Februrary 8, 2013 Client Newsletter

I started writing this newsletter right at the end of December 2012.  And then the crush of the workload in January got in the way.  January is the second busiest month of the year for your tax guys. We have prepared, filed and sent to our clients hundreds of W-2, quarterly taxes, and 1099 forms last month. We sent out most forms to our clients earlier than ever this year.  Not to say that this is a surprise.  It’s not.  I have doing this stuff for more than 30 years but this seems to be a little more difficult this year.  The IRS is the culprit of course.

You may have heard about the major delay in starting tax season this year.  Traditionally the start of tax season is January 15th.  But with the last minute “Fiscal Cliff” tax legislation IRS arbitrarily pushed back the day it would start processing “some” tax returns to January 30, 2013. It then announced that it will no longer tell us when refunds would be deposited in a client’s checking account substituting a three tiered notification system found on the internet that seems to be offline more than it is online.  

Virtually every business return that we will prepare has some sort of depreciation calculation.  IRS will not start accepting 2012 tax returns with depreciation until late February, 2013 or even worse March, 2013.  

Instead of encouraging you to bring your tax information in early as we have done in the past,  you hang on until we learn when the IRS will begin accepting them.  We will keep you posted.

My wife Cindy and I flew to Florida on Southwest Airlines last December.  On the back of our boarding pass jacket was printed “We do things differently  (aka better) at Southwest Airlines.”  I liked that slogan so much that I stole it for us to use.   

Southwest Airline success in an industry filled with bankruptcies and failures is truly amazing.    As Warren Buffett once wrote in a letter to shareholders, “If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”  Since the late eighties, every major airline in the country has gone bankrupt—except one, Southwest. As the United States' largest (in terms of domestic originating passengers carried) low-fare, high frequency, point-to-point carrier, year end financial results for 2011 marked Southwest's 39th consecutive year of profitability.

Other airlines have been jealous of Southwest's success and its relationship with its customers and employees for years. And no one seems to be able to get to the bottom line of what they do operationally and financially that makes them a success. Maybe there is nothing more, it's all just a matter of operating efficiently and keeping employees and customers happy. In fact, many start-up airlines now use Southwest as their template for operating their airline.

What are the ingredients that have made Southwest Airlines such a consistent success story? This is an airline that has defied industry norms of either red ink on the bottom line or very low profit margins of 1-4 percent. The airline invented its own business model avoiding the usual management fads such as business process re engineering, total quality management, change management and balanced business scorecard, among others.

The one thing that Southwest has done that has made them stand out in the airline industry was not to charge a checked bag fee.  This one brilliant decision has made them stand out from their competitors. With the perception that airlines are just a commodity business, not charging for bags has made a tremendous difference in their bottom line.  In fact not paying for three check bags was the basis for our decision to fly Southwest in a completely filled airplane, on an itinerary that took us first to Baltimore and then to St. Louis instead of their competitors.  

Small business owners struggling to establish their businesses under the weight of ridiculous laws and red tape and big businesses that seek to reap monopoly or oligopoly profits will take comfort from the realization that with persistence, perseverance, determination, self-confidence, hard work and the desire to provide exceptional services to customers using dedicated and motivated workforce, they will always win in the end.

And that’s Southwest's recipe for success in a very tough business world.  When was the last time you read a tweet, facebook update or blogpost about someone being happy about paying $25 dollars for their luggage to fly with them. Being different is better.