For many small business owners, 2020 was anything but typical. This year (more than ever), we wanted to remind you of the positive changes that conducting an annual business review can bring to your company.
What is an annual business review? You might think this is the annual report corporations and limited liability companies (LLC) must file each year with the state. In truth, that is one part of the annual review process, the annual compliance filings, however, there is more to consider when reviewing your business.
The following are 10 areas of your business to review: the good, the bad, and the required to take your business into 2021 on solid ground.
Keeping employees was a big issue for many businesses in 2020, and the federal government stepped in with relief funding to help struggling companies. The primary purpose of CARES Act monies—Payroll Protection Program (PPP) and Economic Disaster Injury Loan (EIDL)— was to keep employees on the payroll and lessen the pandemic’s negative impact on employees’ wages. How did the economic slowdown affect your business’s staffing needs? Did your company pivot to remote working? Did you look for workers outside your business’s home state?
When examining the employee question as part of your annual review, it’s essential to consider all aspects of your staff changes this year. At a bare minimum, address:
- The use of independent contractors
- Employing remote workers
- New safety protocols for employees
- Employing out-of-state workers and establishing nexus
- Management mistakes and successes
There is so much more to cover, such as discovering employees’ strengths and weaknesses and dealing with employees’ safety. Make sure you spend time reviewing employee issues with managers and employees alike, so you get the full picture.
How did your business’s technology function this past year? Do you need any upgrades, such as faster computers, better cybersecurity, or tech solutions, to help manage remote workers? At the beginning of the pandemic, many businesses found they were not prepared to pivot to becoming a virtual company and found remote workers were not equipped to keep operations running smoothly.
Everyone learned the benefits of video conferencing this year, but many were not technologically prepared. You also may have had to change your order and delivery system, communications, and more—all of which require new software applications to install and learn. Now is an excellent time to discuss your tech strengths and shortfalls with your team and see where you can improve.
Were you one of the businesses quick to recognize how much consumer behavior changed in the past year, or did you move too slowly, resulting in a loss of customers? Your annual business review should cover your marketing activities—what worked and what didn’t. Also, take a look at the marketing tactics and strategies employed by your competition.
Tentative consumers flocked to businesses offering safety and security in a turbulent world. They also pulled together to aid the companies they felt a loyalty to in order to help them survive. These emotions are sure to continue into 2021, and your marketing efforts should reflect that.
Quite honestly, few businesses were adequately prepared for the disastrous effects of the pandemic. And many businesses quickly learned most insurance policies don’t cover a virus. However, there are ways business owners can protect themselves from losing their companies during a disaster. As part of your annual business review, go over your business insurance policies with your representative to see what you need (and perhaps, don’t need). Your plan should focus on protecting your employees, customers, your physical space and equipment, your data, and maintaining business continuity. If you don’t already have a disaster plan in place, Ready.gov offers free preparedness planning toolkits to help assess risk and take action.
Businesses fortunate enough to receive funding from the CARES Act programs will now have to prove how the money was used to have the money forgiven. In addition, the CARES Act introduced several new tax advantages for C Corps, which will need to be adjusted on next year’s taxes.
No one knows how COVID-19 will continue to impact the economy in 2021. It may take months before your profits and losses return to normal. As you do your annual review, create contingency plans for various economic environments, so you’re prepared for any scenario. If you plan on expanding your business in 2021, start researching business practices and register for payroll taxes and sales taxes in the states you’re targeting for expansion.
6. Licenses and Permits
Many business licenses and permits are renewable on an annual basis and require recertification and a renewal fee. If a federal agency regulates your business, you need a federal license or permit. However, most of the licenses and permits necessary will come from your city, county, and state business development offices.
Professional and niche businesses are often required to have various licenses and permits. Acquiring a specialty license means the business has the specific skills to operate a company in certain fields. Businesses include hair and nail salons, accountants, legal, plumbers, electricians, collection agencies, daycare, pesticide dealers, and more.
A business selling products and services subject to sales taxes will need a sales tax license from the state tax authority office. Do you sell in more than one state? You’ll need a license in each state. Sell taxable products on a wholesale basis to retailers? You’ll need a reseller license (resale certificate), which gives a business permission to sell taxable products without collecting sales tax.
7. Annual Corporate Filings
Most states require registered corporations and Limited Liability Companies (LLC)to file an Annual Report, also known as a Statement of Information, with the Secretary of State’s office every year. State governments want to maintain updated data on corporate activity, including information about the corporation’s directors, officers, any registered agents, and registered office of the corporation. In most states, there is a small filing fee associated with this filing. Did you miss some deadlines this year and need to reinstate your business so it can once again be in compliance? CorpNet can help you with the reinstatement filing process to bring your business back into good standing with the state.
8. Annual Meeting Minutes
Although meeting minutes are not required to be filed with the state, if you are an S Corp or a C Corp, most states require that you keep careful records of the company’s activities yearly. Every time your board of directors meets, you must keep a record on file for regulatory compliance purposes. Transactions and resolutions that must be kept on the record include:
- The appointment of a new officer
- The resignation of a director
- Purchasing insurance
- Selling stock
- Obtaining a line of credit/credit card in the company’s name
As part of your annual business review, the board of directors must hold an annual meeting to go over the past year’s details and decide on actions and strategies for the next year. Keep the minutes with your other corporate records, such as articles of incorporations, bylaws, and resolutions.
9. Closing a Business
Did you decide to close your business this year? Properly closing a business is just as important as starting a business. Not only could you get in trouble with federal and state governments, but your business’s reputation and credit strength are also on the line. If your business is a sole proprietorship, the decision to close is all your own. But, if you have partners, are structured as a corporation or LLC, all co-owners and board members must agree. The process requires a formal vote that is documented and includes the signatures of all relevant parties. You must then file the correct forms with the Secretary of State’s office in the state in which your business was formed. These forms are called “Articles of Dissolution,” “Certificate of Termination,” or “Certificate of Dissolution.” If you don’t complete this step, you will need to continue to file any required annual paperwork and pay the fees associated with the business.
10. Foreign Qualifications
If your business expanded to other states or your plans for next year include expansion, you’ll need to foreign qualify your business. What is a foreign qualification? Foreign qualification is the process of registering a company in another state to conduct business in that state. States vary in what constitutes doing business, but in general, most states consider the following as business activities requiring foreign qualification:
- The business has a physical presence (office space, warehouse, or retail store) in the state
- The business conducts in-person meetings with clients or customers in the state
- The business is structured as an LLC, corporation, or limited partnership (LP)
- The business has employees living/working in the state
You’ll also need to register for a foreign qualification before you can apply for the state’s payroll and sales tax authorization.
Don’t worry if this sounds too complex. CorpNet is here to help you with all aspects of your annual business review. Get in touch today!