There are three essential areas of focus in a successful business: operations, sales, and financials. For the purpose of this discussion, let's assume you have a well-run operation and are doing as good a job as possible to maintain or increase sales. For most businesses, the easiest and most fun parts of the business are running it and having lots of happy and repeat customers.
Financial optimization or improvement isn't quite as much fun or as sexy, but you cannot survive very long with an unprofitable business. The formula for any successful and healthy business is to continue to grow profits and improve balance sheet strength. The normal way to sustain success is by increasing sales and controlling costs (or even better yet, reducing them). Business 101, right?
Where in all of this wisdom are actions taken to reduce taxes? Did our business education or experience include information on reducing taxes? Mine didn't. So, where might we get the education - and suggestions on what tax credits are available and how to get them?
The first line of defense against paying too much in taxes falls on your accountant/CPA. Accountants/CPAs are well-versed in tax projections and completing tax forms, and should be able to optimize the widely used deductions for things like depreciation, which reduce or postpone taxes. However, their knowledge base on special (and sometimes complex or obscure) hiring-based and demographic-based tax credits varies from firm to firm.
A healthy and periodic dialogue with your accountant/CPA about available tax credits should be included in most of your discussions. In some ways you can compare this to your yearly physical exam. Your doctor will take basic measurements like blood pressure and cholesterol and make a few recommendations about watching what you eat and getting more exercise. Good doctors are up to date on the latest ways to improve or even optimize your health and make suggestions on how you get there. You can choose to listen to or ignore their advice, but at least you heard it.
The second line of defense is franchisors. Franchisors can - and should - take advantage of their unique position of direction-setting by disseminating timely and useful information that includes ongoing education about hiring and demographic-related tax credits. At a minimum, that discussion should include
Wouldn't a tax credit of $2,400 (per person) for hiring and retaining a qualified food stamp or welfare recipient be important or appealing to your franchisees? In what economic climate would a $3,000 tax credit (per person) for operating a business in an Enterprise Zone and hiring people that live in that same zone not catch their attention?
For their corporate-owned locations, most (if not all) of the major QSR franchisors mandate the efforts that lead to the recovery of these tax credits. They know, with certainty, of the millions of dollars in credits that accrue each year, and of the impact on their earnings per share. But when it comes to suggesting or insisting that their franchisees do the same the line blurs.
By definition, franchisees deliver a product or service that must comply with certain rules set by the franchisor. Franchisees have some latitude in how they operate and in how they sell and report results, but the rules still exist. Outside of the rules, guidelines, and practices a franchisee must follow, however, there are many discretional or optional practices they can choose to follow.
The franchisor is best served with franchisees who are consistently profitable and who are able to open additional units, preferably profitable as well. This means the franchisor is tasked with providing guidance and leadership to insure this happens most of the time. It's time for franchisors to be aggressive and creative in how they include tax credits and incentives into their dialogue with franchisees, now and into the future.
The struggling economy and the topic of jobs are taking the spotlight in 2010. As the White House and Congress scramble to quickly solve the "jobs problem," a decades-old practice of creating hiring and demographic tax credits and incentives has resurfaced. Washington wants to create programs that give employers tangible, financial incentives to create jobs, incentives they can benefit from quickly. At the time this article was written, debate on the specifics of hiring incentives was still raging. Many states are also reviewing and improving their tax credits to accomplish the same thing.
If the topic of tax credits and incentives is not part of your email newsletters, website, management meetings, or trade shows, it should be.
Jeff Newcorn is president of Des Plaines, Ill.-based R. Jeffrey & Associates. He is a nationally recognized expert in the Empowerment Zone Employment Credit, the Renewal Community Employment Credit, the Work Opportunity Tax Credit, and the Welfare to Work Tax Credit. Founded in 1998, the firm provides the processing and analysis work necessary for clients to accurately claim these credits. For his work with Empowerment Zones and Renewal Communities, he was named a Registered Partner of the U.S. Department of Housing and Urban Development. Contact him at email@example.com, 847-795-1400, or visit www.rjeffrey.com.
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