Long Copy, Long Copy, Long Copy

Distance Education Helps You Get Ahead

CanadianMedsWorld.com

I don’t write long copy because I like long copy.

I write long copy… because that’s what works.

You start at the beginning of your sales message… cover the points your prospect needs to hear in order to make a decision… urge him toward the right decision (buy your stuff)… and close with panache.

When you can do that in a few terse sentences, or in a single brief whiz-bang video, let me know. I’ll be right on your heels with my next pitch.

After almost three decades in the front-line trenches of business — slogging through the fog and chaos of multiple technological upheavals — I’m not holding my breath, though.

Still, the nature of business requires flexibility.

And, curiously, this is NOT an age-related thing.

At both seminars, I encountered wizened old farts who were cleaning up online, totally hip to every cutting-edge burp and tweak of the Technology Beast… and I met bright young business would-be-wizards who couldn’t ossify and wall themselves up in a cave fast enough.

And vice versa, of course.

The guys, young and old, who were making it work were flexible jaguars, alert and eager to learn. The ones wandering off into the desert — young and old — were dogmatic dinosaurs, unable to change even when the case for change couldn’t be more obvious.

Two quick examples: (1) I met several too-young-to-be-considering-suicide online biz owners who were, indeed, considering some form of suicide… because the Google Slap of last summer ruined their only business plan. Without the easy traffic of unchallenged Adwords, they became depressed and sleepy and unable to adjust.

Get a grip.

(2) I also recently critiqued a direct mail letter that looked like it’d been written in the early 1970’s, fossilized, and put somewhere safe from every single change that’s happened to advertising since Jobs and Woz wandered bleary-eyed from their garage-lab, giddy with success.

I didn’t even bother getting into the copy — instead, I gave the mailer a focused little pep talk about what had transpired since the digital explosion.

The basic rule is simple and eloquent: Things change.

And most folks resist change. Yes, that super-tight polyester disco-era leisure suit in the back of your closet may yet come back into vogue… but nearly every aspect of successful advertising has moved along at a brisk clip.

The days of easy traffic online are now as quaint as the days when having a toll-free 800 number was an exotic luxury. Ancient history.

The good news: It’s actually fun to stay hip and wired into the cutting edge.

There never was a rule dictating that the adventure and excitement had to stop in your life after a certain expiration date.

The key is simply to stay loose and alert, like a jaguar. The action is still hot and heavy at the front lines, as it always has been and always shall be.

And if you need a little help finding your way through the fog and chaos of the rear ranks… well, that’s what guys like me are for.

We live in exciting times. I understand the urge to go hide under the covers… but I also know the thrill of going mano-a-mano with the great Technology Beast, and winning.

Grrr.

Stay frosty…

John Carlton, http://www.marketingrebelrant.com/

Looking Beyond SEO
8 Simple Steps to Make a Page More "Local"

Yelp.Com - How To Use Yelp.Com To Promote Your Business

Distance Education Helps You Get Ahead

CanadianMedsWorld.com

http://www.yelp.com

"I'm making a ton of money from Yelp, and it's freaking me out." Woe is Christopher Hall, the 34-year-old owner of Splitends, a hair salon in Orange County, Calif. Its chic decor is more architectural firm than beauty parlor. He has appeared on a reality show, in the L.A. Times, and on TV news segments. He's photogenic and has a quick wit. He serves beer to customers. So business, unsurprisingly, was decent as soon as he opened the place last December. Until March 6. That's when things got crazy.

Now he's literally in pain from all the coiffing. "I've been doing hair for 16 years, and I'm busier than I've ever been," he says. "Saturday I came in at 6:30 a.m., left at 8 p.m., and did 22 people. I woke up Sunday and my hands were all swollen. I had to put them in an ice bucket."

What happened March 6? That was the day Anita Lau wrote about Splitends at Yelp.com, an online platform for user reviews of everything from dive bars to funeral parlors. Lau has posted 2,036 reviews and 1,340 photos, has collected 790 compliments on her work from fellow Yelpers, and along the way has amassed the power to put bodies into barbershop chairs. She gave Splitends the maximum five stars, praising Hall and saying, "I absolutely love my haircut."

The review started a logroll of new clients for the stylist and a couple dozen subsequent five-star critiques. "I've taken out ten ads in OC Weekly this year and have gotten maybe one call," says Hall. "I get anywhere from five to 15 calls a day from Yelpers. They come in and then write reviews. Then other people see the reviews, think it must be great, and call. It's its own little biosphere. It feeds itself."

For those outside California, let's back up a bit. Yelp is part social network, part localized review site - think Facebook meets Zagat - and it's fast becoming the web's gift to small business. A platform for ratings of anything with a postal address, Yelp offers the service industry new insight into what the chattering masses are saying. The name "Yelp" comes from a friend of the founders who simply liked the word. But it also serves as a nifty contraction of "yellow pages," which reveals the company's ambitions: a land grab on the $100 billion that's spent every year on local advertising.

"There's an information shortage when it comes to local businesses," says co-founder and CEO Jeremy Stoppelman. "If you look at the yellow pages, what are you seeing? You're seeing how much money a business spent to buy a big ad. We're a place for a conversation between the prospective customer and the business owner."

Many well-funded companies have tried to tackle local search over the years, using a mix of strategies. There's the directory model, which involves a massive sales force upselling business owners to ever bigger, flashier ads. There's the Citysearch tactic of creating proprietary content and selling ads against it. And then there's the search-engine route of crawling everyone else's content and automating the ad sales. Yelp is taking a different road: crowd-sourcing. For years Zagat has been compiling anonymous user reviews, but Yelpers get to fully express their feelings and make names for themselves.

Employing the same user-generated content model that powers YouTube or Craigslist, Yelp can reach into a city's every nook to reveal hidden car washes, dentists, plumbers - the sorts of unsexy but necessary services that make up our daily lives. When we discover something wonderful (or horrible), we love to tell our friends about it. We also turn to people we trust when we need a good recommendation. Yelp is enabling those conversations to happen on a massive scale.

There's any number of reasons the site could fail. But so far the enthusiasm Yelp has generated indicates otherwise - usage is up nearly 400% to 1.8 million users a month, according to Nielsen/NetRatings. In San Francisco the dining and nightlife scene has been all but completely trolled, analyzed, and pontificated upon (or "Yelped," for short), and the site has recently caught fire in Chicago, New York, and L.A. In those cities it has begun changing the way local businesses do their marketing.

The word most often used to describe Yelp - other than some variation on the ever-flexible brand itself, which can be intoned positively, as in "I Yelped that awesome crepe wagon," or negatively, "That bitchy waiter totally got Yelped!" - is "addictive." Anita Lau drives around Southern California in an SUV with a vanity plate that reads I YELP. The plate is unique. The sentiment isn't.

A charismatic 29-year-old with a boyish smile and a self-deprecating streak, Stoppelman started the company in 2004 with longtime friend and CTO Russel Simmons, 28. (No, not the hip-hop impresario. This Russel has only one "L.") After their last employer, PayPal, was sold to eBay (Charts, Fortune 500), the co-founders cashed out and began kicking around startup ideas with a former colleague, PayPal co-founder Max Levchin. One day Stoppelman was looking for a doctor but had no clue how to find a good one. That gave him and Simmons an idea for a convoluted automated system in which people could e-mail friends asking for recommendations on, say, local doctors, and the answers would be logged at a communal site for everyone to see. Levchin floated the duo $1 million to build out the plan. It went nowhere. But the co-founders noticed an interesting tendency among the early users. People were writing unsolicited reviews of their favorite businesses just for fun. So Yelp switched tack. "I remember the moment that Russ said, 'There should be a way for you to write your own reviews without asking questions,'" Stoppelman recalls.

Actually, Stoppelman and Simmons weren't just looking for a new doctor. A pair of unrepentant party boys - they did tequila shots during the Fortune photo shoot - they were in a perpetual search for the greatest restaurants and clubs in San Francisco. To get Yelp off the ground, they decided to mix business and pleasure, and started hosting Yelp parties at local establishments. The parties got people talking. (Flickr is littered with raucous snapshots from Yelp events featuring bar dancing and an endless train of women hanging all over the co-founders.) More important, the revelry got people writing reviews, building up the site's content.

Today Yelpers seem to live on the site, messaging one another about their social lives, reacting to reviews, and planning get-togethers. That's the social-networking part. As is the case on most social networks, Yelp is rife with self-conscious patter. But there's a point to all the yammering: finding cool stuff that's not too far away. It's a mission everyone seems to take seriously.

"One of the first surprises was the length of reviews and the attention to detail," says Simmons. "People think they have to write reviews of a certain quality or there's no point. A lot of them are funny. Some are poetry. I saw one review in the form of an IM conversation with Skeletor" (the latter, of course, being the superevil, skull-faced archnemesis of He-Man, Master of the Universe).

In 2005, Stoppelman and Simmons raised $5 million from Bessemer Ventures, the VC firm behind Verisign and Skype, among others, and then last November another $10 million from Benchmark Capital, whose hits include eBay and Red Hat. The company's strategy is to build a rabid following in any given market. Once an establishment has a good number of reviews, a Yelp salesperson calls to make sure the establishment's owner is aware of all the chatter going on, offers a Yelp window sticker, and, of course, tries to sell an ad. Ads and sponsorship packages range from $200 to $2,000 a month.

Stoppelman is coy about how well Yelp is doing on the business side. The company is generating revenue, though he won't say how much. He does acknowledge that profits are a ways off. "Someday we'll make money," he says, smiling, adding only that Yelp has all the funding it needs.

The obvious question: If the content costs nothing and the marketing is word-of-mouth, where is Yelp spending its $16 million? Well, salespeople are expensive. The company is always adding servers to handle growth and is in a desperate search for more engineers in San Francisco. Given the reputations of Stoppelman and Simmons, it'd be easy to accuse the co-founders of spending their funding on bar tabs. Except that lately an awful lot of their drinks seem to be on the house.

Not all Yelping is good for business. It's plausible, for example, that national chains may find a new set of rules in a Yelped market. Why do you frequent Starbucks when you're traveling? Do you really love the coffee, or do you go because you know what you'll get when you walk through the front door? As Simmons puts it, "A brand is a proxy for knowledge." What if you found out there was a wonderful little cafй down the street? Would you still go to Starbucks? Maybe, maybe not. But by providing local knowledge, Yelp may diminish the power of a brand - or at least a franchise's ability to coast on that brand.

Yelp can be even more dangerous to a mom-and-pop coffee shop or fledgling restaurant. While professional reviewers typically grant a new restaurant a grace period to work out the kinks, Yelpers flock to new places to earn a coveted "first to review" notation and often expect the place to be operating as though it were mature. Then there are some people who are just plain ornery - and there's always the possibility of one restaurant owner sabotaging another.

Craig Stoll is the owner of one of San Francisco's most reputable restaurants, Delfina. The eight-year-old trattoria has collected 333 reviews and a four-star rating. But Stoll is miffed at Yelp. "We recently had a post where someone fabricated an incident," he says. One Yelper, John S., a new member with zero Yelp friends, no photo, and only nine reviews, claims he captured a cockroach on his table at Delfina and showed it to his server, who laughed. Stoll says the event never happened, but John S.'s telling of the incident lives on. (John S. never returned two Yelp messages from Fortune.)

Stoll says he contacted Yelp and unsuccessfully requested that the review be taken down. "They said, 'This doesn't violate any of our rules. It stays.' But it didn't happen. A lot of people pay attention to Yelp. But there are no checks and balances. As a business owner, you have no recourse."

Stoppelman and Simmons empathize. Even Yelp has been Yelped. But they stand behind Yelpers' right to say what they want, as long as it's true. (Authors are solely responsible for their reviews. That should help the company avoid run-ins with angry restaurateurs, but one messy lawsuit would surely curb Yelpers' enthusiasm.) Most reviews are positive - 85% are three stars or more. Stoppelman thinks that's because people would rather write about great experiences. As for the harsh critiques, Stoppelman considers them an opportunity for a business owner to start a conversation. "Your customers are out there saying things about you, whether it's on Yelp or on some blog," he says. "The faster you can fix problems, the better you're going to do. Customer service is the new marketing."

Where does Yelp go from here? Stoppelman and Simmons plan to reach 25 markets in the next 18 months. Not that Yelpers are waiting for that to happen - they're busily Yelping suburbs and vacation spots all over the country. Clearly there's a desire for this service outside the major cities. And if the enthusiasm over the launch of the iPhone last month can be attributed to anything other than insane product lust, it's that we all really want the web while on the go. Once we have that, the growth potential for a site like Yelp seems unlimited.

Of course, turning long-term potential into short-term dollars remains a challenge. But if Christopher Hall's experience is any indication, that's already happening. Yelp doesn't make Splitends a better business. It provides a better soapbox, and that's something any smart business owner is willing to pay for. "I'm a rad hairdresser," says Hall. "Yelp is just validating my business and letting the public know."

After Yau's review of Splitends, a Yelp salesperson called Hall to see if he'd be willing to spend some money. "She asked if I wanted to sign up for a sponsorship. I told her that if she sent me a Yelp sticker for my window, I'd give her my credit card." He didn't kill his old ad campaign with OC Weekly. But he did change the creative. Now the ad simply reads "Splitends. Read our reviews on Yelp."

[Via - CNN.Com] 

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10 Tips for Unleashing the Power of Classified Ads

Distance Education Helps You Get Ahead

CanadianMedsWorld.com

An eager real estate agent wanted to use classifieds to generate leads for a home she had to sell. But to her surprise, her boss looked at her with a cold stare and said, “Honey, the people we want don’t read classifieds.”

Unfortunately, there are a number of myths associated with classifieds. And not surprisingly these views are often held by people who have lost money on classifieds or they simply have not done their homework. The scenario, in a sense, is like the classic story about the fox and the grapes. When the fox failed to get the grapes, he dismissed them as being no good anyway.

Although people can be mistaken about the value of classifieds, this is not to suggest that classifieds are without limitations. The truth is, because of the size of the ad, it does carry a number of built-in limitations, so to speak. For instance: It does not allow for photos; it is not suitable for detailed copy; it is surrounded by a mass of other ads; it doesn’t provide space for demonstrating the benefits of a product; it doesn’t allow space for testimonials, etc.

While all of these issues may rightly be a concern, it is useful to remember that classifieds have advantages that should not be ignored.

• Classifieds are inexpensive. This is perhaps the biggest advantage of using this form of advertising. Payment is generally based on the number of words or the lines of copy used in the ad. Given the low cost, you can actually run an entire series of classifieds for the price of one full-page ad. The inexpensive nature of the ad means you can reach out to your prospects on a regular basis without breaking your bank account.
  
• Classifieds are great for low-cost testing. If you wanted to test various elements of a large display ad, it would indeed be costly. The reason is obvious: Each time you test, you’d have to pay for the space of the whole ad. On the other hand, classifieds allow you to inexpensively test copy throughout a series—and at the cost of a single large display ad.
  
• Classifieds are ideal for testing new concepts. Whenever copywriter Ted Nicholas was brainstorming for a new book title, he used to narrow his list of ideas down to a few titles. Then he would run classifieds and use the titles as headlines for each ad. The ad that pulled the biggest response would provide him with the winning title for his new book.
  
• Classifieds are great for generating leads. The two-step approach means that you make an offer in your ad that prompts the reader to make contact with you. You invite them to contact you by phone, mail, or e-mail, etc. When the contact is made, you simply follow-up with a sales call or direct-mail package.

Ideally, you would generate leads by offering something FREE! This could be a booklet, newsletter, more information, 30-minute consultation, discount, CD brochure, or catalog.

Another benefit with this approach is that it allows you to build a mailing list of prospects and customers. Once you have their contact information, you can stay in touch with them by publishing a newsletter.

• Classifieds can be used for local, regional, and national audiences. It’s been said that the classified is the one tool that allows the little guy (or gal) to be more competitive. It enables the small businessperson to reach his or her audience on a small budget, no matter where they live.

Now that you understand the uses of classifieds and you have your products ready to go, it is time to begin working on your own winning copy. Following is a list of suggestions for creating a classified that gets results.

1. Select the right publications. This has been suggested elsewhere but it bears repeating. As a small businessperson, you will save money and avoid waste when you choose the best publications for your classified ad campaign. What are the best publications?

First, they are the newspapers and magazines that are read by your audience. Second, they are the same ones that are used by your competitors. Third, they are the publications that have a strong classified section. Typically, magazines with a large classified section are effective in pulling orders.

Although magazines and newspapers will undoubtedly be at the top of your list, do not rule out other publications. Consider newsletters published by the local Chamber of Commerce or perhaps an e-zine that targets your audience. “You must familiarize yourself with all the publications that reach the people who can buy from you,” noted Dr. Jeffrey Lant in No More Cold Calls.

2. Request a media kit. A media kit is nothing more than a folder of information that provides detailed advertising data about a particular publication. In addition to the cost of the ads (also called “ad rate card”), the kit provides you with circulation figures, deadlines, and information on the demographics served by the publications.

Media kits are free for the asking and they usually come with a sample copy of the publication.

3. Examine the classified section. Once you have a few of the publications read by your audience, take a close look at the classified section. How large is it? What’s the cost? Who are your competitors? What are the available categories under which your ad might appear? Must you pay by word or by line?

Examine the graphics. Are bold headlines allowed? What about headlines in all caps? Is color allowed? Borders or boxes around the copy?

If you study several issues of a magazine, you will find that certain ads are repeated over and over. This is a sure sign of a winning ad.

4. Select the appropriate category. Take a look at the category used by your competitor. Is it the best one for your product or service? The fact that classifieds have categories is a plus for this type of advertising, according to Jay Conrad Levinson, author of Guerrilla Advertising. “[Classifieds] are more powerful than ever, because there are more classifications than ever, letting you pinpoint prospects,” he wrote.

5. Write a powerful headline. Since the headline is the most important part of any ad, you would be wise to spend as much time as possible in brainstorming until you come up with a winner. Begin with a list of all the benefits of your product or service. Select the one that is most likely to grab your prospects.

Then write a headline that incorporates this major benefit.

If you struggle with using a benefit in your headline, consider a headline that focuses on the problem or need of your prospects. As with the benefits, simply make a list of all the problems that your product or service solves. Then pick the one most likely to grab the attention of your prospects. Once this is done, write a provocative headline that calls attention to the problem.

Since shorter is usually better with classifieds, try to write a headline with six words or less. Sometimes, when stressing a problem, you can get away with one or two words as a headline. Example: “BAD BREATH!” Or you could write something like, “YELLOW TEETH!”

In addition to using benefits and problems in your copy, you might also consider calling out to your audience. “MEN WITH BAD BACKS!” Or you may write, “EMPLOYERS WITH HIGH TURNOVERS!”

“If you can find a one-word headline that will attract the right prospects, such as ‘Accounting,’ ‘Deaf,’ or ‘Loans,’ it will probably be your best headline,” according to John Caples in his classic advertising primer Tested Advertising Methods. “The reason is because it can be set in big type without taking up much room.”

Note: Classified headlines can be more effective when they printed in bold type or they are written in all caps.

6. Write a complete sales message about your product or service. One of the best ways to create a winning classified is to first write a lengthy sales message about your product or service and then cut it down to size. Here’s how to start:

First, make a list of all the essential elements. This list should include headline, benefits, offer, call to action, contact information (mail, phone, e-mail, or website) and some type of code that allows you to know where prospects saw your ad.

Second, while using your ultimate benefit, write a detailed paragraph that shows how your product or service will help your prospects. Will it save them money? Improve their health? Ensure a job promotion?

7. Determine the required length and begin cutting. How many words can you afford in your ad? Will you test an ad with 30 words or 20? Three lines of copy or four? Once you know this, it is time to start cutting.

Simply go through the copy and cut all unnecessary words. Eliminate sentences that don’t add to the message. Remove introductions and leave only those words with the strongest selling power.

8. Use telegraphic language. Write “as if you were sending a cablegram (in the old days) and you had to pay fifty cents a word,” advised John Caples. This is good advice when you consider that readers of classifieds are accustomed to this type of language. They’ve come to expect it and can usually read it without a problem.

Therefore, instead of writing, “I will send you a free report,” write: “Free report!” Instead of, “You can use this widget to save money,” simply write, “Save cash!” Instead of using, “This widget is fast and easy to use,” you could write, “Easy! Fast!” Instead of writing, “Guaranteed results or your money back,” write: “Guaranteed!”

9. Abbreviate where necessary. Certain abbreviations are easily understood by respective audiences. If you specialize in Business-to-Business services, then your audience will certainly understand the use of “B2B” in your ad. Most readers would understand “Bklt” to mean “Booklet.”

Since you will be paying by the word (or lines of copy), you want to tell your story in as few words as possible. This idea is particularly useful when writing your contact information. Example: Instead of “Post Office Box 10,” write: “Bx 10.”

Note: Don’t forget to code every ad, as this will allow you to track results. Some businesses use different names to call in each ad: “Call Mary” will appear in one ad; “Call John” will appear in another one. Sometimes this is done to test publications: “Call Mary” will appear in magazine A; and “Call John” will appear in magazine B.

Another method of coding is to include a suite number in your address: “Suite A” will appear in one ad or one publication, while “Suite B” will appear in another.

10. Write a second classified and begin testing. Write a second headline and test it in the same publication. Measure the results. Or, keep the same headline and change the offer. Run this in the same publication and then measure the results.

Once you’ve determined which ad pulled the most response, begin testing it in different publications.

To learn more about other direct-response advertising tools, read Direct Response Advertising Made Easy from EntrepreneurPress.com.

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New Horizons in 2007

Distance Education Helps You Get Ahead

CanadianMedsWorld.com

5 ways to grow your small business this year

The New Year is a great time to step back and evaluate your small business. Are you happy with your business, or is it time to expand? If you are looking to grow, consider these business-building ideas that could take your company to the next level.

Embrace the Internet: Create a Web site
In today's digital age, having a Web site and e-mail address is expected of a business, and can make a critical difference in building name recognition and attracting new customers. A Web site is a 24/7 portal to your customers where you can provide information about your company and advertise your services--and it does not have to break your bank account. There are numerous companies that offer reasonably priced Web hosting rates and services, and there is a wide variety of software available to design and maintain a site yourself if you choose not to outsource it.

Expand Your Niche
If your company currently takes aim at a certain niche market, consider whether you could expand that market to offer new products or services, expanding your reach and appeal. If you sell camera supplies and equipment, consider branching out and offering photography classes. If you run a public relations firm, think about expanding to offer marketing consulting or Web design.

Be cautious when targeting a new or broadened niche, though, and do your research. Start small, offering your new product or service on a small scale, in case it does not go over as well as hoped. Stick with what you know and sell your new products to existing customers to expand with less risk.

Hire Support Staff
While it's important to be involved in all aspects of your business, there comes a point where delegating tasks becomes necessary. If you find yourself unable to focus on your clients' needs because you're buried in bills or payroll every week, hire an administrative assistant to take the load off. Does your office have several networked computers, a sophisticated phone system and a Web site? Hire an IT specialist to maintain your systems and keep your office up and running. Even if you can only afford a part-time support staff, that's a couple days more a week you can focus solely on your area of expertise--bringing the best product or service to your customers.

Open Another Location
Entrepreneurs who have found their business growing steadily over the years might benefit from opening another location. Before jumping in, though, experts recommend you create a business plan for the new location and ensure it will have top-notch management and support staff to get it on its feet. Opening a new location is risky but the rewards can be great if you do your homework.

If you run your business out of your home and are bursting at the seams with boxes and paperwork, it might be time to rent office or warehouse space. If you find your productivity--or sanity--waning due to clutter and cramped space, money spent on a dedicated work site could be well worth it. An even bigger reason to consider moving out of the house is if you'd like to host client meetings. Discussing business while your dogs wrestle on the floor can be a little distracting for both parties, not to mention unprofessional.

Secure a Government Contract
Thanks to extensive work by NFIB, small businesses now compete on a level playing field with Federal Prison Industries when seeking federal contracts. While a government contract might sound like a sure way to increase revenue, it's vital to make sure the job is the right fit for your small business before bidding. Be sure you understand exactly what will be expected of you before submitting your proposal, and that you will be able to meet the government's demands and comply with regulations. And do your homework to determine your costs. Don't low-bid a project if it will hurt your bottom line or jeopardize your company.

NFIB has several resources to help you grow your small business. To find out more, visit the Tools & Tips section on NFIB.com.

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Your First Business Tax Return

Distance Education Helps You Get Ahead

CanadianMedsWorld.com

A checklist for first time filers of business tax returns

It’s your first year in business, and tax time has arrived. How does the new business owner prepare for getting those returns filed accurately, timely and achieving the most favorable results for the business?

Review the form completely

First, take a look at a copy of the business tax return you will file to see what line items on the return the government expects you to fill in with amounts. Also, if there are questions asked on the return, make sure you have the answers to those questions. These could include the nature of the business, is it your first year in business, and your business location. Make sure your chart of accounts has the correct categories of income and expenses for you to both manage your business and properly file your returns. While all businesses must keep complete and accurate records, many do not reach that mandate without an effort to insure they are in compliance with the law.

Accounting basis

One decision the owner must make is whether to prepare the tax returns on the cash or accrual basis.

Under the cash basis, income is recognized when collected and expenses are recognized when paid. Under the accrual basis, income is recognized when earned and expenses are recognized when incurred. While lenders will generally prefer to see accrual basis financial statements, tax returns can still be prepared on the cash basis even if the financial statements are prepared on the accrual basis.

A new business might have more unpaid expenses than uncollected income at year-end, and therefore might consider taking those additional net expenses as a deduction. This would be done by selecting the accrual basis. However, in later years when the business is profitable, receivables should be greater than payables, and so the business would be recording additional net income and paying more taxes if it had selected the accrual basis instead of the cash basis. Once you make the decision on which basis to use you will stay with it throughout the life of your business, although changes are permitted. Certain businesses, including those with larger revenues or inventories, must choose the accrual basis.

Depreciation method

The next decision to consider is which depreciation method to use. The Internal Revenue Service permits a first year deduction of up to $100,000 for most furniture and equipment, instead of writing off the cost over five or seven years. So most business owners would generally elect to take the first year write off. However, businesses without profits can’t deduct the first year depreciation deduction, although they can carry it forward to profitable years. A business in its early stages might consider taking the slower depreciation route so that most of the deductions will be available when the business has income and is a higher tax bracket than in the startup phase.

Home office deduction

Sole proprietors in home-based business locations should consider the ability to deduct a portion of their residence as a business deduction. To be successful in this widely contested area, the business area used in the home must be used exclusively for business. The business owner would measure both the square footage of the home used for business and the total square footage of the home. The resulting percentage of business use would be applied to home office expenses to determine the amount to be deducted. If the business has a loss, then a home-based business deduction is not allowed, but can be carried forward.

In order to properly account for the business use of the home, the business owner would first deduct the percentage of the real estate taxes and mortgage interest that would otherwise be taken as an itemized deduction. If there are still profits remaining, then other home expenses such as landscaping, and general home repairs would be allocated to the business and personal portion, and a deduction would be allowed for the business portion. Finally, if there is still a profit, then depreciation on the home is allowed on the business portion. To calculate depreciation, the cost of the home must be allocated between the cost of the land (which is not deductible) and the building. The building must then be allocated between the business and personal portions by the percentage calculated earlier. The resulting depreciation deduction is then written off over almost a forty year period, and the actual annual home depreciation expense would usually not be more than a few hundred dollars.

Non-employee compensation

Another piece to year-end tax returns is the review of independent contractors you paid to see if the government must be notified of their non-employee compensation. Your employees receive a W-2 form to identify their income and withholding tax. Similarly, your contractors who make $600 (as of 2004 tax year) or more would receive form 1099-MISC from you, and the federal and state governments would also receive a copy. Contractors who are corporations are exempt from receiving this form, but partnerships and limited liability companies with more than one member must receive them. If you wait until year-end to obtain the contractor’s social security number or employer identification number you might not be successful in obtaining that required information.

Have your contactors fill out form W-9 to give you the needed information.

Automobile expenses

Automobile expense can be a major expense for a new or existing business. The business owner should maintain an auto log to keep track of where and when he or she traveled to, who was seen, and if there was a business purpose to the trip. While some individuals only track business use, I recommend keeping the log for all auto expenses, since those who itemize their deductions can also deduct transportation as a medical expense, and as a charitable contribution deduction if active in a charity. The business tax returns will want to know when you placed the vehicle in service, and the amount of the business, commuting and personal miles for each vehicle for the year.

Self-employment tax

Profitable sole proprietors are sometimes surprised to find that self-employment tax ( social security and medicare tax for self-employed individuals) can be overlooked and may be a significant part of their total tax bill. Be sure to calculate these taxes as part of your total estimated taxes when paying quarterly estimates. Also be prepared for the April 15 surprise. Not only is the balance due for last year’s taxes, but also due is the first quarter installment of the next year’s taxes. Cash flow must be monitored to have these funds available.

This list covers only a few of the many items a new business owner should consider in preparing for the initial business tax return. Those who work with business tax preparers should also consult with them to determine in what format the business data should be transmitted to them for preparation of your returns.
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Joseph L. Rosenberg is a Certified Public Accountant in Florham Park, NJ, specializing in working with entrepreneurs and small business owners. He can be reached at (973) 443-4332 or josephlrosenbergcpa@consultant.com.

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