Small Business Tax Rates – The Obama Proposal – Is it Fair?

In the past few weeks there has been proposals put forth by President Obama to lower the corporate tax rate which at first glance looks great for the small business manufacturer but upon a closer look isn’t as good as it sounds.

The problem is that most of the breaks would only benefit a small number of companies. In the end it will leave many business owners with a higher tax bill. The plan calls for the corporate tax rate to drop from the current 35% to 28% with manufacturers being capped at 25%

The reduced rate however only applies to larger “C” corporations structured like fortune 500 and larger companies that pay taxes on the money they earn. The majority of the small businesses are set up as sole proprietorships, partnerships, LLC’s and S corporations where the earnings from the business are passed through to the owners who report this as income on their 1040 returns and pay the tax. Only 25% of all small businesses are set up as C corporations.

In most cases the small business has a higher tax rate. If the total household income rises above $250,000 the federal tax rate on income rises to 39.6% in 2012. Many business owners are in this group since many are two income households. The proposal makes little sense because it is not a comprehensive one.

The good things to come from this proposal include some real concerns of business owners. It calls for a permanent increase to $1 million in the Section 179 deduction for purchases of equipment such as computers, vehicles and manufacturing machinery. The deduction has fallen to $125,000 in 2012 from $500,000 in 2011. It’s scheduled to drop to $25,000 next year. However, most small businesses are unlikely to spend a million dollars on new equipment in one year.

The proposal also doubles to $10,000 the deduction that an entrepreneur can take for money spent on starting a company. It also allows more companies to use the simpler cash method of accounting.

The only way to gain true reform in the corporate tax structure is to overhaul the entire system with broad reforms and include individual taxes as part of an overall solution. It’s time this country stops giving handouts and breaks to only the biggest and turn their attention to the majority which are the small businesses.

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Manufacturing ERP Software Perspective

I was encouraged the other day when I read the NY times report on how Manufacturing is growing again in the US. Certain products and industries we still continue to dominate and our capital and technology leadership still favor production in the United States.

What restricts manufacturing from dominating is in the application software space. With all of the push today towards sexier technology use- social media, internet, etc. there still remains somewhat of a technological lag in terms of Flexibility and ease of use of Core Enterprise Resource Planning (ERP) software systems. The problem isn’t the way calculations are made and information is given but in the amount of information, the time and resources needed to make it work. At some point you need to ask the question at what cost is all of this information and what is my return on the investment by having it available?

Many firms today are tied to their investors or their bank and have to be precise in their financial reporting. The requirements are many and closing a month end takes time. Having information available on demand and in a usable customizable format is crucial for the management of business operations and financial reporting.

It seems most of my ERP clients struggle with managing the beast. They tend to be smaller and don’t necessarily have the administrative overhead needed to manage the system day to day. They need quick turn answers without having to jump through hoops to get it. They also complain about inflexibility. Most are a hybrid manufacturing operation. They are both “repetitive: manufacturers who find themselves on each job making modifications and needing to see what the profitability of each production run is like a job shop environment.

They tend to do a cross pollination of cost analysis. They may look at the purchase of their raw materials on a lot by lot basis due to landed cost issues, acquisition costs, etc. but on certain manufacturing goods they may be looking for labor efficiencies and want to see variances as in a standard costing system. This mixed mode, item by item, production runs by production run, build on the fly world is how today’s manufacturer stays in business.

It’s all about the speed of the transaction and you better be fast to stay competitive. Combine speed with flexibility and you get business agility. ERP systems vendors need to get this and understand how the US manufacturer works – lean and mean.

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The Cash Efficiency Cycle and your Business Software

An area of great concern to most business owners is that of cash flow management and optimization of and improvement in the velocity of incoming cash against adding drag to the outflow of cash (slowing the outflow). Some call this the light version of Cash Efficiency Management but as I have found through research on many of the CFO related sites the definition is vague at best since many professionals have their own idea of what makes up Cash Efficiency as it relates to their business.

One thing is for sure and that is the software you run your business on can help or hurt you financially from a cash management position if it isn’t fully integrated, if it has bad or inaccurate data, isn’t utilized the way it was designed to be used (workarounds), has people who are not fully trained or training is not formalized (including continuous retraining and process improvement) and is not culturally accepted as the system of record.

A software solution that has none of the above traits succeeds in helping understand the cash cycle by not only providing accurate and timely information that is key in making short term and long term effective management and financial decisions but also providing key trend data that isn’t visible otherwise. The ability to see if vendors are typically late or early helps make “when to order” decisions. These decisions on key timing of products (hence money in the bank) are much more transparent and less risky to business in terms of shortages or interruptions.

Customer’s predictive patterns of collections helps you smooth the bumps in your own cash flow helping with better timing of key purchase or investments. MRP gives you visibility to when things are needed from a time phased perspective. It takes into account the lead time and when it’s actually needed to fulfill the order. Buying Patterns tell you what to buy or build.

The bottom line is this. If you’re looking to improve your financial efficiency your business software has to function like it was designed. Too many clients we see have bits and pieces working but have abandoned the project before it is competed. Sometimes it takes building out a second phase then putting a plan in place to do it! List the items unfinished or remaining to be completed. Put together a team and assign a project leader and finish what you started.

It seems many clients take an amazing amount of time to build manual workarounds but invest little or no time to fix or finish their software implementation (or they inherited it that way). An unfinished software implementation sends a message that a company is weak. Either it can’t make time to fix the most important tool a business has, doesn’t have the right people to figure it out, isn’t willing to use outside help to fix because it isn’t a high enough financial priority, has cultural issues and/or leadership issues. In the end it makes it look like the leadership is weak. How can it not be important?

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Business Fitness Introduction

Business Fitness (Part 1) – By Brad Tornberg

As the end of the year quickly approaches we all begin the time honored tradition of reflecting on the past year and thinking about plans for the New Year. Most people think in terms of their own self-improvement (such as losing weight or networking more with others). While individual goals are of key importance to one’s success, how many business people look at their business in the same manner?

Business is a competitive sport. You need to have a good team around you with a few superstars to win. The business has to be quick and agile and be able to respond quickly to new opportunities. The financial blood flow must be constant and strong and speed becomes important in terms of how your customers perceive you and want to deal with you. Add to this the endurance needed to continue trying and doing different things needed to attain business success.

This upcoming year will focus on your Business Fitness. A multi-part series dedicated to getting not only you but your business in shape as well. The focus will start in the New Year on personal fitness and how important that you as the business owner or “C” must be in peak shape both physically and mentally to manage the daily demands of growing a successful business.

The series will then move on to critical factors to help you manage and measure your business fitness. Areas will include Operational & Technology Efficiency, Business Development – Sales & Marketing Systems, Financial Fitness, Transactional Speed, Cultural & Human Resource Health, Management Controls, Risk Assessment and many other areas.

At the end of the series hopefully with everyone’s input and feedback a book will be developed. My business goal for 2012 is to get this book done but I need you help! If you have any suggestions, ideas, examples, comments or just want to give your opinion please do so if it’s good I will mention you in the book! So starting January 2012 look for the continuing series on Business Fitness – How to get your company in top competitive shape!

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Vendor Management and ERP Upgrades – Don’t learn the hard way.

It amazes me that after 30 years in the technology industry the weakest link on my chain when it comes to project management is still managing the vendor. It makes sense that this is an area of major concern and risk for many projects and worthy of a discussion and some feedback from my readers.

Vendor Risk is tough to mitigate. You can check vendors references, you can delay payment (progress payments) to the vendor based upon performance, you can add guarantees until the cows come home but what I have found is Vendors are like contracts; they only apply to those who play by the rules.

A key example is of a project that I am currently working on with a major manufacturer of industrial equipment. We had begun a campaign to upgrade each of their many locations to the latest revision of the software for each site. We had success in implementing two other sites, one with the same software as the third site and one different. It was cookie cutter from the point of the implementation and the only issue was the data conversion and the tricky process needed to upgrade so many versions.

Like many of our clients who waited a long time to refresh they were old to say the least. Thrown in with this was the fact that the satellite site was in Canada. The Company that owns the software had sold it to a foreign company confusing the licensing agreement with the VAR’s. Suffice it to say the company and their VAR’s were a mess.

On top of this the company has begun to enforce rules of who we can and can’t do business with and many of the partners in place when the original implementations were done have long left the fold leaving the client with few (but expensive) choices. The humor of the entire farce was that the primary vendor and the software company had both priced the conversion way out of range with a normal upgrade. Basically it became the lesser of two evils. Add to this the primary vendor was resource challenged and couldn’t commit resources anyway to our project and meet our deadline and you could see the dilemma the client was facing

The short of this is it forced us to look into the marketplace for another vendor who had the skills and could help us. A vendor who had once been “official” but now due to the change in the structure and requirements to be a VAR had been grandfathered in with a “sub partner” agreement (or so we thought).

So we began a critical project with a vendor based in a state not close to ours and had the added requirement of trying to bring forth during the conversion a multi-currency setup that to this point didn’t exist. In hind sight it would have been better to do the upgrade and then add the multicurrency and perhaps this should have pointed out that the VAR had no best practices.

As we got further into the project it became clear the vendor didn’t document anything and became more and more frustrated when we asked for things. Behavior tells a lot. He was slow to respond, his phone was always “having a problem” his emails were short and usually were “I will call you tomorrow to discuss” and it never happened. His structure and accountability didn’t match ours. This was a train wreck and before we could put a contingency in place the all-time worst business move occurred – he disappeared. No calls, one email sending back at the request of the companies CIO the file he converted “so far” and that was it – gone with the wind.

Wow! how could we be so stupid? How did we not see this? Easy – we took a short cut. We were so in love finding a solution provider who was affordable we forgot the basics – references, work product examples, validation of credentials and what they represent, basic instinct?

Sometimes our emotions take hold and we make business decisions based on immediate gratification of a need (Maslow ). So while we discuss the rational ideas and processes we should follow, sometimes we don’t. We let our emotions take over and the idea of solving the problem becomes bigger. Don’t let this happen to you. Treat every member of your project team with the same scrutiny. Validate things for yourself and never be afraid to ask the tough questions. If not, when you make the mistake people will be asking the tough questions to you instead.

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NY Business Expo!

Members & Colleagues – ATTEND THE BUSINESS EVENT OF THE YEAR 4 FREE! 6th Annual New England XPO For Business (Nov. 16th @ Javits Convention Center) REGISTER NOW = http://bit.ly/c05XVx

15,000+ Executives / 300 Exhibits / 40+ Workshops / National Keynotes

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Smaller Manufacturers Need Software that fits there business model

Interesting article I read by Industry Expert Christopher Baum on the Software Advice Blog – http://erp.softwareadvice.com He writes that the ERP manufacturing software industry is optimized and focused on larger manufacturing facilities with greater than 100 employees. The problem with that is according to the article “about 90 percent of the manufacturers in the United States employ less than 100 people. Smaller manufacturers have adopted ERP to varying degrees but have always struggled because the systems were not optimized for smaller operations”.

Todays manufacturers are much smaller, much more dynamic in terms of their software needs and most importantly need a solution that can change quickly to the type of manufacturing they do. You tend to find today many repetitive manufacturers are making customizations to their products to satisfy the requirements of their customer or geography. This moves away from the traditional manufacturing structured build approach to more of a quick turn style – quote it, build it, bill it.

Today most of the smaller companies do not have the time or the resources necessary to maintain many of the current ERP solutions in the market. Many solutions seem to have been built for the 1970’s with little change to meet the flexibility of the global and domestic marketplaces. They assume dedicated personnel to manage each of the key functions in the software.

Traditional software solutions have a step by step process that usually takes longer to setup then it does to quote then build the product. Capturing data after the fact has more importance then proper setup so a good flexible solution will allow that approach as opposed to following strict setup guidelines needed prior to any transactions occurring.

It seems smaller companies do not see the benefit of a formal ERP system when it requires each and every step to be performed in setting up an item that will only be produced one or two times. They need to find something similar quickly and easy (product search) and be able to quickly copy the skeleton of the job or product structure, make some quick changes quote it, release it as an order, produce it, bill it and report it.

What the large ERP software manufacturers don’t seem to understand is that the marketplace has changed. The challenges that a small manufacturing concern has to deal with forces them to be a leaner organization with less overhead and an ability to improve transactional velocity (the speed at which a transaction can be executed is a primary competitive issue in being able to be competitive against less cost labor from foreign competition). It also forces them to change their approach and take on types of business that they wouldn’t in the past. It may be complimentary but a different type of manufacturing (more make to order vs. repetitive). The software needs to be able to handle these variations with ease not workarounds.

The article goes on to discuss changes that have occurred and are needed in the industry. He discusses the integration of the buyer and seller, data storage and sharing and Integration of ERP and other systems.

The article points out one of the most important things that this author has been saying for some time. Build it and bill it and don’t tell me I need more people to run my system to do it!

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