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Brandon Collins, owner of Purchase Records Destruction, shows the mountain of shredded documents that his Calvert City firm handles on a typical day. He said theft sensitive informtaion can be disastrous for businesses.

With nearly a quarter of the year completed, western Kentucky business owners probably have more questions and concerns about this year’s economy.

While last year there was a general feeling of dread, this year presidents and CEOs are wondering if they will see strong customer demand in 2010 and what will be the rate of improvement.

Wooldridge

“There are always business opportunities because even in soft economies people have needs,” said Chris Wooldridge, director of Murray State University’s Small Business Development Center in Murray.

A successful business satisfies those needs, he said. But owners need to know if their customers’ needs have changed or are being met.

“Owners should see some kind of trend when they review their historical performance for the past three years,” Wooldridge said, “and find a lesson or insight about strengthening their business.”

Each year is a fluid situation because every part of the economy — customers, suppliers, competitors, tax laws, accounting rules, insurance tools and banking products — are constantly changing, Wooldridge said.

Vital records Records that contain vital information and need safe destruction: • Medical records • Bank statements • Negotiable documents • Customer mailing and prospect lists • Accounting records • Financial reports • Payroll records • Sales forecasts • Accounting records • Personnel records • Social Security numbers • Inventory reports • Canceled checks • Credit cards • Contracts • Legal signatures • Research and development • Obsolete forms • Microfilm • Blueprints • Business plans • Confidential letters and meeting notes • Budget data • Bids and quotations • Engineering drawings • Tax records • Production reports • Copy machine rejects • Expense reports • Fax machine rolls • Daily correspondence Source: Purchase Area Records Destruction Web site, www.prd-shreds.com/why-shred.asp

“It is really important to remain in contact with non-employees,” he said.

An accountant, for example, can be more helpful if he or she knows more about a business, its operations and its goals, said Kimberly Aaron, a partner at Kemper CPA in Paducah.

“A fully involved accountant can help control costs, discuss tax breaks and set strategy for the coming year,” she said, noting that the insight cannot be provided if a person is consulted once a year to prepare taxes.

Being successful in 2010 will require business owners to talk to their advisors, have them assess the company’s operations and present specific benefits to improve performance, Wooldridge and Aaron said.

Tax laws

In 2010 many tax breaks will expire, Aaron said. “And states have found new ways to raise tax revenue without increasing the tax rate.”

An owner operating two different businesses, for example, will have to pay two separate tax bills in Kentucky for this year, Aaron said.

In previous years an owner could benefit by filing the two businesses as a combined entity, she said. If one company operated at a loss, the owner would pay taxes on the remaining combined profit.
“In the new law, the owner would not pay taxes on the business with a loss,” Aaron said. “But he or she would taxed accordingly on the other business’ entire profit.”

Business plans

As the year evolves, owners should challenge a few business assumptions and refresh their business plans, Wooldridge said.

“You want to learn about changes with your suppliers, customers and competitors and adjust the business plan,” Wooldridge said. A business may need to change delivery routes or open a new location if customers have moved.

A well-researched and written business plan will take three to six months to develop, Wooldridge said, and it should be a blueprint of how an owner will handle operations.

Business plans Business plans are a blueprint of a company’s strategies, priorities and how it will operate under certain conditions. A good business plan will take three to six months to develop and will include: Market analysis — An evaluation of competitors and target customers, knowledge of the industry and conclusions. Company description — A general discussion of what a company provides and what will make it a success. Organization and management — Provide details of ownership, background information about managers and their qualifications. Marketing strategies — Discuss strategies for growth, distribution and communication with customers. Sales strategies — Use of internal or independent sales agents, compensation and recruitment tactics, and target revenue per sales call. Product or service line — Discuss what customer problem is solved with this product or service. Funding — Determine the amount of money needed to maintain the business or for its growth. Source: U.S. Small Business Administration

Policies, procedures

Business owners also should revisit their procedures and human resource policies, Wooldridge said. “Many western Kentucky businesses need to ask if the rules and policies created five or 10 years ago are still useful.”

Owners should review how often they take the available discounts from suppliers, Wooldridge said, or if there are discounts for paying a portion of bill early.

“They also need to consider the skills and people currently on staff,” he said. It might be time for an employer, manager or staffer to learn new skills to strengthen the company.

Record disposal

After the changes have been implemented, business owners should consider how to dispose of their old documents, said Brandon Collins, owner of Purchase Records Destruction in Calvert City, the only company certified by the National Association for Information Destruction in western Kentucky.

There are seven NAID certified companies in Kentucky, according to the NAID Web site. Certified document destruction companies have 24-hour camera surveillance, secure boxes and the sophisticated technology to destroy any media with information, Collins said.

Old documents contain information about customers, business proposals, staff addresses, health care information and account numbers, Collins said. A company could have difficulty getting new contracts if a competitor obtained that information.

“And dumpster diving is legal,” he said.

Tax records are important to preserve for several years for various reasons, including potential audits and requirements for getting business loans. Many tax breaks will expire this year.

A store-bought paper shredder could destroy 70 pounds of files but it would take hours to ensure that the pieces could not be reassembled into their original documents, Collins said. More importantly, paper shredders have limits.

“Deleted information on computer hard drives, flash drives and video tapes are still on the device,” Collins said. “That information is just covered over.”

An experienced information technologist can retrieve that information within a couple of hours, he said.

Paper trail

Having a paper trail that proved documents were properly destroyed is especially important when dealing with government documents and prior years tax forms, Collins said.

The U.S. Internal Revenue Service could challenge a tax return three years after it was filed, said Lorri Malone, editor of the Kentucky CPA journal in Louisville. But lenders may ask for more than three years of tax information before issuing a business loan.

Receipts for capital goods — such as cars, computers, servers, and equipment — are needed for insurance claims for theft, damage or loss, Malone said.

Contact Michael de los Reyes, a journal staff writer, at 270-575-8652.

Business records

Business records are voluminous and require time and effort to maintain. But developing and following a document-retention plan can save a business money and an owner the frustration of finding the right information. Here’s a general guideline of which business documents should be retained and how long. Talk to legal and accounting advisors before to destroying any document. Permanently hold and store in a secure place • Audit reports by accountants • Capital stock and bond records • Real estate transactions • Real estate appraisals • Legal correspondence • Depreciation schedules • Annual financial statements • Annual general ledger and end-of-year trial balances • Insurance records, claims, reports and policies • Minute books of directors and stock holders

Destroy in seven years • Accident reports and claims • Accounts payable and receivable ledgers • Checks — except for major purchases, taxes payments, real estate transactions or special contracts • Expired contracts and leases • Inventories of products, materials and supplies • Invoices to customers and vendors • Purchase orders Destroy in three years • General correspondence • Personnel records after termination • Employment applications • Miscellaneous internal reports • Inventory tags Source: Lorri Malone, communications director, The Kentucky CPA Journal