorneys provide a valuable source of independent counsel in business decisions. Their expertise and experience when obtained in appropriate circumstances can be invaluable…..they know more than most what business inferno’s look like. Appreciate and respect an attorneys expertise….ask for their counsel and let them help you avoid the hot seat.

Why Your CPA Advises You to Work with an Attorney When Necessary

Credit: Donald Sauder, CPA

You are well advised to retain an attorney in certain instances. Why? Sometimes you don’t know what you don’t know. Your CPA appreciates this fact. After all, if you knew every tax and accounting angle, you wouldn’t need your CPA. When financial matters involve a peripheral individual or business, additional risks arise, and an attorney is worth the investment.

If you need accurate financial statements, tax advice, resolution of an IRS matter, or numerical analysis, your CPA is the right resource. If you need to amend a partnership agreement, write a buy-sell agreement, incorporate a new business, or draft a letter of intent, you need an attorney. If your CPA or attorney disagrees with this advice, you probably need a new CPA or attorney.

Often your CPA and attorney will work together to provide your business with a financial fortress. The fortress works like this. You wouldn’t pay a carpenter to install a new phone system in your business, nor would you pay marketing experts to install carpet in your new office. You understand the importance and value in working with a business or individual specializing in the task at hand. You would, perhaps, pay a human resource specialist to hire the right talent for a managerial role in your business. These are understandable examples of specialization. In too many instances, entrepreneurs have the wrong impression of what trusted advisors, such as a good attorney, can do for their business.

Suppose you are selling an interest in an LLC to your partner. You tell your accountant your plans, and he writes an agreement of sale document and amends the Operating Agreement. Your accountant makes the appropriate adjustments with the tax filing, and you receive payment. Here’s how things can go wrong. Three years later you decide to contact the bank for a loan on investment real estate. Your banker says your credit score is too low, but when you checked five years ago it was stellar. The problem–the partner who bought your business interest has a delinquent credit card with a $35,000 balance. Who forgot to take your name off the business credit card, or the at-the-limit-line of credit with your personal guarantee? Don’t sweat a business attorney’s fees if you want savvy advice. It should be obvious why your CPA advises you to retain an attorney. They don’t want to pay the line of credit or credit cards from a malpractice lawsuit, and the professional oversight of an attorney provides additional financial protection to you and your CPA.

Think of your attorney as saving you and your business from making major mistakes, not just getting you and your business out of major mistakes. Listening to your CPA when they advise you to retain an attorney, it is in your best interest.

In summary, attorneys can save you and your business from legal hassles.  An attorney is an asset to your business, not a liability. Your CPA will likely give you a referral to a trusted attorney, should the need arise within your business.

Your Destination – A Business MAP Credits: Donald J. Sauder, CPA Twenty years ago a man walked up to me at church and inquired point blank, “If you get where you are going, where will you be?” It’s clearly important; destination matters. You don’t get lost driving to a local venue for the tenth time. The danger is when you step outside your comfort zone into a new responsibility, new product, or new service area in your business. The Chinese Admiral Zheng didn’t make seven successful voyages to Arabia, East Africa, India, Indonesia, and Thailand in the 1400’s  A.D. without planning. The important fact is that he had a destination in mind, then planned appropriately. He also had a very high quality map, or he wouldn’t have gotten back to China too. Entrepreneurism is very similar. You need to map out a plan to reach your destination. Few entrepreneurs invest the appropriate time to think through their business endeavors. Why? Do they think they’re too busy? Do they think it’s time and money wasted? Would a plan require too much energy? Do they already know in their mind where they want their business to be in three years or five years?   Maybe they’re simply satisfied with the status quo. A Business MAP, a Marketplace Assessment Profile, is a good tool to help you reach your business destination. A Business MAP is a business planning tool that helps you make sense of your business: the services and products viability in the marketplace, your business’s competitive advantages, industry risk, resource risks, opportunities, and value drivers. A Business MAP looks at your business on both a macro and micro scale and provides a guide for your businesses future. A Business MAP helps you plan your business destination, whether it’s organic expansion, a gear-up for sale, etc. Studies show that people forget 50-80% of what they’ve learned after one day, and 97-98% after a month. You must map your plan on paper for it to be of any value. Those who do, and follow it with a single purpose, (there are lots of distractions)  often harvest, not double, more like 30-, 60-, or 100- fold, of the initial investment. There is often a reason for a chosen destination. If the destination for your business is $5 million of revenue, $50 million or $500 million, remember this: you won’t get there alone. You will need a articulate plan and vision to convince others to join you and help achieve that plan. You either have a plan with a vision, or you become part of someone else’s. If you don’t have the time to plan and map in detail the vision of your business, you will never have time to reach the destination of your vision or to recognize when you get there. If you’ve built one or more successful entrepreneurial businesses, then it will be easier to build on prior successes; but if you’re just entering the entrepreneurial world, or experiencing only mediocre developments, or experiencing pain points on the current path, you’re best advised to retain advisors who can help you map a plan to arrive at your destination successfully. Chance favors the smartest decision as getting the right advice early with mapping and working toward your business destination, even if you’re surprised at the cost upfront.

 

 

 

Preface: Appropriately planning contactor costs when renovating business property can result in tax benefits; read this blog to see how certain qualifying improvements have tax advantages.

Depreciation of Real Property Improvements

Credits: Jake Dietz, CPA

Is it time to renovate your business property? Have you considered how quickly you can deduct the expenditure? The IRS allows some capital expenditures to be deducted in the first year, either in whole or in part, using Section 179 expense or bonus depreciation. On the other hand, some capital expenditures must be deducted over decades. This timing difference can affect your tax liability and therefore your cash flow. This article examines certain categories of property and rules that apply to deducting them.

Qualified retail improvement property is an improvement made to the interior portion of a building that is accessible by the public and is part of retailing tangible personal property to the public. An example would be a hardware store. Qualified retail improvement property excludes:

1. “the enlargement of the building,”
2. “any elevator or escalator,”
3. “any structural component benefitting a common area, or”
4. “the internal structural framework of the building.”

 

The qualified retail improvement must be made more than 3 years after the building was first placed in service by any taxpayer. It therefore will not apply to constructing a new building, but it can apply to remodeling an existing building even if it was originally placed in service by a separate taxpayer. For example, ABC Building was constructed in 2011 for use as a store. In 2017, it is sold, and the new store owner makes qualifying improvements immediately. The 3 year rule is met because the building had originally been placed in service more than 3 years before, even though it was by a different taxpayer.

Another category is qualified leasehold improvement property, which are improvements to leased property. The improvements may be made by the lessee or lessor. This property must be placed in service more than three years after the original building was first put in service. Certain improvements are not included. The exclusions are the same four improvements that are excluded from the definition of qualified retail improvement property listed above.

Related party leases do not qualify for the leasehold improvement rules. For example, suppose John and Samuel own an LLC that operates a construction company, and they also own a separate LLC that rents a shop to the construction company. Improvements to the shop would not qualify as leasehold improvement because of the related party rules.

Qualified restaurant property is a third category we will examine. This category is a building, or building improvements, “if more than 50 percent of the building’s square footage is devoted to preparation of, and seating for on-premises consumption of, prepared meals.” There is no 3 year in service requirement.

Qualified improvement property is an improvement to the interior of the building. The improvement must be placed in service after the original date of the building, but there is not a three year waiting period. QIP excludes 3 types of improvements:

1. “the enlargement of the building,”
2. “any elevator or escalator,”
3. “the internal structural framework of the building.”

Now that we have defined these categories, how can they be written off?

Qualified restaurant property, qualified leasehold improvement property, and qualified restaurant property qualify for section 179 expensing. This allows them to be written off immediately, subject to the Section 179 limits. Qualified improvement property is only subject to section 179 if it also qualifies as one of the other three categories.

Bonus depreciation allows a certain percentage of qualifying property to be depreciated in the first year. That percentage is 50% for 2017. Qualified retail improvement property, qualified leasehold improvement property, and qualified improvement property qualify for bonus depreciation. Qualified restaurant property, however, is excluded from bonus unless it also qualifies as qualified improvement property.

Qualified retail improvement property, qualified leasehold improvement property, and qualified restaurant property are each 15 year property that is depreciated straight line. Qualified improvement property, on the other hand, is 39 year straight line property unless it falls into one of the other three categories. The 15 year life can make a nice difference for annual depreciation because depreciation is deducted more quickly than the normal 39 year life for nonresidential real property.

While each of the categories discussed has its benefits, they also each have qualifications that must be met. If you are renovating, part of the job may fall into one of these categories, and another part may not. Talk with your accountant beforehand to see what might qualify, and then ask your contractor to give you invoices that have the appropriate breakdown of expenses.

 

 

Preface: If your business is a retailer, or say wholesaler, inventory is part of every revenue transaction and invoice. Managing that inventory is vital to accurate financials. Say, how is your flock? Did you count some inventory today?

Don’t Neglect the Flock

Credit: Jake Dietz, CPA

How much inventory do you have on hand? Does it even matter? Inventory is products that you have for sale, or will manufacture into products for sale. Depending on the business it can be a minimal or a very significant value. Determining how much inventory is on hand can be tracked perpetually or periodically, but this blog address periodic systems. Under the periodic system of inventory tracking, purchases may be listed under cost of goods sold, but then inventory is counted from time to time and adjustments made to inventory and cost of goods sold. Counting inventory improves the accuracy of the financial statements, provides opportunity to find obsolete items, and provides opportunity to indicate potential theft or fraud.

Why Count Your Inventory?

1. One reason to track inventory is to see the financial condition of your company. Inventory can be crucial to your profit and loss statement because inventory is deducted after it is sold. For example, suppose your inventory decreased by $20,000, but the inventory balance has not been adjusted. In this scenario, cost of goods sold would then be understated by $20,000 which overstates gross profit by $20,000. Reporting accurate inventory and cost of goods sold may allow you and your accountant to make wiser financial decisions.
2. Another reason to count inventory is to find items that are obsolete. If the item is obsolete, perhaps it should be sold at a discount. Clearing obsolete items from the floor may make room for more necessary items or make it easier to find the more necessary items. Locating obsolete items may reveal opportunity for improvement in purchasing. If you find significant amounts of obsolete items every time you count, then perhaps purchasing should be adjusted.
3. A third reason to count inventory is that it may give clues if inventory fraud or theft is occurring. It can be hard to detect inventory fraud or theft in a periodic system, but especially scrutinize a low count if you recently purchased that item. For example, suppose that last week you purchased 50 widgets, and this week there are only 20 widgets when you count. What happened to the other 30 widgets? If your sales records show you sold 30, then there may be no problem. If your sales records show that you sold 5, then what happened to the other 25 widgets? One cause for inventory shrinkage could be that it was inadvertently not charged to the customer. An example of this would be a company that both sells products and provides repair services. Perhaps inventory was used as part of the repair services but the customer was never charged. It is also possible that inventory was stolen. Is inventory easily accessed from the road, and is it easy to carry off? Was the inventory never delivered? Could someone come at night and easily put it on a truck? Or could it be stuffed into pockets or purses?

Adding It Up

Although counting inventory may not be as fun (it’s tedious, time-consuming, 101, 102 and 103) as buying it, it can provide you with better financial statements and reveal opportunities for improvement with purchasing and inventory controls. Proverbs exhorts us to be “diligent to know the state of thy flocks, and look well to thy herds.” This exhortation can also apply to inventory.

How much inventory does your business really have?

Preface: This blog highlights the realistic feasibility study of Ironville Bicycle Seats, LLC entrepreneurs turning required Pennsylvania income tax payments into charitable contributions funding K-12 education.

Pennsylvania EITC Allows Tax Payments on Businesses to Fund K-12 Schools

Credits: Jake Dietz, CPA

Many people do not like paying taxes. Some people, however, would cheerfully donate to a good school that shared their values. Fortunately, the Pennsylvania Educational Improvement Tax Credit (EITC) allows qualifying businesses to get a 75%-100% tax credit against various PA taxes on eligible donations to qualifying organizations.

What businesses qualify? Businesses must be authorized to do business in PA to qualify for the credit. The credit offsets PA corporate net income tax, PA personal income tax for Single Member LLC’s and pass-through entities, and various other less common taxes. For pass-through entities, REV-1123 can be filed to pass the credit down to the partners to claim on their personal tax returns. It does not offset sales tax or payroll taxes. Sole proprietorships do not qualify for the credit. If your business structure does not qualify, or if you have partners that do not want to make contributions, then you might consider creating a special purpose firm to make contributions under the Tax Reform Code of 1971.

The donor must give to an approved organization to get the credit. Pennsylvania’s Department of Community and Economic Development lists many organizations that can receive these donations. Faith Builders Scholarship Services is one of these organizations, and they will even file the application electronically for you. They pass the donation on to the school of your choice, less a 5% administrative fee. Before choosing a school, however, check with the school to make sure that they are willing to accept the donation.

How much is the credit worth? Generally, EITC donors receive 75% of the contribution as a credit up to $750,000, but it is increased to 90%, still subject to the $750,000 cap, if you agree to a two-year commitment to give. For Pre-Kindergarten Scholarship organizations, the credit is 100% for the first $10,000, and then 90% above that but not exceeding $200,000.

When to file varies depending on the situation. May 15 is the earliest date businesses who have fulfilled a 2-year commitment and want to make a new commitment can file, as well as businesses in the middle of a 2-year commitment. On July 3, 2017, any business can file.

Let’s look at an example of how this could work. Suppose Reuben and Justin are both 50% members in Ironville Bicycle Seats, LLC. They ask their CPA what their normal PA personal income tax liabilities are, and he tells them that they both averaged a $3,000 liability for each of the last two years. They decide to estimate their future liabilities on the low side to avoid having an unusable credit. They agree to aim for a $1,800 credit per person each year. They therefore make a 2-year commitment from the LLC to give $4,000 to Faith Builders Scholarship Services, and have the money passed on to their local church school. They fill out the information and give it to Faith Builders, who electronically files the application at the right time. Since it is a 2-year commitment, 90% of the donation, or $3,600 per year, is available as a credit. Their CPA can file REV-1123 to pass an $1,800 credit down to both Reuben and Justin each year to be used on their personal income tax returns. The LLC wrote a check to Faith Builders, Faith Builders wrote a check to the church school, and therefore Reuben and Justin transfer required PA tax payments to fund education. The money never touched the state’s coffers, and Christian education was funded.

If you run an eligible business, pay personal income taxes, and like Reuben and Justin, cheerfully give to Christian education, you may want to consider the EITC, too. The EITC allows business owners to give to K-12 education, with a tax credit that pays Pennsylvania taxes on business revenues. For more details, contact your CPA today.

 

Preface: Proper preparation is always good advice. Are you preparing to excel? A SWOT analysis can help you achieve entrepreneurial success more easily with less stress.

SWOT Analysis for the Aspiring Entrepreneurs

Credits: Jake Dietz, CPA

Should I become an entrepreneur and start a business? If you are asking that question, then there are many things to consider. This article will not delve into all of them, but recommends that the aspiring entrepreneur conduct a personal SWOT analysis to examine Strengths, Weaknesses, Opportunities, and Threats.

First, strengths are your characteristics that can help you. Some strengths that you might possess include a good work ethic, discipline, integrity, experience, and good hand-eye coordination. What would give you a competitive advantage? What internal strengths would help you run this business successfully?

Along with your strengths, consider your weaknesses. Weaknesses are your characteristics that may harm you. It may be painful to recognize your own weaknesses, but it also may be extremely beneficial. If you know your weaknesses, then you may be able to avoid long-term harm by avoiding certain situations, or by minimizing your weaknesses in certain situations. For example, assume that you are terrified of heights and cannot work long hours in the heat without fainting. Perhaps you should not start a roofing business. On the other hand, sometimes a weakness can be mitigated. Maybe you are weak at analyzing financial data. If that is the case, then you may want to team up with a talented CPA who can assist you with the financial analytics.

Strengths and weaknesses are internal, so a good knowledge of yourself is crucial to understanding them. Unfortunately, it can be hard to truly know yourself and analyze yourself honestly. Consider asking one or more trusted people who know you well to help with the process.

In addition to analyzing your internal strengths and weakness, it is also valuable to consider external opportunities and threats. What are the opportunities in the industry? For example, suppose you want to become a residential homebuilder. An opportunity could be that your township revised its zoning laws to allow more houses to be built. Another opportunity could be a growing population of a certain demographic group that wants your product or service. For example, if you want to start a home healthcare business, then a growing population of senior citizens could be an opportunity.

A threat is an external item that could harm your potential venture. Threats may include legal, economic, and other hazards. For example, if you wanted to start a residential construction company right after a housing bubble popped then you may be facing a major threat.

Opportunities and threats are external to you, so they may require some outside research. Reading can be a great way to learn some of this information. Business publications, trade publications, and even your local newspaper can provide helpful information. Also, consider talking with your librarian. Your library may have access to business databases, publications, and references that will be useful to you. You also may want to talk with experienced people in the industry in which you are considering starting out as an entrepreneur. Do they know of any good opportunities to seize or threats to avoid?

The factors going into a decision about entrepreneurship may be many, but remember to include a SWOT analysis in the decision process. It might steer you away from a disastrous decision. Alternatively, you may still make the decision to enter that field but be better prepared to use your strengths to seize certain opportunities and to take measures to minimize the risks from weaknesses and threats. Feel free to contact your CPA if you would like to talk about becoming an entrepreneur.