Ryan Johanek

How the ‘fiscal cliff’ compromise affects small businesses…

Posted on January 15, 2013. Filed under: Ryan Johanek |

On New Year’s Day Congress approved a stop-gap measure to raise rates on the wealthy, extend unemployment benefits, and avoid a round of tax increases and government spending cuts.  Whether you are for or against the legislation that was passed to avoid the fiscal cliff; small business owners will be affected by the changes.  Here are a few measures that will have the greatest impact on small businesses. 

Top rates raised: Tax rates will permanently increase for families with income above $450,000 and individuals above $400,000.  Small business owners with pass-through income above those thresholds will pay higher taxes. The Bush-era cuts remain in place for the rest of the tax brackets.

Section 179 continued: Congress renewed the maximum deduction levels for bonus depreciation and Section 179 for another year, which gives tax breaks to businesses that purchase or lease software and equipment.

Capital gains rates increased:  Capital gains and dividends rates did increase to 20 percent for high-income earners, which entre­pre­neur­ship advocates fear could deter some investments in new and growing firms.

Payroll taxes increased: Lawmakers did not save the payroll tax cuts, instead allowing rates to jump back up to 6.2 percent from 4.2 percent for all Americans. Economists warned the move could cripple consumer spending which is a bad sign for small business. 

More targeted breaks continued: The Work Opportunity Tax Credit (WOTC), a tax incentive for firms that hire widely underemployed groups like youths and veterans, as well as breaks for renewable energy technologies and retail/restaurant improvements were extended through 2013.

R&D credit continued: The Research and Development (R&D) tax credit was extended for another year and reinstated retroactively for 2012.  Employers can now continue to get tax breaks for between roughly 6 percent and 14 percent of their R&D expenditures.

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Understanding your cash flow and its importance

Posted on May 14, 2012. Filed under: Ryan Johanek |

Gone are the days of collateral based lending.  When businesses are looking to purchase a piece of equipment, construct a building, establish a line of credit, etc., financial institutions look primarily at the cash flow of the business.  Cash flow is the most important factor because that is the primary source of repayment on the loan.  Lenders look to minimize their risk by borrowing to businesses that can support the new debt based on their tax returns and income statements.  We still look at the character of the business owner, collateral that is being pledged, industry they are in or entering, the operating cycle, and structure of the loan, but those factors are not as important as the cash flow.  

Cash flow is the movement of money into or out of a business, project, or financial product.  It is usually measured during a specified, finite period of time.  Measurement of cash flow can be used for calculating other parameters that give information on a company’s value and situation.

It is extremely important for business owners to review their financial statements, get comfortable with them, and locate areas where they can make changes to help improve their profitability and cash flow. They should review their revenue streams to find areas that are profitable and try to expand them while cutting back on areas that are not.  They need to look for ways to lower cost of goods sold and examine expenses to find areas where the business can run a little leaner while still keeping the same quality and service. 

Not only does a strong cash flow help in obtaining financing from a financial institution, it will also help increase the value of the business when the owner is looking to sell.  A potential buyer is going to want to look at the financial history to determine a price they are willing to pay for a business.  They are looking to see how profitable the business is to justify the risk they are willing to take on.  Their lender is going to do the same and look at how much risk they want to take based on the historic numbers they are provided.

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Commercial Lending in Today’s Economy

Posted on July 18, 2011. Filed under: Ryan Johanek |

Today’s economy is like nothing we have seen before.  Unemployment is through the roof, there seems to be a foreclosed property on every block, and real estate values have dropped substantially. 

There are a lot of business owners saying that “banks are unwilling to lend them money” or “their bank is unwilling to work with them”.  It is true that commercial lending today is more challenging than it has been in the past due to the economic environment and increased regulations.  However, most banks are still looking to grow their loan portfolios and work with their existing business customers to help them get through the hard times.  This is especially true with community banks because of their knowledge of the local environment.  Decisions are made by people who are familiar with the business, the owner, and the area. 

Denmark State Bank is willing and excited to meet with business owners to see if we can provide a financial package that can help grow their business and make it more profitable.  

Member FDIC

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