Content about Management Files

ARDMORE, Pa. — In an effort to resolve the controversy over whether certain expenditures made by a drycleaning business are currently deductible as repair expenses, or whether they must be capitalized and deducted over the life of the underlying business asset, the Internal Revenue Service has finally released new regulations.

The IRS’s long-awaited expanded regulations for determining whether an expense must be capitalized because it betters or improves tangible business property or equipment, restores it, or adapts it to a new and different use, will have a significant impact on every drycleaning business that acquires, produces, or improves its tangible property. 

In addition to clarifying and expanding the current rules, the new regulations create “bright-line” tests for applying the repair-or-capitalize standards, provides guidance for accounting for—and disposing of—repaired property, as well as clarifying other aspects of the repair/capitalize dilemma.

DOLTON, Ill. — Property rights and gun rights are in an intensifying conflict over whether employers can prohibit employees from having guns on company property, according to a recent National Federation of Independent Business (NFIB) magazine article. The conundrum is what business owners should do, regardless of which side of the fence they sit upon concerning firearms.

Having a workplace violence policy can protect employers against legal action. You and your business must have written proof that you’ve taken steps to keep employees safe. I’m not a legal expert but I do watch out for firearms legislation that may affect me now or in the future; I do not want my firearms banned or confiscated because of some technical infraction.

CHICAGO — If there is one investment philosophy that approaches universal agreement among financial advisers, it’s the need for careful diversification in every portfolio in order to minimize risk, but exactly what does diversification mean, and how can you tell if your investments are truly diversified?

One popular TV show on finances features a segment called “Am I Diversified?” in which viewers call in, give the host their top five holdings and the host lets them know if they are properly diversified. According to Jason Whitby, MBA, CFA®, CFP®, AIFA®, senior financial adviser with Miami-based Investor Solutions, it’s not that simple. “The idea of five-stock diversification is mostly refuted by the financial community,” he says, “which tends to agree that the number of individual stocks needed for diversification is actually closer to 30.”

CHICAGO — If you’re one of the millions of Americans who own stocks and bonds, it’s a good bet that you maintain those investments in a brokerage account. Keeping physical possession of stock or bond certificates in this digital age makes about as much sense as stuffing cash under the mattress.

But opening a brokerage account was only your first decision. These days, you must also decide whether to go with a so-called full-service broker or a discount broker, and it’s important to understand the difference.

Discount brokers such as TD Ameritrade, E*TRADE, Charles Schwab and others typically charge between $2 and $20 for individual online trades; full-service brokers such as Merrill Lynch, Morgan Stanley and others charge as much as 10 to 15 times that much. While competition has caused many full-service brokers to reduce commissions lately, on average, you'll still pay $100-$150 for an average trade done through the typical full-service (translation: full-price) broker. And it doesn’t stop there.

SAN FRANCISCO — The lifestyle changes of consumers (most notably more casual attire), their extremely hectic lifestyles that limit time and/or desire to run errands, and the downward economic pressure in general have all been factors in the search for alternative profit centers to maintain the economic health of the fabricare industry.

I’m going to address some of the alternatives that are contributing to the sales and profit of cleaners. It is important to remember that any and all of them take careful planning and execution to be successful.

DISASTER RESTORATION

Disaster restoration divisions, with their large orders on the positive side, and the uncertainty of demand on the negative side, have been a common and welcome addition to many companies.

Anyone considering entering this business for the first time is advised to thoroughly research the required initial investment, potential challenges of collection, and the extremely aggressive competition in the sales process. If these factors are manageable, a professional team is required to make this business a success.

CHICAGO — If the crazy ups and downs in the stock market these days have you feeling a little dazed, you have lots of company. For many savers and investors, trying to find a safe haven for whatever cash is left in their portfolios has become a top priority. Unfortunately, investing cash these days is no less daunting than investing in the stock market.

If you have a brokerage account, there’s a good chance that your broker has recommended that any cash in your account be swept automatically into a money market fund. These so-called “sweep” accounts currently hold billions of dollars — money that is probably doing a lot more good for the brokerage firms than for their customers. Money market funds, on average are paying about 0.03% interest (that’s three one-hundredths of 1% — a paltry $30 interest per year for every $100,000).

Most banks offer money market deposit accounts, which are similar to money market funds but differ in several important ways.

PEMBROKE, Mass. — Tax time is here again. Before I give you some tax tips, I want to tell you to pay your fair taxes. I know that not all of you do.

While visiting a dry cleaner’s store, he said to me, “I pay myself a salary of $25,000, $500 a week. But I can’t make it on that. So I take another $20,000 out of here,” pointing to his cash register.

I looked around his small shop. This owner has worked hard 15 years to make his living. He’s doing no more business now than he was a decade ago, and he still does the lion’s share of volume himself. He works 50-55 hours a week processing clothes.

I ask myself, has he not progressed because he skims the top? Is he not interested in building a business? Is his only goal to make a living?

Would it have been different if he drew a fair salary, paid his fair share of taxes, and stayed focused on the business? I can’t say for certain, but I bet his unwarranted withdrawals have had something to do with his lack of progress.

EVANSTON, Ill. — As we predicted here several months ago (Could The Unions Still Clean Up?), the National Labor Relations Board (NLRB) is continuing its pro-union agenda with the same thunder as a battleship blasting a broadside.

On June 21, the NLRB published the proposed changes it wants in rules governing union representation elections. When adopted, these rules will make the jobs of union organizers easier by handcuffing management and fast-tracking representation elections in which a company’s employees vote whether or not they wish to unionize.

Following the defeat in Congress of the Employee Free Choice Act, which would have allowed “card check unionization” and eliminated nearly all representation elections, union leaders are trying a different way to reach their easy organizing goals. They know “if you can’t legislate, regulate.” And the NLRB regulates labor relations in America.

CHICAGO — The filing deadline for 2011 federal income taxes is not far off, but you still have time to make sure you’ve done everything you can to keep Uncle Sam’s paws off as much of your money as possible. Here are some last-minute ways to do that by reducing your 2011 income tax bill:

Often-Overlooked Deductions

Many easily overlooked miscellaneous expenses are deductible as long as they add up to at least 2% of your adjusted gross income. Grouping them can help you meet the threshold. Here are some miscellaneous items you may have overlooked:

SAN FRANCISCO — Since the November/December issue of American Drycleaner features fashion and fabricare, it might be opportune to examine the impact of the haute couture runway fervor on the day-to-day business of dry cleaning.

GOOD FOR BUSINESS

The obvious effect of the fashion previews is to help us determine what challenges may lay ahead in caring for the fashions that eventually arrive in our stores. The more important influence is likely much greater. Being attuned to fashion and the interests of passionate fashionistas is good for your business. And the fashion industry is the most direct path to reach these desirable, fashion-obsessed consumers.

The elusive next generation of young dry cleaning customers avidly follows fashion trends via all media, including electronic and print magazines. Fashion influence will direct them to your doors (or vans).

CHICAGO — When it comes to investing your money, there’s more than enough pessimism to go around, and nowhere is it easier to find than in today’s municipal bond market. Many state and local municipalities are facing the toughest budget problems they have ever seen. California, Illinois and New Jersey are among the states wrestling with money woes. Major cities such as Philadelphia, Atlanta, and Columbus, Ohio, are on a long list of municipalities looking at major tax increases and/or cutting of services and personnel as a last resort for rising above an enveloping debt crisis.

Marilyn Cohen, president and CEO of Envision Capital Management, describes the current bond market as “the biggest slow-motion train wreck I've ever seen.”

ARDMORE, Pa. — Thanks to the 100% “bonus” depreciation write-offs created by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, many dry cleaning businesses are discovering that capital investments in equipment, machinery and other business assets are more affordable today than ever before. Remember, however, the 100% bonus depreciation write-off is available only for qualifying purchases made by dry cleaning plants and businesses in 2011.

Those dry cleaners that have hesitated or postponed making capital investments because of the recent economic downturn might now want to consider how the combined use of incentives and the 100% bonus depreciation can substantially reduce the cost of capital investments. Even funding those new-equipment purchases is easier—at least for a while.