Every business owner launches his or her company wanting to be successful. But once you get out there, it usually becomes apparent that you’re not alone. To reach any level of success, you’ve got to be competitive with other similar businesses in your market.
When strategic planning, one important question to regularly ask is: Just how competitive are we anyway? Objectively making this determination entails scrutinizing key factors that affect profitability, including:
Industry environment. Determine whether there are any threats facing your industry that could affect your business’s ability to operate. This could be anything from extreme weather to a product or service that customers might use less should the economy sour or buying trends significantly change.
Tangible and intangible resources. Competitiveness can hinge on the resources to which a business has access and how it deploys them to earn a profit. What types of tangible — and intangible — resources does your business have at its disposal? Are you in danger of being cut off or limited from any of them?
For example, do you own state-of-the-art technology that allows you to produce superior products or offer premium services more quickly and cheaply than competitors? Assess how suddenly this technology could become outdated — or whether it already has.
Strength of leadership team. As the owner of the business, you may naturally and rightly assume that its management is in good shape. But be open to an objective examination of its strengths and weaknesses.
For instance, maybe you’ve had some contentious interactions with employees as of late. Ask your managers whether underlying tensions exist and, if so, how you might improve morale going forward. There’s probably no greater danger to competitiveness than a disgruntled workforce.
Relationships with suppliers, customers and regulators. For most businesses to function competitively, they must rely on suppliers and nurture strong relationships with customers. In addition, if your company is subject to regulatory oversight, it has to cooperate with local, state and federal officials.
Discuss with your management team the steps the business is currently taking to measure and manage the state of its relationships with each of these groups. Have you been paying suppliers on time? Are you getting positive customer feedback (directly or online)? Are you in compliance with applicable laws and regulations — and are there any new ones to worry about?
Loss of competitiveness can often sneak up on companies. One minute you’re operating in the same stable market you’ve been in for years, and the next minute a disruptor comes along and upends everything. Contact us for more information and other profit-building ideas.
When a business decides to hold a retreat for its employees, the first question to be answered usually isn’t “What’s our agenda?” or “Whom should we invite as a guest speaker?” Rather, the first item on the table is, “Where should we have it?”
Many employees, and some business owners, might assume a company retreat, by definition, must take place off-site. But this isn’t necessarily so. Holding an on-site retreat is an option — and a markedly cost-effective one at that. Then again, it may also recall the old adage: You get what you pay for.
There are several ways that staying put can better keep out-of-pocket expenses in check. The most obvious is that you won’t need to rent one or more meeting rooms. Perhaps even more important, no one at your company will need to spend valuable time and energy calling around to various hotels, gathering information and negotiating costs.
You’ll also likely spend less on food and beverages. A local restaurant can probably cater in the food for a nominal sum, and you could buy beverages in bulk. Furthermore, you’ll have no concerns or expenses associated with transporting employees to the retreat location (as long as your employees all work on site).
Problem is, employees tend to view on-site retreats as just another day at the office, making it hard to turn on creative juices and accomplish goals. They’re constantly tempted to run back to their desks to check their emails and voice mails. Worse yet, they may consider their employer a little too cost-conscious, if you catch our drift.
Generally, people are better able to focus on a retreat agenda at off-site locations. They’re in a new, “special” environment that has no visual cues triggering their workday routines. So, even though you’ll incur additional costs, you may get a better return on investment.
During the planning process, remember that everything is negotiable. Hotels and facilities that host company retreats need and want your business. Get several quotes and compare prices and services. You’ll have more leverage if you avoid scheduling your retreat during a time of year when local venues tend to be busy.
Because hotels earn bigger margins on food, beverages and meeting setup fees, many will provide complimentary or discounted rooms for guest speakers and out-of-town employees. Also, try to negotiate a set food and beverage price for the entire retreat, rather than a per-person or per-event rate.
In addition, don’t be shy about asking for discounts. For example, if the facility requires an advance deposit and the balance at the end of the retreat rather than giving you 30 days to pay, request a prompt-pay discount.
Thinking it through
Not every company can afford to fly their staff to Aruba and hold beachside brainstorming sessions replete with tropical beverages. But crowding everyone into the break room and expecting mind-blowing strategic ideas to flow forth probably isn’t realistic, either. Find a suitable and productive point somewhere in between. Let us know if we can help with further information or more ideas.
An old business adage says, “Sales is a numbers game.” In other words, the more potential buyers you face, the better your chances of making sales. This isn’t completely true, of course; success also depends on execution.
Nonetheless, when a company builds a pipeline to funnel prospects to its sales team, it will increase the opportunities for these staff members to strike and close deals. Here are some ways to undertake construction.
Do your research
First, establish a profile of the organizations that are the best candidates for your products or services. Criteria should include:
Next, think lead generation. The two best sources for generating leads are companywide marketing activities and individual salesperson initiatives, both of which create name recognition and educate prospects on the benefits of your products or services. Although you may find one method works better for you than the other, try not to be too dependent on either.
3 ways to reach out
Once you identify prospects, your sales team has got to reach out. Here are three ways to consider:
1. Cold calls. Every salesperson has done traditional cold calling — assembling a list of prospects that fit into your established customer profile and then calling or visiting them. Cold calling requires many attempts, and the percentage of interested parties tends to be small. Encourage your sales staff to personalize their message to each prospect so the calls don’t have a “canned” feel.
2. Researched cold calling. Select a subset of the most desirable candidates from your prospect list and do deeper research into these organizations to discover some need that your product or service would satisfy. Work with your sales team to write customized letters to the appropriate decision makers, highlighting your company’s skills in meeting their needs. If possible, quote an existing customer and quantify the benefits. The letter should come from the sales rep and state that he or she will be following up with a phone call. Often, after sending such a letter, getting in the door is a little easier.
3. Referrals. Research potential referral sources just as you study up on sales prospects themselves. Your goal is to develop and maintain a referral network of satisfied customers and other professionals who interact with your prospects. When you get referrals, be sure to send thank-you notes to the sources and keep them informed of your progress.
Go with the flow
Does your business regularly find itself hitting dry spells in which sales prospects seem to evaporate into thin air? If so, it may be because you lack a solid pipeline to keep the identities of those potential buyers flowing in. Contact us for further ideas and information.
Employees tend not to fully appreciate or use their retirement benefits unless their employer communicates with them about the plan clearly and regularly. But workers may miss or ignore your messaging if it all looks and “sounds” the same. That’s why you might want to consider getting more creative. Consider these ideas:
Brighter, more dynamic print materials. There’s no getting around the fact that printed materials remain a widely used method of conveying retirement plan info to participants. But if yours still look the same way they did 10 years ago, employees may file them directly into the recycle bin. Look into whether you should redesign your materials to bring them up to date.
A targeted number of well-formatted emails. You probably augment printed materials with email communications. But finding the right balance here is key. If you’re bombarding employees with too many messages, they might get in the habit of deleting them with barely a glance. Then again, too few messages means your message probably isn’t getting through. Also, like your printed materials, emails need to be well written and formatted.
Social media. Some employers have tried using their social media accounts to keep employees engaged and reminded about benefits. The effectiveness of this will depend on how active you are on social media and how many staff members follow you. It may work well if you have a younger workforce.
“Gamification.” As the name suggests, gamification involves incorporating some fun and a competitive element into benefits education — offering virtual rewards, status indicators or gift cards to successful competitors. Games can include quizzes testing employees’ understanding of their benefits or the fundamentals of retirement planning.
Robocalls. Granted, this may not be an immediately enticing option. These prerecorded calls have largely gotten a bad reputation because of their overuse for sales purposes. But, some employees may appreciate an occasional robocall as a reminder or update that they may have otherwise missed.
Making the problem of benefits communication even tougher is the fact that many companies budget little or even nothing to accomplish this important task. But, considering the cost and effort you put into choosing and maintaining your retirement benefits, effective communication is worth some investment. Let us know how we can help.
Social media can be an inexpensive, but effective, way to market a company’s products or services. Like most businesses today, you’ve probably at least dipped your toe into its waters. Or perhaps you have a full-blown, ongoing social media strategy involving multiple sites and a variety of content.
In either case, it’s important to ask yourself — and keep asking yourself — some fundamental questions about why and how you’re using social media. Here are five to consider:
1. What differentiates your company? This question is more complex than it may appear. When striving to stand out on social media, you’ve got to separate yourself from not only your competitors, but also many other entities vying for your followers’ attention. Look closely into whether your brand “pops” and how dynamic your messages may or may not be.
2. What will your followers react to? Get to know your company’s followers. Remember, this may include current customers and prospects, as well as potential new hires and community leaders or activists. Be careful: In their efforts to get noticed, many companies have crossed the line into offensive or just plain embarrassing content.
3. What do you hope to accomplish? Your social media strategy should be no different from any other profit-building initiative. Establish clear, trackable objectives; allocate a reasonable budget; and assess regularly whether you’re succeeding or failing.
4. How often should you post? There’s no hard and fast rule for how often to post new content. Anyone who’s active on social media knows there’s a limit before you become a nuisance. Then again, posting too infrequently may inhibit you from gaining any traction in the competitive online environment. Appropriate frequency depends in part on the social media site — you should generally post much more often on Twitter than on LinkedIn, for example.
5. Who’s minding the store? Social media requires ongoing attention. In addition to creating new posts, you’ll need to continuously watch for inappropriate comments and block social media “trolls” looking to cause mischief. Make sure that someone’s stated job duties include keeping an eye on every social media account associated with your business.
The answers to these questions can help guide your company’s overall social media strategy. Remember, the social media world is constantly in flux, with new trends and sites arising all the time. You’ve got to keep an inquisitive mind. We can help your business find the right answers to building its bottom line in a variety of ways.
You may keep a wary eye on your competitors, but sometimes it helps to look just a little bit deeper. Even if you’re a big fish in your pond, someone a little bigger may be swimming up just beneath you. Being successful means not just being aware of these competitors, but also knowing their approaches and results.
And that’s where benchmarking comes in. By comparing your company with the leading competition, you can identify weaknesses in your business processes, set goals to correct these problems and keep a constant eye on how your company is doing. In short, benchmarking can help your company grow more successful.
2 basic methods
The two basic benchmarking methods are:
1. Quantitative benchmarking. This compares performance results in terms of key performance indicators (formulas or ratios) in areas such as production, marketing, sales, market share and overall financials.
2. Qualitative benchmarking. Here you compare operating practices — such as production techniques, quality of products or services, training methods, and morale — without regard to results.
You can break down each of these basic methods into more specific methods, defined by how the comparisons are made. For example, internal benchmarking compares similar operations and disseminates best practices within your organization, while competitive benchmarking compares processes and methods with those of your direct competitors.
Waters, familiar and new
The specifics of any benchmarking effort will very much depend on your company’s industry, size, and product or service selection, as well as the state of your current market. Nonetheless, by watching how others navigate the currents, you can learn to swim faster and more skillfully in familiar waters. And, as your success grows, you may even identify optimal opportunities to plunge into new bodies of water.
For more information on this topic, or other profit-enhancement ideas, please contact our firm. We would welcome the opportunity to help you benchmark your way to greater success.
Natural disasters and other calamities can affect any company at any time. Depending on the type of business and its financial stability, a few weeks or months of lost income can leave it struggling to turn a profit indefinitely — or force ownership to sell or close. One way to guard against this predicament is through the purchase of business interruption insurance.
You might say, “But wait! We already have commercial property insurance. Doesn’t that typically pay the costs of a disaster-related disruption?” Not exactly. Your policy may cover some of the individual repairs involved, but it won’t keep you operational.
Business interruption coverage allows you to relocate or temporarily close so you can make the necessary repairs. Essentially, the policy will provide the cash flow to cover revenues lost and expenses incurred while your normal operations are suspended.
2 types of coverage
Generally, business interruption insurance isn’t sold as a separate policy. Instead, it’s added to your existing property coverage. There are two basic types of coverage:
1. Named perils policies. Only specific occurrences listed in the policy are covered, such as fire, water damage and vandalism.
2. All-risk policies. All disasters are covered unless specifically excluded. Many all-risk policies exclude damage from earthquakes and floods, but such coverage can generally be added for an additional fee.
Business interruption insurance usually pays for income that’s lost while operations are suspended. It also covers continuing expenses — including salaries, related payroll costs and other amounts required to restart a business. Depending on the policy, additional expenses might include:
Business interruption coverage that insures you against 100% of losses can be costly. Therefore, more common are policies that cover 80% of losses while the business shoulders the remaining 20%.
Pros and cons
As good as business interruption coverage may sound, your company might not need it if you operate in an area where major natural disasters are uncommon and your other business interruption risks are minimal. The decision on whether to buy warrants careful consideration.
First consult with your insurance agent about business interruption coverage options that could be added to your current property coverage. If you’re still interested, perhaps convene a meeting involving your agent, management team and other professional advisors to brainstorm worst-case scenarios and ask “what if” questions. After all, you don’t want to overinsure, but you also don’t want to underemphasize risk management.
Proper insurance coverage is essential for every company. Let us help you run the numbers and assess the potential value of a business interruption policy.
You’ve probably heard or read the term “big data” at least once in the past few years. Maybe your response was a sarcastic “big deal!” under the assumption that this high-tech concept applies only to large corporations. But this isn’t necessarily true. With so much software so widely available, companies of all sizes may be able to devise and implement big data strategies all their own.
Trends, patterns, relationships
The term “big data” generally refers to any large set of electronic information that, with the right hardware and software, can be analyzed to identify trends, patterns and relationships.
Most notably for businesses, it can help you better understand and predict customer behavior — specifically buying trends (upward and downward) and what products or services customers might be looking for. But big data can also lend insights to your HR function, helping you better understand employees and potential hires, and enabling you to fine-tune your benefits program.
Think of big data as the product recommendation function on Amazon. When buying anything via the site or app, customers are provided a list of other items they also may be interested in. These recommendations are generated through a patented software process that makes an educated guess, based on historical data, on consumer preferences. These same software tools can make predictions about aspects of your business, too — from sales to marketing return on investment, to employee retention and performance.
Here are a couple of specific areas where big data may help improve your company:
Sales. Many businesses still adhere to the tried-and-true sales funnel that includes the various stages of prospecting, assessment, qualification and closing. Overlaying large proprietary consumer-behavior data sets over your customer database may allow you to reach conclusions about the most effective way to close a deal with your ideal prospects.
Inventory management. If your company has been around for a while, you may think you know your inventory pretty well. But do you, really? Using big data, you may be able to better determine and predict which items tend to disappear too quickly and which ones are taking up too much space.
Planning and optimization
Big data isn’t exactly new anymore. But it continues to evolve with the widespread use of cloud computing, which allows companies of any size to securely store and analyze massive amounts of data online. Our firm can offer assistance in planning and optimizing your technology spending.
For many years, owners of small and midsize businesses looked at outsourcing much like some homeowners viewed hiring a cleaning person. That is, they saw it as a luxury. But no more — in today’s increasingly specialized economy, outsourcing has become a common way to cut costs and obtain expert assistance.
Why would you?
Outsourcing certain tasks that your company has been handling all along offers many benefits. Let’s begin with cost savings. Outsourcing a function effectively could save you a substantial percentage of in-house management expenses by reducing overhead, staffing and training costs. And thanks to the abundant number of independent contractors and providers of outsourced services, you may be able to bargain for competitive pricing.
Outsourcing also allows you to leave administration and support tasks to someone else, freeing up staff members to focus on your company’s core purpose. Plus, the firms that perform these functions are specialists, offering much higher service quality and greater innovations and efficiencies than you could likely muster.
Last, think about accountability — in many cases, vendors will be much more familiar with the laws, regulations and processes behind their specialties and therefore be in a better position to help ensure tasks are done in compliance with any applicable laws and regulations.
What’s the catch?
Of course, potential disadvantages exist as well. Outsourcing a business function obviously means surrendering some control of your personal management style in that area. Some business owners and executives have a tough time with this.
Another issue: integration. Every provider may not mesh with your company’s culture. A bad fit may lead to communication breakdowns and other problems.
Also, in rare cases, you may risk negative publicity from a vendor’s actions. There have been many stories over the years of companies suffering PR damage because of poor working conditions or employment practices at an outsourced facility. You’ve got to research any potential vendor thoroughly to ensure its actions won’t reflect poorly on your business.
To further protect yourself, stipulate your needs carefully in the contract. Pinpoint milestones you can use to ensure deliverables produced up to that point are complete, correct, on time and within budget. And don’t hesitate to tie partial payments to these milestones and assess penalties or even reserve the right to terminate if service falls below a specified level.
Last, build in clauses giving you intellectual property rights to any software or other items a provider develops. After all, you paid for it.
Need more time?
Outsourcing may not be the right solution every time. But it could help your business find more time to flourish and grow. We can help you assess the costs, benefits and risks.
As a business owner, you know that it’s easy to spend nearly every working hour on the multitude of day-to-day tasks and crises that never seem to end. It’s essential to your company’s survival, however, to find time for strategic planning.
Lost in the weeds
Business owners put off strategic planning for many reasons. New initiatives, for example, usually don’t begin to show tangible results for some time, which can prove frustrating. But perhaps the most significant hurdle is the view that strategic planning is a time-sucking luxury that takes one’s focus off of the challenges directly in front of you.
Although operational activities are obviously essential to keeping your company running, they’re not enough to keep it moving forward and evolving. Accomplishing the latter requires strategic planning. Without it, you can get lost in the weeds, working constantly yet blindly, only to look up one day to find your business teetering on the edge of a cliff — whether because of a tough new competitor, imminent product or service obsolescence, or some other development that you didn’t see coming.
Quality vs. quantity
So how much time should you and your management team devote to strategic planning? There’s no universal answer. Some experts say a CEO should spend only 50% of his or her time on daily operations, with the other half going to strategy — a breakdown that could be unrealistic for some.
The emphasis is better put on quality rather than quantity. However many hours you decide to spend on strategic planning, use that time solely for plotting the future of your company. Block off your schedule, choose a designated and private place (such as a conference room), and give it your undivided attention. Make time for strategic planning just as you would for tending to an important customer relationship.
Time well spent
Effective strategic planning calls for not only identifying the right business-growing initiatives, but also regularly re-evaluating and adjusting them as circumstances change. Thus, strategizing should be part of your weekly or monthly routine — not just a “once in a while, as is convenient” activity. You may need to delegate some of your current operational tasks to make that happen but, in the long run, it will be time well spent. Please let us know how we can help.
There’s an old saying regarding family-owned businesses: “Shirtsleeves to shirtsleeves in three generations.” It means the first-generation owner started in shirtsleeves and built the company up from nothing but, by the third generation, the would-be owner is back in shirtsleeves with nothing because the business failed or was sold.
Although you can’t guarantee your company will buck this trend, you can take extra care when choosing a successor to give your family business a fighting chance. Here are seven steps to consider:
1. Make no assumptions. Many business owners assume their son or daughter wants to run the company or that a particular child is right for the role. But such an assumption can doom the company.
2. Decide which family members are viable candidates, if any. External parties such as professional advisors or an advisory board can provide invaluable input. Outsiders are more likely to be impartial and have no vested interest in your decision. They might help you realize that someone who’s not in your family is the best choice.
3. Look at skills and temperament. Once you’ve settled on a few candidates, hold private meetings with each to discuss the leadership role. Get a feel for whether anyone you’re considering may lack the skills or temperament to run the business.
4. If there are multiple candidates, give each a fair shot. This is no different from what happens in publicly held companies and larger private businesses. Allow each qualified candidate to fill a position at the company and move up the management ladder.
5. Rotate the jobs each candidate performs, if possible. Let them gain experience in many areas of the business, gradually increasing their responsibilities and setting more rigorous goals. You’ll not only groom a better leader, but also potentially create a deeper management team.
6. Clearly communicate your decision. After a reasonable period of time, pick your successor. Meet with the chosen candidate to discuss a transition time line, compensation and other important issues. Also sit down with those not selected and explain your choice. Ideally, these individuals can stay on to provide the aforementioned management depth. Some, however, may choose to leave or be better off working elsewhere. Be forewarned: This can be a difficult, emotional time for family members.
7. Work with your successor on a well-communicated transition of power. Once you’ve picked a successor, he or she effectively becomes a business partner. It’s up to the two of you to gradually shift power from one generation to the next (assuming the business is staying in the family). Don’t underestimate the human element and how much time and effort will be required to make the succession work. Let us help you meet and overcome this critical challenge.
Many people scoff at New Year’s resolutions. It’s no mystery why — these self-directed promises to visit the gym regularly or read a book a month tend to quickly fade once the unavoidable busyness of life sets in.
But, for business owners, the phrase “New Year’s resolutions” is just a different way of saying “strategic plans.” And these are nothing to scoff at. In fact, now is the perfect time to take a critical look at your company and make some earnest promises about improving profitability in 2018.
Ask tough questions
Begin by asking some tough questions. For example: How satisfied are you with the status quo of your business? Are you happy with your profitability or had you anticipated a much stronger bottom line at this point in your company’s existence? If you were to sell tomorrow, would you get a fair return based on what you’ve invested in effort and money?
If your answers to these questions leave you more dissatisfied than pleased, your New Year’s resolutions may have to be bold. This doesn’t mean you should do something rash. But there’s no harm in envisioning next year as the greatest 12 months in the history of your business and then trying to figure out how you might get there.
Rate your profitability
To assess your company’s financial status, begin by honestly gauging your current performance. Rate your profitability on a scale of 1 to 10, where adequate working capital, long-term employees and customers, consistent growth in revenues and profit, and smooth operations equal a 10.
Many business owners will apply numbers somewhere between a 5 and a 7 to these categories. If you rate your business a 6, for example, this means your company isn’t tapping into 40% of its profit-generating capacity. Consider the level of improvement you would realize by moving up just one notch — to a 7.
Identify areas for improvement
One way to discover your company’s unrealized profit enhancement opportunities is to ask your customers and employees. They know firsthand what you are good at, as well as what needs improvement.
For instance, years ago, when the American auto industry was taking its biggest hits from foreign imports, one of the Big Three manufacturers was experiencing significant customer complaints about poor paint jobs. An upper-level executive visited the paint shop in one of its factories and asked an employee about the source of the problem. The worker replied, “I thought you’d never ask,” and proceeded to explain in detail what was wrong and how to solve it.
Get ready for change
If you have a few New Year’s resolutions in mind but aren’t sure how to implement these ideas or how financially feasible they might be, please contact our firm. We can work with you to identify areas of your business ready for change and help you attain a higher level of success next year.
The artificial intelligence (AI) revolution isn’t coming — it’s here. While AI’s potential for your company might not seem immediately obvious, this technology is capable of helping businesses of all shapes and sizes “get smart.”
AI generally refers to the use of computer systems to perform tasks commonly thought to require human intelligence. Examples include image perception, voice recognition, problem solving and decision making. AI includes machine learning, an iterative process where machines improve their performance over time based on examples and structured feedback rather than explicit programming.
3 applications to consider
Businesses can use AI to improve a variety of functions. Three specific applications to consider are:
1. Sales and marketing. You might already use a customer relationship management (CRM) system, but introducing AI to it can really put the pedal to the metal. AI can go much further — and much faster — than traditional CRM.
For example, AI is able to analyze buyer behavior and consumer sentiments across a range of media, including recorded phone conversations, email, social media and reviews. AI also can, in a relative blink of the eye, process consumer and market data from a far wider range of sources than previously thought possible. And it can automate the repetitive tasks that eat up your sales or marketing team’s time.
All of this results in quicker generation of qualified leads. With AI, you can deploy your sales force and marketing resources more efficiently and effectively, reducing your cost of customer acquisition along the way.
2. Customer service. Keeping customers satisfied is the key to retaining them. But customers don’t always tell you when they’re unhappy. AI can pick up on negative signals and find correlations to behavior in customer data, empowering you to save important relationships.
You can integrate AI into your customer support function, too. By leaving tasks such as classifying tickets and routing calls to AI, you’ll reduce wait times and free up representatives to focus on customers who need the human touch.
3. Competitive intelligence. Imagine knowing your competitors’ strategies and moves almost as well as your own. AI-based competitive analysis tools will track other companies’ activities across different channels, noting pricing and product changes and subtle shifts in messaging. They can highlight competitors’ strengths and weaknesses that will help you plot your own course.
The future is now
AI isn’t a fad; it’s becoming more and more entrenched in our business and personal lives. Companies that recognize this sea change and jump on board now can save time, cut costs and develop a clear competitive edge. We can assist you in determining how technology investments like AI should fit into your overall plans for investing in your business.
Year end can’t get here soon enough for some business owners — especially those whose companies have exceeded their annual budgets. If you find yourself in this unenviable position, you can still cut costs to either improve this year’s financial picture or put yourself in a better position for next year.
Tackle staffing issues
It’s easy to put off tough staffing decisions, but those issues may represent an unnecessary drain on your finances. If you have employees who don’t have enough work to keep busy, think about restructuring jobs so everyone’s productive. You might let go of extra staff, or, alternatively, offer mostly idle workers unpaid time off during slow periods.
You also need to face the hard facts about underperforming workers. Few business owners enjoy firing anyone, but it makes little sense to continue to pay poor performers.
Take control of purchasing
Are you getting the most out of your company’s combined purchasing power? You may have different departments independently buying the same supplies or services (for example, paper, computers, photocopying). By consolidating such purchases, you might be able to negotiate reduced prices.
To strengthen your bargaining power with suppliers when seeking discounts, pay your bills promptly. Even if it doesn’t help you land reduced prices, you’ll avoid late payment fees and credit card interest charges.
But don’t just continue to pay bills mindlessly. Review all of your service invoices — especially those that are automatically deducted from your bank accounts or charged to credit cards — to confirm you’re actually using the services. Consider canceling any services you haven’t used in 90 days.
Redirect your marketing efforts
Advertising costs can take a significant bite out of your budget, and the priciest efforts often have the lowest returns on investment. Cut programs and initiatives that haven’t clearly paid off, and move your marketing to social media and other more cost-efficient avenues — at least temporarily. A single, positively received tweet may reach exponentially more people than a costly directory listing, print ad or trade show booth.
Resist the urge to solve your budget shortfalls with one dramatic cut — the risks are simply too high. The better approach is to execute a combination of incremental actions that will add up to savings. Contact us for a full assessment of your company’s budget.
Business owners have to make tough choices when it comes to providing benefits to their employees. Many companies, especially newer or smaller ones, may understandably prioritize flexibility. No one wants to get locked into a benefits offering that’s cumbersome to administer and expensive to maintain.
Well, there’s one possibility that has the word “flexible” built right into its name: the health care Flexible Spending Account (FSA). And these arrangements certainly offer that.
No HDHP required, employee contributions allowed
You’ve probably heard about Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs). These increasingly popular benefits options allow employees to pay for qualifying health care costs with pretax dollars. But each one comes with a critical catch: You must offer HSAs in conjunction with a high-deductible health plan (HDHP), and your business can be the only contributor to an HRA.
These limitations don’t apply to FSAs. An HDHP isn’t required, and both employees and the business itself can contribute to the account. Employee contributions are made pretax directly from their compensation, and any contributions you make as an employer aren’t included in your company’s taxable income. (Note: For employees who have an HSA, their FSA would be limited to funding certain “permitted” expenses.)
So there’s that flexibility we mentioned. You can establish an FSA relatively quickly without having to commit to an HDHP, and both you and your employees can contribute. Now the drawback: FSAs are “use it or lose it” accounts. In other words, a participant generally must forfeit any unused balance remaining in his or her account after year end.
There is, however, a way to soften this downside. Employers can include in their FSAs either a grace period of up to 2½ months or a $500 carryover amount. Doing so can add even more flexibility to the FSA concept.
If you decide to establish a health care FSA, be prepared to regularly communicate with employees about it throughout the year. When funding their accounts, participants will need to carefully estimate how much money they’re likely to spend over the course of the year. And around the end of the year you’ll need to remind them that, if funds remain in their FSAs, employees will need to incur reimbursable expenses by Dec. 31 to use up those dollars (again, assuming you don’t have a grace period or carryover amount).
No easy answers
There are no easy answers when it comes to employee benefits these days. But FSAs can be a relatively simple to administer benefit that’s appealing to employees. Let us help you assess your options and make the best choice for your business.
No business owner wants to send out spam. Even the term “email blast,” the practice of launching a flurry of targeted messages at customers and prospects, has mixed connotations these days.
Yet email remains a viable and even necessary communications channel. Here are four tips on making your marketing emails a blast (in the fun and informative sense) and keeping them out of recipients’ spam folders:
1. Craft a catchy subject line. It should be no longer than eight words and shouldn’t be in all caps. Put yourself in the customer’s place, particularly considering his or her demographic, and ask yourself whether you would open the email. Also, clearly indicate the message’s content.
Example: Office Supplies Blowout! 30% Year-End Discount
2. Write a compelling headline. The first thing readers see upon opening an email is the headline, so make it:
Example: Rock Your Stockroom Now
3. Make it quick, keep it simple. Most people will read very little text and may not wait for slow-loading images. So think of each marketing email as an “elevator speech,” a quick and concise pitch for specific products or services. And keep images relatively small and easy to download.
Customers want to fulfill their needs at a reasonable price. Don’t expect them to search for answers about whether you can meet these expectations. Tell them why they should buy.
Example: Buying office supplies in bulk now will save you time and money throughout next year.
4. Close with a “call to action.” Instill a sense of urgency in readers by setting a deadline and telling them precisely what to do. Otherwise, they may interpret the email as merely informational and file it away for reference or simply delete it. Be sure to include clear, “clickable” contact info.
Example: Offer expires November 30. Call or visit our website now!
Speaking of calls to action, please contact our firm for help ensuring your marketing initiatives are cost effective.
Your business financials — where they stand currently and where they might be going next year — are incredibly important. Obviously, sales and expenses play enormous roles in the strength of your position. But a fundamental and often-overlooked way of making your cash flow statement shine is to minimize inventory or services so you have just enough to fulfill demand.
Carrying too much inventory can devastate a budget as the value of the surplus items drops throughout the year. In turn, your financial statements simply won’t look as good as they could. Taking stock and perhaps cutting back on excess inventory:
One item to perhaps budget for here: upgraded inventory tracking and ordering software. Newer applications can help you better forecast demand, minimize overstocking, and even share data with suppliers to improve accuracy and efficiency.
If yours is a more service-oriented business, you can apply a similar approach. Check into whether you’re “overstocking” on services that just aren’t adding enough revenue to the bottom line. Keeping infrastructure and, yes, even employees in place that aren’t improving profitability is much like leaving items on the shelves that aren’t selling.
Making improvements may require some tough calls. You might have long-time customers to whom you provide certain services that just aren’t substantially profitable anymore. If it’s getting to the point where your company might start losing money on these customers, you may have to discontinue the services and sacrifice their business.
You can ease difficult transitions like this by referring customers to another, reputable service provider. Meanwhile, of course, your business should be looking to either find new service areas to generate revenue or expand existing services.
Brightening the future
A variety of threats can cast a dark shadow on your company’s financial statements. Keeping your inventory or service selection in tip-top shape can help ensure that the numbers — and your business’s future — look bright. Contact our firm for help specific to your situation.
Any business owner developing a succession plan should rightfully assume that regular business valuations are a must. When envisioning the valuation process, you’re likely to focus on its end result: a reasonable, defensible value estimate of your business as of a certain date. But lurking beneath this number is a variety of often hard-to-see issues.
Estate tax liability
One sometimes blurry issue is the valuation implications of whether you intend to transfer the business to the next generation during your lifetime, at your death or upon your spouse’s death. If, for example, you decide to bequeath the company to your spouse, no estate tax will be due upon your death because of the marital deduction (as long as your spouse is a U.S. citizen). But estate tax may be due on your spouse’s death, depending on the business’s value and estate tax laws at the time.
Speaking of which, President Trump and congressional Republicans have called for an estate tax repeal under the “Unified Framework for Fixing Our Broken Tax Code” issued in late September. But there’s no guarantee such a provision will pass and, even if it does, the repeal might be only temporary.
So an owner may be tempted to minimize the company’s value to reduce the future estate tax liability on the spouse’s death. But be aware that businesses that appear to have been undervalued in an effort to minimize taxes will raise a red flag with the IRS.
Inactive heirs and retirement
Bear in mind, too, that your heirs may have different views of the business’s proper value. This is particularly true of “inactive heirs” — those who won’t inherit the business and whose share, therefore, may need to be “equalized” with other assets, such as insurance proceeds or real estate. Your appraiser will need to clearly understand the valuation’s purpose and your estate plan.
When (or if) you plan to retire is another major issue to be resolved. If you want your children to take over, but you need to free up cash for retirement, you may be able to sell shares to successors. Several methods (such as using trusts) can provide tax advantages as well as help the children fund a business purchase.
Obtaining a valuation in relation to your succession plan involves much more than establishing a sale price, transitioning ownership (or selling the company), and sauntering off to retirement. The details are many and potential conflicts abundant. Let us help you anticipate and manage these complexities to ensure a smooth succession.
With so much data flying around these days, it’s easy for a company of any size to get overwhelmed. If something important falls through the cracks, say a contract renewal or outstanding bill, your financial standing and reputation could suffer. Here are four ways to get — and keep — your business data in order:
1. Simplify, simplify, simplify. Look at your data in broad categories and see whether and how you can simplify things. Sometimes refiling documents under basic designations such as “vendors,” “leases” and “employee contracts” can help you get better perspective on your information. In other cases, you may need to realign your network or file storage to more closely follow how your company operates today.
2. Implement a data storage policy. A formal effort toward getting organized can help you target what’s wrong and determine what to do about it. In creating this policy, spell out which information you must back up, how much money you’ll spend on this effort, how often backups must occur and where you’ll store backups.
3. Reconsider the cloud. Web-based data storage, now commonly known as “the cloud,” has been around for years. It allows you to store files and even access software on a secure remote server. Your company may already use the cloud to some extent. If so, review how you’re using the cloud, whether your security measures are adequate, and if now might be a good time to renegotiate with your vendor or find a new one.
4. Don’t forget about email. Much of your company’s precious data may not be in files or spreadsheets but in emails. Although it’s been around for decades, this medium has grown in significance recently as email continues to play a starring role in many legal proceedings. If you haven’t already, establish an email retention policy to specify everyone’s responsibilities when it comes to creating, organizing and deleting (or not deleting) emails.
Virtually every company operating today depends on data, big and small, to compete in its marketplace and achieve profitability. Please contact us regarding cost-effective ways to store, organize and deploy your company’s mission-critical information.
As we head toward year end, your company may be reviewing its business strategy for 2017 or devising plans for 2018. As you do so, be sure to give some attention to the prices you’re asking for your existing products and services, as well as those you plan to launch in the near future.
The cost of production is a logical starting point. After all, if your prices don’t exceed costs over the long run, your business will fail. This critical connection demands regular re-evaluation.
One simple way to assess costs is to apply a desired “markup” percentage to your expected costs. For example, if it costs $1 to produce a widget and you want to achieve a 10% return, your selling price should be $1.10.
Of course, you’ve got to factor more than just direct materials and labor into the equation. You should consider all of the costs of producing, marketing and distributing your products, including overhead expenses. Some indirect costs, such as sales commissions and shipping, vary based on the number of units you sell. But most are fixed in the current accounting period, including rent, research and development, depreciation, insurance, and selling and administrative salaries.
“Product costing” refers to the process of spreading these variable and fixed costs over the units you expect to sell. The trick to getting this allocation right is to accurately predict demand.
Deliberate over demand
Changing demand is an important factor to consider. Incurring higher costs in the short term may be worth it if you reasonably believe that rising customer demand will eventually enable you to cover expenses and turn a profit. In other words, rising demand can reduce per-unit costs and increase margin.
Determining the number of units people will buy is generally easier when you’re:
Forecasting demand for a new product that’s a lot different from your current product line can be extremely challenging — especially if there’s nothing like it in the marketplace. But if you don’t factor customer and market considerations into your pricing decisions, you could be missing out on money-making opportunities.
Check your wiring
Like an electrical outlet and plug, the connection between costs and pricing can grow loose over time and sometimes short out completely. Don’t risk operating in the dark. Our firm can help you make pricing decisions that balance ambitiousness and reason.
In their efforts to grow and succeed, many companies eventually reach the edge of a precipice. Across the divide lies a big step forward — perhaps the acquisition of a competitor or the purchase of a new property — but, financially, there’s no way across. The money is just not there.
One way to bridge that divide is with a mezzanine loan. These instruments (also known as junior liens and second liens) can bridge financing shortfalls — so long as you meet certain qualifications and can accept possible risks.
Mezzanine financing works by layering a junior loan on top of a senior (or primary) loan. It combines aspects of senior secured debt from a bank and equity obtained from direct investors. Sources of mezzanine financing can include private equity groups, mutual funds, insurance companies and buyout firms.
Unlike bank loans, mezzanine debt typically is unsecured by the borrower’s assets or has liens subordinate to other lenders. So the cost of obtaining financing is higher than that of a senior loan.
However, the cost generally is lower than what’s required to acquire funding purely from equity investment. Yet most mezzanine instruments do enable the lender to participate in the borrowing company’s success — or failure. Generally, the lower your interest rate, the more equity you must offer. Importantly, mezzanine debt may even convert to equity if the borrower doesn’t repay it on time.
Advantages and drawbacks
The primary advantage of mezzanine financing is that it can provide capital when you can’t obtain it elsewhere or can’t qualify for the amount you’re looking for. This is why it’s often referred to as a “bridge” to undertaking ambitious objectives such as a business acquisition or desirable piece of commercial property. But mezzanine loans aren’t necessarily an option of last resort. Many companies prefer the flexibility of these loans when it comes to negotiating terms.
Naturally, mezzanine loans have drawbacks to consider. In addition to having higher interest rates, mezzanine financing has a few other potential disadvantages. Loan covenants can be restrictive. And though some lenders are relatively hands-off, they may retain the right to a significant say in company operations — particularly if you don’t repay the loan in a timely manner.
Mezzanine financing can also make an M&A deal more complicated. It introduces an extra interested party to the negotiation table and can make an already tricky deal that much harder.
Best financing decisions
If your company qualifies for mezzanine financing, it might help you close a deal that you otherwise couldn’t. But there are other options to consider. We can help you make the best financing decisions.
Are you the founder of your company? If so, congratulations — you’ve created something truly amazing! And it’s more than understandable that you’d want to protect your legacy: the company you created.
But, as time goes on, it becomes increasingly important that you give serious thought to a succession plan. When this topic comes up, many business owners show signs of suffering from an all-too-common affliction.
In the nonprofit sphere, they call it “founder’s syndrome.” The term refers to a set of “symptoms” indicating that an organization’s founder maintains a disproportionate amount of power and influence over operations. Although founder’s syndrome is usually associated with not-for-profits, it can give business owners much to think about as well. Common symptoms include:
It’s worth noting that a founder’s reluctance to loosen his or her grip isn’t necessarily because of a power-hungry need to control. Many founders simply fear that the organization — whether nonprofit or business — would falter without their intensive oversight.
The good news is that founder’s syndrome is treatable. The first step is to address whether you yourself are either at risk for the affliction or already suffering from it. Doing so can be uncomfortable, but it’s critical. Here are some advisable actions:
Form a succession plan. This is a vital measure toward preserving the longevity of any company. If you’d prefer not involve anyone in your business just yet, consider a professional advisor or consultant.
Prepare for the transition, no matter how far away. Remember that a succession plan doesn’t necessarily spell out the end of your involvement in the company. It’s simply a transformation of role. Your vast knowledge and experience needs to be documented so the business can continue to benefit from it.
Ask for help. Your management team may need to step up its accountability as the succession plan becomes more fully formed. Managers must educate themselves about the organization in any areas where they’re lacking.
In addition to transferring leadership responsibilities, there’s the issue of transferring your ownership interests, which is also complex and requires careful planning.
Blood, sweat and tears
You’ve no doubt invested the proverbial blood, sweat and tears into launching your business and overseeing its growth. But planning for the next generation of leadership is, in its own way, just as important as the company itself. Let us help you develop a succession plan that will help ensure the long-term well-being of your business.
“We love our customers!” Every business owner says it. But all customers aren’t created equal, and it’s in your strategic interest to know which customers are really strengthening your bottom line and by how much.
Sorting out the data
If your business systems track individual customer purchases, and your accounting system has good cost accounting or decision support capabilities, determining individual customer profitability will be simple. If you have cost data for individual products, but not at the customer level, you can manually “marry” product-specific purchase history with the cost data to determine individual customer value.
For example, if a customer purchased 10 units of Product 1 and five units of Product 2 last year, and Product 1 had a margin of $100 and Product 2 had a margin of $500, the total margin generated by the customer would be $3,500. Be sure to include data from enough years to even out normal fluctuations in purchases.
Don’t maintain cost data? No worries; you can sort the good from the bad by reviewing customer purchase volume and average sale price. Often, such data can be supplemented by general knowledge of the relative profitability of different products. Be sure that sales are net of any returns.
Incorporating indirect costs
High marketing, handling, service or billing costs for individual customers or segments of customers can have a significant effect on their profitability even if they purchase high-margin products. If you use activity-based costing, your company will already have this information allocated accurately.
If you don’t track individual customers, you can still generalize this analysis to customer segments or products. For instance, if a group of customers is served by the same distributor, you can estimate the resources used to support that channel and their associated costs. Or, you can have individual departments track employees’ time by customer or product for a specific period.
Knowing their value
There’s nothing wrong with loving your customers. But it’s even more important to know them and how much value they’re contributing to your profitability from operating period to operating period. Contact us for help breaking down the numbers.
You’ve probably heard the term and wondered whether it could happen to your company. Maybe it already has. We’re referring to “digital disruption” — when new technologies and business models affect the value proposition of existing goods and services.
Perhaps the most notorious recent example of this is the rise of ride-sharing companies such as Uber and Lyft, which have turned the taxi industry on its ear. But it’s hardly a fait accompli that a business will fall flat on its face because of digital disruption. You may be able to dance right through it with the right digital transformation strategy. Here are five steps to consider:
1. Focus on customers. Businesses often view the world through the filters of marketing, sales and maximized revenues. Instead of thinking about business success, target the customer experience.
2. Make analytics your friend. Develop a strategy to access, analyze and use that data. Tap the brains of analysts who can think outside the box of departmental silos in order to combine all types of data, including point of sale, sensors and machines, logs and social streams. Then use that big data to innovate.
3. Unify operations. Best-practice organizations assess digital requirements from across the business and then set objectives. Most organizations have multiple teams and departments involved in digital transformation. It’s crucial to ensure that all of your business is aligned and operating toward the digital goals you’ve defined.
4. Think visually. Data visualization is the ability to see various data in a variety of formats such as charts, graphs or other representations. Infographics often play a role in visualization. If your company has a hard time understanding how data can be used to drive digital transformation, consult an advisor who can help you leverage this critical information.
5. Be nimble. By the time a project is completed, the market and customer requirements have often changed. To avoid this problem, develop digital agility that will let your business embrace operational changes as a matter of routine by using digital technologies. Digital agility is rooted in the concept of learn, launch, relearn and relaunch.
Digital disruption — and transformation, for that matter — are very much the new normal. We can help you crunch the numbers and target the trends that enable you to waltz around trouble and boogie your way to continued success.
From the baseball field to the boardroom, statistical analysis has changed various industries nationwide. With proper preparation and guidance, business owners can have at their fingertips a wealth of stats-based insight into how their companies are performing — far beyond the bottom line on an income statement.
The metrics in question are commonly referred to as key performance indicators (KPIs). These formula-based measurements reveal the trends underlying a company’s operations. And seeing those trends can help you find the right path forward and give you fair warning when you’re headed in the wrong direction.
A good place to start is with some of the KPIs that apply to most businesses. For example, take current ratio (current assets / current liabilities). It can help you determine your capacity to meet your short-term liabilities with cash and other relatively liquid assets.
Another KPI to regularly calculate is working capital turnover ratio (revenue / average working capital). Many companies struggle with temperamental cash flows that can wax and wane based on buying trends or seasonal fluctuations. This ratio shows the amount of revenue supported by each dollar of net working capital used.
Debt is also an issue for many businesses. You can monitor your debt-to-equity (total debt / net worth) ratio to measure your degree of leverage. The higher the ratio, the greater the risk that creditors are assuming and the tougher it may be to obtain financing.
There are many other KPIs we could discuss. The exact ones you should look at depend on the size of your company and the nature of its work. Please contact our firm for help choosing the right KPIs and calculating them accurately.
A buy-sell agreement is a critical component of succession planning for many businesses. It sets the terms and conditions under which an owner’s business interest can be sold to another owner (or owners) should an unexpected tragedy or turn of events occurs. It also establishes the method for determining the price of the interest.
This may sound cut and dried. And a properly conceived, well-written buy-sell agreement should be — it is, after all, a legal document. But there’s a human side to these arrangements as well. And it’s one that you shouldn’t underestimate.
Turmoil and conflicts
A business owner’s unexpected death or disability can lead to turmoil and potential conflicts between the surviving owners and the deceased or disabled owner’s family members. Such disorder has the potential of disrupting normal business operations and can result in instability for employees, customers, creditors, investors and other stakeholders.
A buy-sell agreement ensures that an owner’s heirs are fairly compensated for the deceased owner’s business ownership interest based on a predetermined method. The other owners, meanwhile, don’t have to worry about the deceased’s spouse (or other family members) becoming unwilling (and unknowledgeable) co-owners. And employees will benefit from less workplace stress and disruption than would otherwise be caused if an owner dies or becomes disabled.
Indeed, among the worst potential succession-planning scenarios is when a deceased or disabled owner’s spouse becomes an unwilling participant in the business. Without a properly structured buy-sell agreement in place, the spouse could be thrown into this situation — even if he or she knows little about the business and doesn’t want to actively participate in running it.
There’s also the less tragic, though still difficult, possibility of divorce. When a business owner and his or her spouse decide to end their marriage, the ramifications on the business can be enormous. A buy-sell helps clarify everyone’s rights and holdings.
Ownership successions are rarely easy — even under the best of circumstances. These transitions can go much more peacefully with a sound buy-sell agreement in place. Please contact us for help with the tax and financial aspects of drawing one up.
August is back-to-school time across the country. Whether the school buses are already rumbling down your block, or will be soon, the start of the school year brings marketing opportunities for savvy business owners. Here are some examples of ways companies can promote themselves.
A virtual “brag book”
A creative agency posts on social media a vibrant photographic slideshow of employees and their children on the first day of school. It gives the parents an opportunity to show off their kids — and creates a buzz on the agency’s Facebook page.
The brag book’s innovative design also demonstrates the agency’s creative skills in a fun, personal way. And it helps attract talent by showcasing the company’s fun, family-friendly atmosphere.
Promos for parents
In August, many parents are in the midst of desperately trying to complete checklists of required school supply purchases. To help them cope, a home remodeling / landscape business offers free school supplies with every estimate completed during the month.
Customers receive colorful bags containing relatively inexpensive items such as pencils, pens, pads of paper and glue sticks all stamped with the company’s logo. And even though every estimate won’t result in a new job, completing more estimates helps create an uptick in fall projects.
Freebies for students
During the first week of school, a suburban burger joint offers students a free milkshake with the purchase of a burger. Kids love milkshakes and, because the freebie is associated with a purchase, the business preserves its profitability.
Meanwhile, the promotion brings entire families into the restaurant — widening the customer base and adding revenue. The campaign creates goodwill in the community by nurturing students’ enthusiasm for the beginning of the school year, too.
Determine what’s right for you
Obviously, these examples are industry-specific. But we hope you find them informative and inspirational. Our firm can help you leverage smart marketing moves to strengthen profitability and add long-term value to your business.
Many business owners and executives would like to save more money for retirement than they’re allowed to sock away in their 401(k) plan. For 2017, the annual elective deferral contribution limit for a 401(k) is just $18,000, or $24,000 if you’re 50 years of age or older.
This represents a significantly lower percentage of the typical owner-employee’s or executive’s salary than the percentage of the average employee’s salary. Therefore, it can be difficult for these highly compensated employees to save enough money to maintain their current lifestyle in retirement. That’s where a nonqualified deferred compensation (NQDC) plan comes in.
NQDC plans enable owner-employees, executives and other highly paid key employees to significantly boost their retirement savings without running afoul of the nondiscrimination rules under the Employee Retirement Income Security Act of 1974 (ERISA). These rules apply to qualified plans, such as 401(k)s, and prevent highly compensated employees from benefiting disproportionately in comparison to rank-and-file employees.
NQDC plans are essentially agreements that the business will pay out at some future time, such as at retirement, compensation that participants earn now. Not only do such plans not have to comply with ERISA nondiscrimination rules, but they aren’t subject to the IRS contribution limits and distribution rules that apply to qualified retirement plans. So businesses can tailor benefit amounts, payment terms and conditions to the participants’ specific needs.
There are several types of NQDC plans. Among the most common are:
The key to an NQDC plan: Because the promised compensation hasn’t been transferred to the participants, it’s not yet counted as earned income — and therefore it isn’t currently taxed. This allows the compensation to grow tax-deferred.
Naturally, there are challenges to consider. NQDC plans are subject to strict rules under Internal Revenue Code Sections 409A and 451, and plan loans generally aren’t allowed. But attracting and retaining top executive talent is a business imperative, and an NQDC plan can help you win the talent race with a powerful benefits package. Please contact our firm for further details.
Is business going so well that you’re thinking about adding another location? If this is the case, congratulations! But before you start planning the ribbon-cutting ceremony, take a step back and ask yourself some tough questions about whether a new location will grow your company — or stretch it too thin. Here are four to get you started:
1. What’s driving your interest in another location? It’s important to articulate specifically how the new location will help your business move toward its long-term goals. Expanding simply because the time seems right isn’t a compelling enough reason to take on the risk.
2. How solidly is your current location performing? Your time and attention will be diverted while you get the second location up and running. Yet you’ll need to maintain the revenue your first location is generating — especially until the second one is earning enough to support itself. So your original operation needs to be able to operate well with minimal management guidance.
3. How strong is the location you’re considering? Just as you presumably did with your first location, ensure the surrounding market is strong enough to support your company. The setting should complement your business, not pose potentially insurmountable challenges.
Also consider proximity to competitors. In some cases, such as a cluster of restaurants in a small downtown, proximity can help. The area becomes known as a destination for those seeking a night out. But too many competitors could leave you fighting with multiple other businesses for the same small group of customers.
4. Can you expand in other ways that are less costly and risky? You might be able to boost sales by adding inventory or extending hours at your current location. Another option is to revamp your website or mobile app to encourage more online sales.
Investments such as these would likely require a fraction of the dollars needed to open another physical location. Then again, a successful new site could mean a substantial inflow of revenue and additional market visibility. Let us help you crunch the numbers that will lead you to the right decision.
“Sorry, we don’t carry that item.” Or perhaps, “No, that’s not part of our service package.” How many times a year do your salespeople utter these words or ones like them? The specific number is critical because, if you don’t know it, you could be losing out on profit potential.
Although you have to focus on your strengths and not get too far afield, your customers may be crying out for a new product or service. And among the best ways to hear them is to track lost sales data and decipher the message.
3 steps to success
A successful lost sales tracking effort generally involves three steps:
1. Get the data. Ask your sales associates to log every customer request and to question customers further to get at the heart of what they need. Train sales associates to record information such as the date of request, item requested and the reason the item was unavailable.
2. Crunch the numbers. Calculate how much you could sell if you had the new items in stock or offered the additional service. Naturally, you’ll need to bear in mind that meeting customer demand might involve spending money on equipment or personnel to expand your product or service line. Key data points to examine include:
Develop a report that lays out this and other information, so you can see it in black and white.
3. Talk about it. Run a lost sales report monthly and discuss the results with your management team. Seek to establish consensus on where your best strategic opportunities lie. Sometimes you’ll want to be patient and let trends develop before acting. Other times, you might want to strike early to seize an underdeveloped market.
A better grip
Lost sales are lost opportunities. By getting a better grip on your customers’ needs, you can build a stronger bottom line. Please contact us for help creating and maintaining a lost sales tracking system that best suits your company’s distinctive needs.
From the time a business opens its doors, the owner is told “cash is king.” It may seem to follow that having a very large amount of cash could never be a bad thing. But, the truth is, a company that’s hoarding excessive cash may be doing itself more harm than good.
What’s the harm in stockpiling cash? Granted, an extra cushion helps weather downturns or fund unexpected repairs and maintenance. But cash has a carrying cost — the difference between the return companies earn on their cash and the price they pay to obtain cash.
For instance, checking accounts often earn no interest, and savings accounts typically generate returns below 2% and in many cases well below 1%. Most cash hoarders simultaneously carry debt on their balance sheets, such as equipment loans, mortgages and credit lines. Borrowers are paying higher interest rates on loans than they’re earning from their bank accounts. This spread represents the carrying cost of cash.
A variety of possibilities
What opportunities might you be missing out on by neglecting to reinvest a cash surplus to earn a higher return? There are a variety of possibilities. You could:
Acquire a competitor (or its assets). You may be in a position to profit from a competitor’s failure. When expanding via acquisition, formal due diligence is key to avoiding impulsive, unsustainable projects.
Invest in marketable securities. As mentioned, cash accounts provide nominal return. More aggressive businesses might consider mutual funds or diversified stock and bond portfolios. A financial planner can help you choose securities. Some companies also use surplus cash to repurchase stock — especially when minority shareholders routinely challenge the owner’s decisions.
Repay debt. This reduces the carrying cost of cash reserves. And lenders look favorably upon borrowers who reduce their debt-to-equity ratios.
Optimal cash balance
Taking a conservative approach to saving up cash isn’t necessarily wrong. But every company has an optimal cash balance that will help safeguard cash flow while allocating dollars for smart spending. Our firm can assist you in identifying and maintaining this mission-critical amount.
What could stop your company from operating for a day, a month or a year? A flood or fire? Perhaps a key supplier shuts down temporarily or permanently. Or maybe a hacker or technical problem crashes your website or you suddenly lose power. Whatever the potential cause might be, every business needs a disaster recovery plan.
Get started by brainstorming as many scenarios as possible that could devastate your business. The operative word there is “your.” Every company faces distinctive threats related to its size, location(s), and products or services.
There are some constants to consider, however. Seek out alternative suppliers who could fill in for your current ones if necessary. Moreover, identify a strong IT consulting firm with disaster recovery capabilities and have them a phone call away.
The right voice
Another critical factor during and after a crisis is communication, both internal and external. You and most of your management team will need to concentrate on restoring operations, so appoint one manager or other employee with the necessary skills to keep stakeholders abreast of your recovery progress. These parties include:
He or she should be prepared to spread the word through channels such as your company’s voice mail, email, website, and even traditional and social media.
Whatever you do, don’t expect to create a disaster recovery plan and then toss it on a shelf. Revisit the plan at least annually, looking for shortcomings.
You’ll also want to keep your plan fresh in the minds of your employees. Be sure that everyone — including new hires — knows exactly what to do by holding regular meetings on the subject or even conducting an occasional surprise drill. And be prepared to coordinate with fire, police and government officials who might be able to offer assistance during a catastrophe.
Thoughts and concepts
These are just a few thoughts and concepts to consider when designing, implementing and updating your company’s disaster recovery plan. Our firm can help you identify both risks and cost-effective ways to safeguard your employees and assets.
As a business evolves, so must its compensation strategy. Hopefully, your company is growing — perhaps adding employees or promoting staff members who are key to your success. But other things can spur the need to fine-tune your compensation strategy as well, such as economic changes or the rise of an intense competitor. A goal for many businesses is to provide equitable compensation.
Do your research
One aspect of equitable compensation is external equity; in other words, making sure compensation is in alignment with industry or regional norms. The U.S. Department of Labor and Bureau of Labor Statistics have a wealth of comparable data on their Web sites (dol.gov and stats.bls.gov, respectively). You might also consult with a professional recruiting firm, some of which offer free or low-cost compensation data.
Granted, job roles within smaller companies make it difficult to directly compare position responsibilities in the market and get reliable salary comparison data. A company’s degree of competitiveness and ability to pay what the market bears can also be challenging.
Yet, to achieve and maintain external equity, you must consider the going market rate. Especially in a business where employees believe they can receive better pay for doing the same job elsewhere, workers have little incentive to remain with an employer — therefore, you must be concerned with external equity.
Pinpoint a range
From both a marketplace perspective and an internal company viewpoint, it’s important to group together jobs of similar value. This also gets at the concept of internal equity, which essentially means that employees feel they’re being paid fairly in terms of the value of their work as well as compared to what others in the company who have equivalent responsibilities are paid.
Once you’ve grouped jobs together, develop competitive salaries around the market rates for those positions. A typical salary range consists of a minimum, a maximum and a midpoint (or control point).
The minimum is the lowest competitive rate for jobs within that range and normally applies to less experienced staff. The maximum represents the highest competitive rate for jobs in a given range. This is typically a premium rate for “star” employees and industry veterans.
The midpoint represents the competitive market rate for fully performing workers in jobs assigned to that range. Think of it as a guideline for slotting various positions and individuals in appropriate salary ranges.
Find the right approach
These are just a few concepts involved with establishing the right approach to compensation. Please contact us for help with your company’s specific needs.
Many business owners buy accounting software and, even if the installation goes well, eventually grow frustrated when they don’t get the return on investment they’d expected. There’s a simple reason for this: Stuff changes.
Technological improvements are occurring at a breakneck speed. So yesterday’s cutting-edge system can quickly become today’s sluggishly performing albatross. And this isn’t the only reason to regularly upgrade your accounting software. Here are two more to consider.
1. Cleaning up
You’ve probably heard that old tech adage, “garbage in, garbage out.” The “garbage” referred to is bad data. If inaccurate or garbled information goes into your system, the reports coming out of it will be flawed. And this is a particular danger as software ages.
For example, you may be working off of inaccurate inventory counts or struggling with duplicate vendor entries. On a more serious level, your database may store information that reflects improperly closed quarters or unbalanced accounts because of data entry errors.
A regular implementation of upgraded software should uncover some or, one hopes, all of such problems. You can then clean up the bad data and adjust entries to tighten the accuracy of your accounting records and, thereby, improve your financial reporting.
2. Getting better
Neglecting to regularly upgrade or even replace your accounting software can also put you at risk of missing a major business-improvement opportunity. When implementing a new system, you’ll have the chance to enhance your accounting procedures. You may be able to, for instance, add new code groups that allow you to manage expenses much more efficiently and closely.
Other opportunities for improvement include optimizing your chart of accounts and strengthening your internal controls. Again, to obtain these benefits, you’ll need to take a slow, patient approach to the software implementation and do it often enough to prevent outdated ways of doing things from getting the better of your company.
Choosing the best
These days, every business bigger than a lemonade stand needs the best accounting software it can afford to buy. Our firm can help you set a budget and choose the product that best fits your current needs.
Every business has some degree of ups and downs during the year. But cash flow fluctuations are much more intense for seasonal businesses. So, if your company defines itself as such, it’s important to optimize your operating cycle to anticipate and minimize shortfalls.
A high-growth example
To illustrate: Consider a manufacturer and distributor of lawn-and-garden products such as topsoil, potting soil and ground cover. Its customers are lawn-and-garden retailers, hardware stores and mass merchants.
The company’s operating cycle starts when customers place orders in the fall — nine months ahead of its peak selling season. So the business begins amassing product in the fall, but curtails operations in the winter. In late February, product accumulation continues, with most shipments going out in April.
At this point, a lot of cash has flowed out of the company to pay operating expenses, such as utilities, salaries, raw materials costs and shipping expenses. But cash doesn’t start flowing into the company until customers pay their bills around June. Then, the company counts inventory, pays remaining expenses and starts preparing for the next year. Its strategic selling window — which will determine whether the business succeeds or fails — lasts a mere eight weeks.
The power of projections
Sound familiar? Ideally, a seasonal business such as this should stockpile cash received at the end of its operating cycle, and then use those cash reserves to finance the next operating cycle. But cash reserves may not be enough — especially for high-growth companies.
So, like many seasonal businesses, you might want to apply for a line of credit to avert potential shortfalls. To increase the chances of loan approval, compile a comprehensive loan package, including historical financial statements and tax returns, as well as marketing materials and supplier affidavits (if available).
More important, draft a formal business plan that includes financial projections for next year. Some companies even project financial results for three to five years into the future. Seasonal business owners can’t rely on gut instinct. You need to develop budgets, systems, processes and procedures ahead of the peak season to effectively manage your operating cycle.
Seasonal businesses face many distinctive challenges. Please contact our firm for assistance overcoming these obstacles and strengthening your bottom line.
Adequate insurance coverage is, in many cases, a legal requirement for a business. Even if it’s not for your company, proper coverage remains a risk management imperative. But that doesn’t mean you have to take high insurance costs sitting down.
There are a wide variety of ways you can decrease insurance costs. Just two examples are staying on top of facilities maintenance and improving the safety of those who work there.
For starters, have an electrician check your facility. Can the building’s electrical system handle the load at peak times? Are there circuits at risk of being overloaded?
Also look at installing a sprinkler system (or upgrading your existing system if needed). Some insurance carriers provide premium discounts for installing fire prevention equipment such as sprinklers. And check your fire extinguishers. Are they well maintained and the right type? The type of extinguisher you need for an electrical fire isn’t the one you need for a kitchen grease fire.
Many municipalities offer free or low-cost fire safety inspection services. Your local fire department may be able to recommend steps that not only reduce hazards, but also reduce insurance premiums.
And don’t forget to consider how much maintenance you’re actually obligated to perform. Renting or leasing real estate, rather than owning it directly, is often less costly because the property owner may be responsible for much of the upkeep. Ownership has its advantages, of course, but it also brings potential liability with it that has to be insured against.
Employee injuries can drive up insurance and workers’ compensation expenses. Inspect your floors and other high-traffic areas for slippery spots, lack of nonslip surfacing, ice buildup or other hazards. Also eliminate clutter, poor carpet installation, loose steps and handrails, and anything else that could potentially generate a slip and fall claim.
Additionally, consider asking the Occupational Safety and Health Administration (OSHA) for a courtesy inspection. Doing so may help you avoid potential penalties as well as prevent injuries and other incidents that would raise your premiums.
Opportunities for savings
Yes, buying the right array of insurance policies is a cost of doing business. But you may have more control over these expenses than you think. We can help you assess your insurance costs and identify opportunities for savings.
When it comes time to transition your role as business owner to someone else, you’ll face many changes. One of them is becoming a mentor. As such, you’ll have to communicate clearly, show some patience and have a clear conception of what you want to accomplish before stepping down. Here are some tips on putting your successor in a position to succeed.
Find ways to continuously pass on your knowledge. Too often, vital business knowledge is lost when leadership or ownership changes — causing a difficult and chaotic transition for the successor. Although you can impart a great deal of expertise by mentoring your replacement, you need to do more. For instance, create procedures for you and other executives to share your wisdom.
Begin by documenting your business systems, processes and methods through a secure online employee information portal, which provides links to company databases. You also could set up a training program around core business methods and practices — workers could attend classes or complete computer-based courses. Then, you can create an annual benchmarking report of key activities and results for internal use.
Prepare your company to adapt and grow. With customer needs and market factors continually changing, your successor will likely face challenges that are different from what you encountered.
To enable your company to adapt to an ever-changing business world, ensure your successor understands how each department works and knows the fundamentals of key areas, including customer service, marketing and accounting. One way is to have your successor work in each business area.
Also have your successor join industry trade associations and community organizations to meet other executives and successors in diverse industries. In addition, require him or her to review and, if necessary, help update your company’s business plan.
To encourage your successor to develop relationships with key players inside and outside your company, include him or her in meetings with managers and trusted advisors, such as your accountant, lawyer, banker and insurance agent.
Ideally, when you walk away from your company, your successor will feel completely comfortable and ready to guide the business into a fruitful future. Please contact our firm for more help maximizing the effectiveness of your succession plan.
You’d be hard pressed to find a company not looking to generate more leads, boost sales and improve its profit margins. Fortunately, you can take advantage of the sales and marketing opportunities offered by today’s digital technologies to do so. Here are four digital marketing tips for every business:
1. Add quality content to your website. Few things disappoint and disinterest customers like an outdated or unchanging website. Review yours regularly to ensure it doesn’t look too old and consider a noticeable redesign every few years.
As far as content goes, think variety. Helpful blog posts, articles and even whitepapers can establish your business as a knowledge leader in your industry. And don’t forget videos: They’re a great way to showcase just about anything. Beware, however, that posting amateurish-looking videos could do more harm than good. If you don’t have professional video production capabilities, you may need to hire a professional.
2. Leverage social media. If you’re not using social media tools already, focus on a couple of popular social media outlets — perhaps Facebook and Twitter — and actively post content on them. Remember, with some social media platforms, you can create posts and tweets in advance and then schedule them for release over time.
3. Interact frequently. This applies to all of your online channels, including your website, social media platforms, email and online review sites. For example, be sure to respond promptly to any queries you receive on your site or via email, and be quick to reply to questions and comments posted on your social media pages.
4. Tie it all together. It’s easy to end up with a hodgepodge of different online marketing tools that are operating independently of one another. Integrate your online marketing initiatives so they all have a similar style and tone. Doing so helps reassure customers that your business is an organized entity focused on delivering a clear message — and quality products or services.
When it comes to marketing, you don’t want to swing and miss. Our firm can help you assess the financial impact of your efforts and budget the appropriate amount to boosting visibility.
Every company has at least one owner. And, in many cases, there exists leadership down through the organizational chart. But not every business has strong governance.
In a nutshell, governance is the set of rules, practices and processes by which a company is directed and controlled. Strengthening it can help ensure productivity, reduce legal risks and, when the time comes, ease ownership transitions.
Looking at business structure
Good governance starts with the initial organization (or reorganization) of a business. Corporations, for example, are required by law to have a board of directors and officers and to observe certain other formalities. So this entity type is a good place to explore the concept.
Other business structures, such as partnerships and limited liability companies (LLCs), have greater flexibility in designing their management and ownership structures. But these entities can achieve strong governance with well-designed partnership or LLC operating agreements and a centralized management structure. They might, for instance, establish management committees that exercise powers similar to those of a corporate board.
Specifying the issues
For the sake of simplicity, however, let’s focus on governance issues in the context of a corporation. In this case, the business’s articles of incorporation and bylaws lay the foundation for future governance. The organizational documents might:
As you look over this list, consider whether and how any of these items might pertain to your company. There are, of course, other aspects to governance, such as establishing an ethics code and setting up protocols for information technology.
At the end of the day, strong governance is all about knowing your company and identifying the best ways to oversee its smooth and professional operation. Please contact our firm for help running a profitable, secure business.
Many companies take an ad hoc approach to technology. If you’re among them, it’s understandable; you probably had to automate some tasks before others, your tech needs have likely evolved over time, and technology itself is always changing.
Unfortunately, all of your different hardware and software may not communicate so well. What’s worse, lack of integration can leave you more vulnerable to security risks. For these reasons, some businesses reach a point where they decide to implement a strategic IT plan.
The objective of a strategic IT plan is to — over a stated period — roll out consistent, integrated, and secure hardware and software. In doing so, you’ll likely eliminate many of the security dangers wrought by lack of integration, while streamlining data-processing efficiency.
To get started, define your IT objectives. Identify not only the weaknesses of your current infrastructure, but also opportunities to improve it. Employee feedback is key: Find out who’s using what and why it works for them.
From a financial perspective, estimate a reasonable return on investment that includes a payback timetable for technology expenditures. Be sure your projections factor in both:
Also calculate the price of doing nothing. Describe the risks and potential costs of falling behind or failing to get ahead of competitors technologically.
Working in phases
When you’re ready to implement your strategic IT plan, devise a reasonable and patient time line. Ideally, there should be no need to rush. You can take a phased approach, perhaps laying the foundation with a new server and then installing consistent, integrated applications on top of it.
A phased implementation can also help you stay within budget. You’ll need to have a good idea of how much the total project will cost. But you can still allow flexibility for making measured progress without putting your cash flow at risk.
Bringing it all together
There’s nothing wrong or unusual about wandering the vast landscape of today’s business technology. But, at some point, every company should at least consider bringing all their bits and bytes under one roof. Please contact our firm for help managing your IT spending in a measured, strategic way.
Concentration risks are a threat to your supply chain. These occur when a company relies on a customer or supplier for 10% or more of its revenue or materials, or on several customers or suppliers located in the same geographic region. If a key customer or supplier experiences turmoil, the repercussions travel up or down the supply chain and can quickly and negatively impact your business.
To protect yourself, it’s important to look for concentration risks as you monitor your financials and engage in strategic planning. Remember to evaluate not only your own success and stability, but also that of your key customers and supply chain partners.
2 types of concentration
Businesses tend to experience two main types of concentration risks:
1. Product-related. If your company’s most profitable product line depends on a few key customers, you’re essentially at their mercy. Key customers that unexpectedly cut budgets or switch to a competitor could significantly lower revenues.
Similarly, if a major supplier suddenly increases prices or becomes lax in quality control, it could cause your profits to plummet. This is especially problematic if your number of alternative suppliers is limited.
2. Geographic. When gauging geographic risks, assess whether a large number of your customers or suppliers are located in one geographic region. Operating near supply chain partners offers advantages such as lower transportation costs and faster delivery. Conversely, overseas locales may enable you to cut labor and raw materials expenses.
But there are also potential risks associated with geographic centricity. Local weather conditions, tax rate hikes and regulatory changes can have a significant impact. And these threats increase substantially when dealing with global partners, which may also present risks in the form of geopolitical uncertainty and exchange rate volatility.
Your supply chain is much like your cash flow: When it’s strong, stable and uninterrupted, you’re probably in pretty good shape. Our firm can help you assess your concentration risks and find financially feasible solutions.
Picking someone to lead your company after you step down is probably among the hardest aspects of retiring (or otherwise moving on). Sure, there are some business owners who have a ready-made successor waiting in the wings at a moment’s notice. But many have a few viable candidates to consider — others have too few.
When looking for a successor, for best results, keep an open mind. Don’t assume you have to pick any one person — look everywhere. Here are three hot spots to consider.
1. Your family. If yours is a family-owned business, this is a natural place to first look for a successor. Yet, because of the relationships and emotions involved, finding a successor in the family can be particularly complex. Make absolutely sure a son, daughter or other family member really wants to succeed you. But also keep in mind that desire isn’t enough. The loved one must also have the proper qualifications, as well as experience inside and, ideally, outside the company.
2. Nonfamily employees. Keep an eye out for company “stars” who are still early in their careers, regardless of their functional or geographic area. Start developing their leadership skills as early as possible and put them to the test regularly. For example, as time goes on, continually create new projects or positions that give them responsibility for increasingly larger and more complex profit centers to see how they’ll measure up.
3. The wide, wide world. If a family member or current employee just isn’t feasible, you can always look externally. A good way to start is simply by networking with people in your industry, former employees and professional advisors. You can also try placing an ad in a newspaper or trade publication, or on an Internet job site. Don’t forget executive search firms either; they’ll help screen candidates and conduct interviews.
At the end of the day, any successor — whether family member, employee or external candidate — must have the right stuff. Please contact our firm for help setting up an effective succession plan.
Providing a strong package of benefits is a competitive imperative in today’s business world. Like many employers, you’ve probably worked hard to put together a solid menu of offerings to your staff. Unfortunately, many employees don’t perceive the full value of the benefits they receive.
Why is this important? An underwhelming perception of value could cause good employees to move on to “greener” pastures. It could also inhibit better job candidates from seeking employment at your company. Perhaps worst of all, if employees don’t fully value their benefits, they might not fully use them — which means you’re wasting dollars and effort on procuring and maintaining a strong package.
Targeting life stage
Among the most successful communication strategies for promoting benefits’ value is often the least commonly used. That is, target the life stage of your employees.
For example, an employee who’s just entering the workforce in his or her twenties will have a much different view of a 401(k) plan than someone nearing retirement. A younger employee will also likely view health care benefits differently. Employers who tailor their communications to the recipient’s generation can improve their success rate at getting workers to understand their benefits.
Covering all bases
There are many other strategies to consider as well. For starters, create a year-round benefits communication program that features clear, concise language and graphics. Many employers discuss benefits with their workforces only during open enrollment periods.
Also, gather feedback to determine employees’ informational needs. You may learn that you have to start communicating in multiple languages, for instance. You might also be able to identify staff members who are particularly knowledgeable about benefits. These employees could serve as word-of-mouth champions of your package who can effectively explain things to others.
Identifying sound strategies
Given the cost and effort you put into choosing, developing and offering benefits to your employees, the payoff could be much better. We can help you ensure you’re getting the most bang for your benefits buck.
In business, and in life, among the most important ways to manage risk is through insurance. For certain types of companies — particularly start-ups and small businesses — one major threat is the sudden loss of an owner or hard-to-replace employee. To safeguard against this risk, insurers offer key person insurance.
Under a key person policy, a business buys life insurance covering the owner or employee, pays the premiums and names itself beneficiary. Should the key person die while the policy is in effect, the business receives the payout. As you formulate and adjust your succession plan, one of these policies can serve as a critical safeguard.
Costs and coverage
Key person insurance can take a variety of forms. Term policies last for a specified number of years, typically five to 20. Whole life (or permanent) policies, which are generally more expensive, provide coverage as long as premiums are paid, and they gradually build up cash surrender value. This value appears on a business’s balance sheet and may be drawn on, if the business needs working capital.
The cost of key person insurance also depends on the covered individual’s health, age and medical history, as well as the desired death benefit. When budgeting for premiums, bear in mind that premiums generally aren’t tax deductible. On the flip side, death benefits typically aren’t included in the business’s taxable income when received.
In terms of coverage limits, insurers may quote a rule of thumb of eight to 10 times the key person’s annual salary. But every business will have different cash flow needs when a key person unexpectedly dies. A more accurate estimate typically comes from evaluating lost income (or value), as well as the costs of finding and training a suitable replacement.
An important decision
If you’ve already chosen a successor, you can buy a policy that covers both of you. And if you haven’t, it may be even more critical to buy coverage on your life to protect the solvency of your business. Please contact our firm for help deciding whether key person insurance is for you.
Like many businesses, yours may allow retirement plan participants to take out loans from their accounts. Such loans are governed by many IRS and Department of Labor (DOL) rules and regulations. So if your company offers plan loans, your plan document must comply with current laws — including setting a “reasonable” interest rate.
Neither the IRS nor DOL provides a set percentage for plan sponsors to use. Yet both require the rate to be “reasonable.” The IRS asks if the interest rate is similar to local interest rates and to what local banks charge individuals for similar loans with similar credit and collateral. Meanwhile, DOL regulations say that an interest rate is reasonable if it’s equal to commercial lending interest rates under similar circumstances.
The DOL provides several examples of how to determine the interest rate. For example, suppose the plan loan interest rate is set at 8%, but local banks offer between 10% and 12% for similar circumstances. In this example, the loan will fail to meet the reasonable standard.
Keep in mind that the plan participant pays the interest to his or her own retirement plan account. That’s one reason why charging an interest rate that’s lower than what local banks are charging isn’t considered reasonable. The purpose of charging interest on retirement plan loans is to help prevent long-term harm to the participant’s retirement nest egg.
If your plan fails to assess a reasonable interest rate, participant loans may result in a prohibited transaction. What does this mean? Prohibited transactions are certain transactions between a retirement plan and a disqualified person. Disqualified persons taking part in a prohibited transaction must pay a tax.
A prohibited transaction includes the lending of money or other extension of credit between a plan and a disqualified person. However, the laws specifically exempt plan loans from the prohibited transaction list as long as they comply with applicable rules. If your interest rate isn’t reasonable, the plan loan may lose its exempt status and become subject to the prohibited transaction tax.
Ensuring you’re offering a reasonable plan loan interest rate is an ongoing task. Review your plan document and loan policy statement to determine whether the plan sets an interest rate. You may need to update the document to comply with the more recent regulations and interest rates. We can help you with this review, as well as in calculating a reasonable rate.
Company retreats can cost enormous amounts of time and money. Are they worth it? Sometimes. Large-scale get-togethers can involve considerable out-of-pocket costs. And if the retreat is poorly planned or executed, participants’ wasted time is the biggest expense.
But a properly budgeted, planned and executed retreat can be hugely profitable, producing fresh ideas, renewed enthusiasm and heightened employee morale. Here are a few ways to get your money’s worth out of a company retreat.
Create specific objectives
First, nail down your goals and objectives. Several months ahead of time, determine and prioritize a list of the important issues you want to address. But include only the top two or three on the final agenda. Otherwise, you risk rushing through some items without adequate time for discussion and formalized action plans.
If one of the objectives is to include time for socializing, recreation or relaxation, great. Mixing fun with work keeps people energized. But if staff see the retreat as merely time away from the office to party and golf, don’t expect to complete many work-related agenda items. One successful way to mix work and pleasure is to schedule work sessions for the morning and more fun, team-building exercises later in the day.
Set limits, allow flexibility
Next, work on the budget. Determining available resources early in the planning process will help you set limits for such variable costs as location, accommodations, food, transportation, speakers and entertainment.
Instead of insisting on certain days for the retreat, select a range of possible dates. This openness helps with site selection and makes it easier to negotiate favorable hotel and travel rates. Keep your budget as flexible as possible, building in a 5% to 10% safety cushion. Always expect unforeseen, last-minute expenses.
Company retreats are serious business in the sense that you’re sacrificing time and productivity to identify strategic goals and improve teamwork. But these events should still be fun experiences for you and your staff. We can help you establish a reasonable budget to help ensure an enjoyable, productive and cost-effective retreat.
Many business owners are accustomed to running the whole show. But as your company grows, you’ll likely be better off sharing responsibility for major decisions. Whether you’ve recruited experienced managers or developed “home grown” talent, you can empower these employees by taking a more collaborative approach to management.
Not employees — team members
Successful collaboration starts with a new mindset. Stop thinking of your managers as employees and instead regard them as team members working toward the same common goals. To promote collaboration and make the best use of your human resources, clearly communicate your strategic objectives. For example, if you’ve prioritized expanding into new territories, make sure your managers aren’t still focusing on extracting new business from current sales areas.
You also must be willing to listen to your managers’ ideas — and to act on the viable ones. Relinquishing control can be hard for business owners, but keep the advantages in mind. A collaborative approach distributes the decision-making burden, so it doesn’t fall on just your shoulders. This may relieve stress and allow you to focus on areas of the company you may have neglected.
Confidence and development
Even as you move to a more collaborative management model and include employees in strategic decisions, don’t forget to recognize their individual skills and talents. You and other managers may have uncertainties about a new marketing plan, for instance, but you should trust your marketing director to carry it out with minimal oversight.
To ensure that managers know they have your confidence, conduct regular performance reviews where you note their contributions and accomplishments and explore opportunities for growth. Moreover, help them grow professionally by providing constructive, ongoing training to develop their leadership and teamwork skills.
An open mind
As you learn to trust your management team with greater responsibility, keep in mind that the process can be bumpy. In a crisis, your instinct may be to take charge and brush off your managers’ advice. But it’s critical to keep your mind open and be receptive to input from people who may one day run your company. Let our firm assist you in assessing the profitability impact of your management team.
Most business owners spend a lifetime building their business. And when it comes to succession, they face the difficult decision of whether to sell, dissolve or transfer the business to family members (or a nonfamily successor).
Many complicated issues are involved, including how to divvy up business interests, allocate value and tackle complex tax issues. Thus, as you put together your succession plan, include not only your financial and legal advisors, but also a qualified valuation professional.
Various value factors
When drafting a succession plan, a valuation expert can help you put a number on various factors that will affect your company’s value. Just a few examples include:
Projected cash flows. According to both the market and income valuation approaches, future earnings determine value. To the extent that a business experiences decreasing, or increasing, demand and rising (or falling) prices, expected cash flows will be affected. Historical financial statements may require adjustments to reflect changes in future expectations.
Perceived risk. Greater risk results in higher discount rates (under the income approach) and lower pricing multiples (under the market approach), which translates into lower values (and vice versa). When selecting comparables, the transaction date is an important selection criterion a valuator considers.
Expected growth. Greater expected revenue growth contributes to value. In addition, there’s a high correlation between revenue growth and earnings (and thus, cash flow) growth.
Other determinants of discounts
In many cases, valuation discounts are applied to a company’s value. For example, decreased liquidity translates into higher marketability discounts, while increased liquidity reduces marketability discounts. Other factors that affect the magnitude of valuation discounts include:
Discounts vary significantly, but can reach (or exceed) 40% of the entity’s net asset value, depending on the specifics of the situation.
For best results
An accurate and timely value estimate can facilitate the succession process and prevent costly and time-consuming conflicts. Please contact our firm for more information.
Many companies reach a point in their development where they could benefit from an advisory board. It’s all too easy in today’s complex business world to get caught up in an “echo chamber” of ideas and perspectives that only originate internally.
For many business owners, an understandable first question about the concept is: What should my advisory board look like? To find an answer, start by envisioning the ideal size and composition of your company’s board in terms of skill sets and personalities.
The guest list
First and foremost, participants in your advisory board should have skills, experience and expertise that complement your company’s in-house staff. Second, they should support your established long-term strategic goals.
Ideal board candidates can think creatively and provide constructive advice while maintaining discretion with sensitive business issues. This allows the board to honestly discuss every aspect of your operations, including:
Selecting advisory members is similar to selecting friends and colleagues to invite to an intimate dinner party. You want a diverse mix of backgrounds, expertise and skills. For example, try to balance impulsive, assertive personalities with more thoughtful, cautious ones.
An evolving entity
Bear in mind that, as your business needs change, you may need to rotate some board members out and bring in new blood. For instance, if the company needs to upgrade to a new technology platform to minimize data breaches, board members who were invaluable when the company began — and technology perhaps played a less prominent role — may lack the experience needed to get the business through the next phase.
In addition, the size of your board may change over time. Generally, business owners should limit the number of members to three to seven people. This will help keep the board affordable and manageable, particularly in terms of effective deliberation and decision making. But it may need to grow beyond that in number if your company itself gets larger.
Innovation and competition
Sage advice and diversity of opinion can be invaluable when looking to innovate and gain a competitive edge. Please contact our firm for help assessing whether now is the time for your business to form an advisory board.
“I’m taking a sick day!” This familiar refrain usually is uttered with just cause, but not always. What if there were no sick days? No, we’re not suggesting employees be forced to work when they’re under the weather. Rather, many businesses are adopting a different paradigm when it comes to paid time off (PTO).
Under the “PTO bank” concept, employers merge most (or all) of the traditional components of excused absences (vacation time, sick time, personal days and so on) into one simple employee-managed account, typically offering not quite as many PTO days as under a traditional PTO system. One benefit of this approach is that employers are no longer put in a position to have to judge whether leave is used appropriately. PTO banks may not work for every business, but more and more companies are finding them beneficial.
6 primary motivations
There are a number of reasons that employers are offering PTO banks. Specifically, according to a survey by the HR professional society WorldatWork, here are the six primary motivations:
1. Greater flexibility for employees. Like their employers, many employees appreciate not having to worry about distinguishing vacation time from sick time.
2. Ease of administration. Employers don’t have to deal with the complications of separating the various PTO components, which makes the HR and payroll staff’s job easier.
3. Increased cost effectiveness. More efficient administration often reduces the costs of time and resources spent dealing with employee absences and lost productivity.
4. The ability to stay competitive with other companies. Many employees and job candidates view PTO banks as a more contemporary and appealing approach to excused absences.
5. Reduced absenteeism. Interestingly, some employers have seen employees miss fewer work days once PTO banks have been established — possibly because of the greater sense of control employees have over their time.
6. Improved employee morale. Simplifying the PTO process and gaining greater command over their time off is typically viewed as a positive, empowering thing by employees.
Although these many potential benefits may seem enticing, PTO banks may not be right for every employer. For example, you may not want to disrupt your current system if it’s working well. Please contact our firm for a review of your PTO approach and how it’s affecting your financials.
At the beginning of the year, many people decide they’re going to get in the best shape of their lives. Similarly, many business owners declare that they intend to cut costs and operate at peak efficiency going forward.
But, like keeping up an exercise routine, controlling costs takes an ongoing effort. You need to not only review expenses now, but also commit yourself to doing so regularly. Here are some key points to keep in mind.
Choosing where to slim down
A good cost-control plan starts by clearly identifying manageable expenses in every business area — no exceptions. Prime candidates include:
Controlling expenses in these and other areas doesn’t mean one-time cost cutting, which is really just a reaction to a problem. Cost control requires foresight and strategic management.
Going the distance
Indeed, many business owners sometimes confuse cost-control programs with cost-cutting initiatives. The difference is that a cost-control plan should be a long-term solution — not just a quick-fix measure to make budget or shore up a bad quarter.
Managing expenses should be a strategic decision that starts at the top and is clearly communicated down the organizational chart. Train and encourage your managers to accurately track costs with an eye toward maximizing profitability. In turn, team leaders should work with their employees to solve the problems driving up expenses. It’s always better to be proactive than reactive.
Boosting cash flow
Controlling costs is among the best ways to maintain or increase cash flow. Tightly managed expenses free up dollars for profitable operations, prevent excessive inventory and wasteful spending, and keep cash available for business growth. Need help with your cost-control regimen? Please contact our firm.
We live and work in the information age. As such, the opportunity to gather knowledge about your company’s competitors and industry as a whole has never been better. This practice — commonly known as “competitive intelligence” — can help you stay more nimble in the marketplace and avoid getting left behind as innovation surges forward.
Before you dive into competitive intelligence, however, it’s important to establish a formal policy governing your efforts. (If you’ve already gotten started, perhaps slow down and integrate a policy going forward.) Generally, a competitive intelligence policy should follow four primary principles:
1. Be authentic. When gathering information, don’t hide behind secret identities or misrepresent your affiliation. For instance, if you sign up to receive marketing e-mails from a competitor, use an official company address and, if asked, state “product or service evaluation” as the reason you’re subscribing.
2. Respect all formal agreements. In the course of gathering competitive intelligence, you or your employees may establish sources within the industry or even with a specific competitor. Be sure you don’t encourage these sources, even inadvertently, to violate any standing confidentiality or noncompete agreements.
3. Abide by all intellectual property rights and laws. As you may know, the technicalities of intellectual property law are complex. It can be easy to run afoul of the rules unintentionally. When accessing or studying another company’s products or services, proceed carefully and consult your attorney before putting any lessons learned into practice.
4. Monitor consultants closely. When it comes to competitive intelligence, the Achilles’ heel of many companies isn’t their employees but outside consultants. If you engage third parties for any purpose, be sure they know and abide by your policy.
With the Internet booming and social media thriving, there’s a wealth of information out there about your competitors. It can help you shape your strategic planning and stay in better touch with your industry. Please contact our firm for assistance in integrating competitive intelligence into your profit enhancement goals.
In popular culture, the word “spinoff” usually refers to a television show whose main characters originated from an already established show. But the word applies to the business world, too. Here it describes a division or subsidiary of a company being sold off to a buyer as a separate entity.
The process is hardly simple. As a seller, you need to not only get a good price for your division or subsidiary, but also minimize any negative impact on your remaining holdings.
Many factors can drive a company to spin off a division. Common reasons include:
Spinoffs are usually executed more quickly than full-blown business sales, which can be appealing. Also, in consolidated industries with limited buyer pools, management may worry that a full sale would raise red flags with antitrust authorities.
If it’s a standalone subsidiary being sold, the spinoff will likely be relatively easy. The unit is already legally separate from its parent and probably won’t have much overlap with its parent’s operations.
More challenging is spinning off an internal division — also known as a “carveout.” Here the seller has to determine which of its employees, clients and product lines will be included in the carved-out division. The seller also must legally extricate the division’s assets, debts and liabilities from those of the parent company.
Because a company must decide which employees, products and property belong with the selling division, battles over ownership of certain assets are possible. For example, if the carveout and a unit that’s remaining with the parent company both rely on the same exclusive intellectual property, who retains ownership postsale?
Is your company looking to streamline operations? Could it use the cash from selling a strong division? If so, a spinoff is worth considering. But you’ll need to think through the strategy thoroughly and execute the deal carefully. Please contact our firm to discuss the concept further and assess the financials involved.
Business owners get to make executive decisions. It’s one of the perks of the job. But acting unilaterally when buying business software can be a risky move. Because new technology affects the entire team, the entire team (or at least key members) should have input on the choice. And while it may be impossible to please everyone, it’s possible to come close.
Certain kinds of new business software (or upgrades) may appear no-brainers. But you’d be surprised. Managers may see a lot of bells and whistles in a just-released product, but few useful features. You also have to consider the software’s compatibility with your company’s other applications.
So begin by gathering feedback from your management team. In particular, note which features are “must haves” and which ones are “just wants.” Then work with your IT and financial departments (or advisors) to target the right software within a specific budgetary range.
Even if your managers agree on a product, the process isn’t over. Although giving lower-level employees a say in the software selection process might seem to create more problems than it solves, they’ll be using it too. So lay the groundwork for a smooth implementation by hearing their thoughts as well.
As you do so, try to assuage any fear or confusion about the prospective new software. Typically effective moves include:
This approach can make employees feel like they’re part of the initiative and help foster more rapid buy-in.
A smart buy
Whether shopping for the holidays or buying mission-critical business software, everyone wants to make a smart buy. Please contact our firm for help setting a budget and engaging in a procurement process that ensures you make a smart buy.
Year end is just about here. You know what that means, right? It’s a great time to settle in by a roaring fire and catch up on reading … your company’s financial statements. One chapter worth a careful perusal is the balance sheet. Therein may lie some important lessons.
3 ratios to consider
In a nutshell, a balance sheet summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time. Its objective: To provide an accurate snapshot of the financial standing of the business.
Yet a balance sheet can do so much more. There are a number of ratios you can draw from this report, which can help you lay out strategic plans for next year. Here are three to consider:
1. The ratio of current assets to current liabilities. If this ratio falls below 1, the company may struggle to pay bills coming due. Some business experts believe a current ratio of less than 2:1 is problematic. But the ideal ratio varies from industry to industry.
2. Growth in accounts receivable compared to growth in sales. If receivables are growing faster than increases in sales, your company might be building up bad debts or you could be selling to large customers under disadvantageous terms. You may even be the victim of fraud. (Note: Sales are expressed on your income statement, so you’ll need to look at that statement, as well.)
3. Growth in inventory vs. growth in sales. When inventory levels increase at a faster rate than sales, a business is producing products faster than they’re being sold. Or, in the retail industry, a company may be overbuying — an inefficient use of working capital. There can be many mitigating circumstances, however, so it’s critical to determine exactly what’s going on.
These are just a few things you can learn from your balance sheet. And we haven’t even gotten into the thrilling tales lying within your income statement and statement of cash flow — the other two parts of your financial statements. Please contact our firm for help making the most of this important information.
A successful family business can provide long-term financial security for you as its owner, as well as for your loved ones. To improve the chances that your company will continue to benefit your heirs after you’re gone, take steps now to keep it in the family.
Careful estate planning can ensure that a business continues to benefit family members and that ownership of the business isn’t diluted — at least until the business is ready to accept outside investors.
For example, a well-designed buy-sell agreement can prevent owners from transferring their shares outside the family, while providing the liquidity they need to exit the business. And prenuptial agreements can prevent married owners from losing a portion of their shares in a divorce.
Trusts or other mechanisms can also restrict the ability of your heirs to transfer shares. If shares are held in trust, however, it’s important to include mechanisms for providing beneficiaries with a say in the business’s affairs — particularly if they work in the business.
For instance, the trust agreement might give some or all of the beneficiaries control over how voting and other ownership rights associated with the underlying shares are exercised. Or, if the beneficiaries are minors or otherwise not ready to assume this responsibility, these rights might be exercised by a trustee, advisory board or other fiduciary (with or without input from the beneficiaries).
Considering many strategies
These are just a few broad concepts to think about when considering how your business fits into your estate plan. The important thing to bear in mind is there are many strategies to consider, some of which could become more or less appealing as time goes on and you close in on retirement. Please contact our firm to discuss your best options now — and in the future.
Could your company’s benefits package use a bit of an upgrade? If so, one idea to consider is adding an option for employees to convert their regular 401(k)s to Roth 401(k)s.
Under a Roth 401(k), participants make after-tax contributions to a qualified plan and receive tax-free distributions, provided the funds are in the plan for at least five years from the date of the initial Roth contribution. Thus, while participants pay a tax on the income that was the source of the contribution, the earnings on the contributions are tax-free.
Penalties to consider
The ability to convert existing pretax balances within a 401(k) to Roth status was expanded by the American Taxpayer Relief Act of 2012. It’s generally easier for participants to start making after-tax contributions to Roth accounts within their 401(k) plans than it is to convert a significant existing pretax amount to the plan’s Roth component.
Why? Because, as with an IRA conversion, a Roth 401(k) conversion triggers tax liability that participants must pay on the conversion. If they need to raise the cash from retirement funds and they’re younger than age 59½, they get to keep only 90% of the amount after the 10% premature withdrawal penalty, less whatever amount regular income taxes take.
The initial financial hit of a Roth 401(k) conversion might appear to be a deal-breaker. Yet more and more plan sponsors are offering the option. One possible explanation for this is the rising number of working Millennials (roughly defined as those born between the 1980s and 2000s).
Converting to a Roth 401(k) makes sense for these younger participants because they have a longer period to build tax-free earnings on their contributions — despite the initial penalty. They’re also less likely to face the prospect of a big tax hit by converting an existing pretax 401(k) plan balance to a Roth account, because their existing balances are generally lower.
An intriguing option
Giving employees the opportunity to participate in a Roth 401(k) plan may help them hedge their bets about the income tax environment they’ll face in retirement. And, as Millennials continue to hit the job market, you might draw better candidates when hiring. Please contact our firm for more information.
Many companies, especially smaller ones, minimize in-house training to cut costs. But the current business environment — with its hard-to-predict changes, external threats and regulatory demands — is causing some owners to rethink this strategy. A strong training program can not only help you attract and retain quality talent, but can also help you reduce operational risk.
Today’s companies face many challenges beyond simply turning a profit. Many industries are highly regulated, and just about every type of business has become, in some sense, technology-dependent. This has brought a renewed emphasis on risk management.
One of the keys to managing operational risk is well-trained personnel at all levels. After all, no matter how carefully a business designs its policies, procedures and controls, they’re only as reliable as the employees entrusted to implement them.
2 examples to consider
Here are just a couple of examples of operational risks that can be reduced with good training:
1. Compliance. As mentioned, many businesses are now more heavily regulated. (This may change with the incoming presidential administration, but it’s hard to say when or how any deregulatory measures may occur.) Failure to comply with federal, state or local regulations can expose your company to penalties ranging from monetary fines, to rescission of loans or other contracts, to criminal liability. Train your employees to avoid breaking the rules and to spot compliance threats when they arise.
2. Cybersecurity. As companies’ reliance on technology and automation continues to increase, so does the risk of cyberattacks. Although the techniques cybercriminals use are becoming more sophisticated, many businesses also remain vulnerable to simple tactics, such as email phishing.
Phishing involves sending emails to employees or customers that appear to be from a legitimate source. By tricking recipients into clicking on links that install malware, cybercriminals can gain access to company assets or customers’ sensitive personal information. Teach your staff how to deal with suspicious emails and other technology-related threats.
On the lookout
It’s not enough to be aware of risks to your business at the ownership or management level. You’ve got to train your employees to be on the lookout, too. Please contact our firm for help.
As the year winds down, business owners have a lot to think about. One item that you should keep top of mind is next year’s budget. A well-conceived budget can go a long way toward keeping expenses in line and cash flow strong. The question is: Where to begin? Well, to answer this question, we don’t have just one suggestion — we have three:
1. Investigate your income statement. A good place to start on next year’s budget is with the numbers you put on paper for last year, as well as your year-to-date results. In your income statement, you’ll see information on sales, margins, operating expenses, and profits or losses.
One specific factor to consider is volume. If sales have slipped noticeably in the preceding year, your profits may be markedly down and regaining that volume should likely play a starring role in your 2017 budget.
2. Check your cash flow statement. Look at where cash is coming from in terms of daily operations, as well as external financing and investment sources. The statement will also tell you where cash is going, as you finance business activities and investments.
Even profitable companies can struggle if their cash flow is weak. Where do they go wrong? Under- or unbudgeted asset purchases can have a major negative budget impact. Another culprit is one or two departments regularly going over budget.
3. Peruse your balance sheet. Here you’ll find your company’s assets, liabilities and owner’s equity within the given period. Your balance sheet should give you a good general impression of where your company stands financially.
Take a close look at how your liabilities compare with assets. If your debts are mounting, a good objective for 2017 might be cutting discretionary expenses (such as bonuses or travel costs) or developing a sound refinancing plan.
That’s right — to get started on next year’s budget, simply pull out your most recent set of financial statements, roll up your sleeves and get to work. But you don’t have to do it alone. Our firm can help you understand where your business stands as of today and what next year’s budget should look like.
Many retirement plan sponsors consider converting to new providers starting with the new plan year. For calendar year plans, that means January 1. If this is the case for your company, now is a good time to ensure your service provider is truly providing.
A good provider should have demonstrable experience in your industry. Check to see whether your current provider (or a prospective one) has clients with plans similar to yours. Ask for references.
Service and administration should be easy, and communications clear. Reports from your provider should be timely and accurate. You shouldn’t have problems contacting your service provider, and they should give quick and accurate answers to routine questions.
Look for a provider that offers educational seminars for employees to help them understand the importance of maximizing their savings. Make sure the provider has a website that your employees can access, and that participant statements and reports are user-friendly.
The provider should give ongoing plan reviews. This includes open discussions of participation levels, deferral percentages, loans, nondiscrimination testing, and enrollment and communication strategies.
Remember, cheapest isn’t always best. Certain providers market their services directly to plan sponsors with the idea that the cost of an advisor is unnecessary. Generally, this type of arrangement works only if the plan sponsor has an employee dedicated to certain 401(k) plan functions or the plan accepts less service.
The 401(k) fees paid by a company typically include a one-time fee to establish the plan and an ongoing annual, quarterly or monthly fee to manage it. The costs cover record keeping, support from an account manager, government-required testing and tax forms, and product and service improvements. Administrative expenses vary dramatically based on the provider and the total plan assets.
It’s also important that employees pay the least fees possible so they can invest more of their money. Add up the average fund expenses plus the management fees, participant record-keeping fees, custodial fees or any other fees charged to your employees.
Comprehensive, well-administered benefits are a competitive necessity in today’s business environment. Please contact us for help evaluating the services you’re receiving and their associated costs.
Nearly every business owner wants to grow his or her company. But with growth comes risk, and that can keep you from taking the steps necessary to move forward. Yet if you don’t think big and come up with a long-term strategic plan, you’ll likely continue to spin your wheels.
Eyes on profits and value
Public companies answer to investors who consider earnings per share and stock price to be key indicators of their return on investment. Maximizing earnings is a short-term goal, but building value requires a long-term focus.
Many small to midsize businesses, however, have only their ownerships’ vision to motivate them. You also may have to operate much leaner, with more limited staff and overhead. In doing so, you may sacrifice value-building opportunities.
For example, a company that fails to invest in marketing may lose market share to a competitor that aggressively advertises and offers promotions. Or a business that hires managers only from within or chooses candidates based primarily on minimizing salary expense may lose out on the professional expertise that comes with a more seasoned management team.
Systematic, formal planning
Some companies may be able to run “lean and mean” for a while. But, eventually, most businesses need to grow. And a reasonably ambitious, long-term strategic plan is the first step. It will allow you to communicate a nuanced, specific vision for growth down the organizational chart.
Planning should extend to employees, too. What’s each worker’s expected role in your strategic vision? This is why annual performance reviews are so critical. They’ll help you gauge whether each employee is meeting or exceeding management’s expectations — or whether he or she is truly contributing to your long-term plan.
The right goals
Again, don’t be afraid to think big. A tentative or half-hearted long-term strategic plan may leave you disappointed — and fail to truly motivate anyone. Please contact our firm for help choosing the right goals and putting them into a feasible, reasonable financial context.
Like many companies, yours probably stores at least some of its business files, documents and information in “the cloud.” This is the widely used term referring to the seemingly infinite data storage capacity of the Internet.
Using the cloud generally means lower IT costs, because you don’t have to deploy a lot of expensive hardware and software on-site and it’s scalable — in other words, you can easily expand or diminish your data storage capabilities as necessary. Most cloud services also feature automatic backups and updates.
But these inherently great features don’t guarantee you’ll get a good return on investment. To make the most of the cloud, you’ll need to identify and follow some best practices. Here are two to consider.
A carefully vetted provider
Moving from on-premises, server-based data storage to cloud-based data storage requires a different mindset. You’ll be unable to physically look at and touch a server box and say, “That’s where my data is stored.”
This makes it critical to choose a cloud services provider you can trust and build a strong relationship with as a true business partner. Ask potential providers for the names of two or three of their clients you can speak with about issues such as level of security, responsiveness and technological sophistication.
You need to pinpoint your recovery time objectives and recovery point objectives (that is, the most critical data points for your business) concerning the backup and recovery of your data in an emergency. Be sure you’ve clearly communicated these to your cloud services provider.
Your provider should be able to work with you on an individualized basis to ensure that your objectives will be met. You don’t want to find out during a crisis that you’ve lost mission-critical data.
If you haven’t ventured into the cloud yet, give it some consideration — these services are becoming increasingly common. And if you have, be sure you’re getting your money’s worth.
Turning receivables into cash is among the most important things a business must do. Of course, it’s easier said than done. Here are five ways to speed up collections:
1. Streamline the billing process. You can’t collect what you don’t bill. Invoice customers promptly — as soon as the product ships, if possible. Or, if your company provides services, track billable hours daily and bill monthly — or as often as permitted under the customer’s contract. Implementing an electronic payment system, or upgrading your existing one, may accelerate invoicing and enable faster receipt of receivables.
2. Reward early birds and penalize procrastinators. Enticing customers to pay before the due date may require early-bird discounts, such as a small percentage off bills or value-added perks for those who pay on time or improve their payment histories. Conversely, you might consider assessing fees on past-due payments. However, many companies decide to waive late charges as an act of goodwill when customers immediately resolve outstanding balances.
3. Take a multifaceted approach. A variety of strategies, rather than a single phone call demanding payment, can yield better results. Courtesy calls may allow you to more quickly discover discrepancies (such as wrong addresses) and settle disputes. Payment plans can help distressed customers catch up on overdue accounts. And promissory notes can help prevent future billing disagreements.
4. Minimize risky business. Before conducting business with anyone, review a prospective customer’s payment history, references and credit score to assess ability to pay. Poor credit shouldn’t necessarily stop you from providing products or services to a customer. But be prepared to alter your typical payment terms when dealing with high-risk buyers.
5. Look for outside help. If late payments become a serious concern, third parties can offer assistance. Turning over particularly bad debts to a reputable collection agency allows you to distance yourself from the matter and focus on business. And let it not go unsaid that our CPA firm can review your financial statements and collection procedures to help you set specific, achievable goals in getting paid faster.
Everyone needs a solid estate plan to distribute assets according to their wishes and benefit their heirs. But this necessity is especially keen for business owners, many of whom have spent years working hard to build up the values of their companies.
If you can relate to this statement, one effective way to reduce estate taxes is to limit the amount of appreciation in your estate — and your company may provide just the ticket for doing so.
You’ll save the most in estate taxes by giving away assets with the highest probability of future appreciation. Why? Because gifting these assets today will keep future appreciation on those assets out of your taxable estate. Thus, there may be no better gift than your company stock, which could be the most rapidly appreciating asset you own.
For example, assume your business is worth $5 million today but is likely to be worth $15 million in several years. By giving away some of the stock today, you’ll keep a substantial portion of the future appreciation out of your taxable estate.
What are the limits?
Naturally, there are limits to how much you can give without tax consequences. Each individual is entitled to give as much as $14,000 per year per recipient without incurring any gift tax or using any of his or her $5.45 million lifetime gift, estate or generation-skipping transfer tax exemption amount.
Also be aware that, because you’re giving away company stock, the IRS may challenge the value you place on the gift and try to increase it substantially. The agency is required to make any challenges to a gift tax return within the normal three-year statute of limitations — even when no tax is payable with the return. But the statute of limitations applies only if certain disclosures are made on the gift tax return. Generally, for gifts of stock that isn’t publicly traded, a professional business valuation is highly recommended.
Who can help?
If the idea of giving away portions of your business to reduce estate tax exposure intrigues you, please contact us. We can help you fully assess the feasibility of this strategy as it pertains to your specific situation.
Employers who offer retirement savings plans are already helping their workforces. But not all employees take advantage of these plans. And many who do still don’t contribute enough to retire comfortably. As a business owner, you can help your employees even more — and drive plan participation — by providing proper education on retirement planning.
Here are five ways to go:
1. Teach them about the general concepts of investing. Many employees are unfamiliar with basic economic and investing concepts. Offer instruction on concepts such as:
Providing such information can help your employees make informed decisions about their options.
2. Explain how the plan functions. For instance, do they need to enroll in the plan, or are they automatically enrolled? Once enrolled, how do they decide how much to contribute and how to allocate their money among different investments?
3. Provide information in various formats. Webinars or other online communication methods will resonate with some employees, while others will prefer printed material. By offering a mix of options, you’ll likely be effective in reaching different segments of your workforce.
4. Arrange face-to-face sessions. Even if your business offers printed and electronic materials, in-person sessions can go a long way in helping employees understand the plan. These sessions also provide an opportunity to reinforce the value of a retirement plan as part of the employee’s overall compensation package. If one-on-one sessions are impractical, consider small groups.
5. Offer information regularly. Providing consistent education is a great way to remind employees of the value of their retirement savings plans.
Remember, employees aren’t the only ones who benefit from proper retirement savings education. As participation increases, plan fees may diminish. And the more non–highly compensated employees sock away in a plan, the more its highly compensated employees can contribute. Please contact our firm for more ways to maximize the strategic value of your retirement plan.
Many companies reach a point in their development where they have to make an important decision: Innovate themselves or acquire a competitor? Of course, it isn’t always an either/or decision. Nonetheless, business owners should consider the pluses and minuses of both approaches.
Innovating to grow
Innovation is a broad term that encompasses many strategies — all of which are intended to help the company achieve goals such as boosting profits, improving cash flow, or diversifying products or services. Common strategies are:
Each strategy takes time, effort and capital. Understandably, business leaders can be hesitant to devote such vital resources to innovation initiatives and risk decreases in productivity and profitability.
For companies that don’t want to bet the farm on internal development, acquisitions can be appealing. If you’re looking to expand a product line, for example, it might be more time- and cost-effective to buy a competitor that already offers the goods you want.
Your acquisition target has already done the hard work — including funding, testing and creating the product or service and building a client base. By buying this competitor, you may incur less risk than you would by investing your own capital and building the product from scratch. The same holds true for geographic expansion and productivity improvements.
But business combinations come with their own risks. To fully benefit from any acquisition, your company needs to “stick the landing” — efficiently integrate operations and retain divisions and employees capable of ensuring that innovations continue to pay off. For many buyers, that’s a tall order.
Considering your options
In an ideal world, companies would devote resources to innovation and also make the occasional acquisition to bolster their standing in particular markets. But most companies don’t have the luxury to do both simultaneously. Please contact us for help examining the risks and potential rewards associated with each option.
In 1943, psychologist Abraham Maslow set out his “hierarchy of needs.” This theory suggested that human behavior is a response to a variety of needs ranging from physical survival to self-actualization.
At this point, you may be wondering, “What does any of this have to do with my business?” The answer is that truly engaged employees are motivated by needs other than just financial compensation.
5 tiers of needs
As mentioned, Maslow theorized that humans have various needs to live a fulfilling life. The hierarchy, beginning with the most basic needs, comprises the following five tiers:
Generally, compensation covers the first tier. Money allows people to nourish themselves and obtain a place to live. (Air is usually free.) Job security and stability, as well as benefits, contribute to the second tier, meeting a person’s safety needs and need for order. And many people are able to meet at least some of their belongingness and other social needs at work (Tier 3).
The last two
It’s the last two tiers that are often trickiest for employers. To empower employees to meet Tiers 4 and 5 at work, you’ll need to learn the specific motivations to which each person seems to respond.
For example, esteem needs could be satisfied by offering various forms of praise to strong performers and those who help others. Meanwhile, self-actualization needs can be met by establishing clear career paths that include promotions.
Your employees have needs and motivations in common with most of the people on the planet. The key is creating a workplace that helps meet these needs and, in turn, produces that critical component of any successful organization — the engaged employee.
Would you drive a car without a functional dashboard? Perhaps once a month someone could tell you how fast you were going and how much fuel you had left. Sound good? Probably not. Yet this is how many business owners run their companies.
The good news is there’s a solution. With the right software and some help from our firm, you can regularly receive dashboard reports that provide a one- or two-page summary of key business performance metrics in a concise, visual format.
Good looking info
Similar to a car’s control panel, dashboard reports provide business owners and managers with timely, relevant input to make quick but informed decisions. Everything in a dashboard report can typically be found elsewhere in the company’s financial reporting systems, just in a less user-friendly format.
Believe it or not, the concept of dashboard reports has been around since at least the 1990s, when they originally gained popularity. But now, thanks to 21st century technology, these reports are even easier to generate and distribute. Many companies offer them to ownership and management via an internal website or weekly e-mail blasts.
The right metrics
The critical question to ask when creating a dashboard report is: Which metrics should we include? The right answer depends on, among other things, current economic conditions, your industry and the specifics of your business operations. Nonetheless, most dashboard reports include financial ratios such as:
From there, industry-specific performance metrics are typically added. For example, a warehouse might report daily shipments or inventory turnover, not just total asset turnover. Or a retailer might provide sales graphs that highlight product mixes, sales rep performance, daily units sold and variances over the same week’s sales from the previous year.
Here to help
The purpose of dashboard reports is to quickly identify trends that require corrective actions. Just remember that they’re no replacement for sound, well-maintained financial statements. Please contact us for help with both.
The prospect of leaving your company in the hands of someone else likely brings mixed emotions. You’ve no doubt spent a substantial amount of time and a great degree of effort in getting your enterprise to where it is today. So, as the saying goes, parting will be such sweet sorrow.
Yet, when it comes to creating and executing a succession plan, decisive action is critical. You’ve got to respect the importance of timeliness — not only for you and your family, but also for your successor and employees. So here are two key questions to answer.
1. When’s your target date?
By designating your departure date far enough in advance, you’re more likely to pick the right successor, as well as facilitate a smoother transfer of power.
In some industries, it can take years to appoint and train a qualified successor and effectively work through the many management, ownership and organizational issues. But don’t choose a date too far away, because your successor-to-be may get tired of waiting.
2. How will you break the news?
Maybe it’s many years away, maybe it’s sooner than that. But don’t wait too long to reveal to staff when you’re leaving the company and whom you’ve selected as a replacement. Giving everyone ample notice (as long as one to two years) will allow plenty of time for employees to voice their concerns about your successor and the transition as a whole.
Break the news gently to gain their support for the new boss while giving employees good reasons to stay with your company. If disagreements arise, discuss the issues openly. Seek compromise by enabling your successor to exercise his or her newfound decision-making authority but staying involved as a consultant to ensure he or she doesn’t alienate staff.
Need some help?
Coming up with — and carrying out — a succession plan can be among the most difficult things a business owner ever does. Please contact us for help assessing the financial and operational viability of your plan.
When looking to manage benefits costs, employers have many ideas to consider. One in particular is whether and how to offer health care insurance to their employees’ spouses.
The Affordable Care Act doesn’t require spousal coverage. It only requires coverage for dependent children. But many employees may frown on seeing spousal coverage suddenly become expensive or vanish entirely. So this is a question warranting careful forethought.
2 established ways
Essentially, there are two established ways of saving money on spousal coverage: 1) rationalizing the expense through a cost-sharing surcharge, or 2) eliminating coverage altogether through a “spousal carve-out” policy.
Few employers appear willing to lower the boom on spousal coverage by eliminating it (also known as an “absolute carve-out”) — especially when spouses lack access to coverage through their own employers. Forcing workers’ spouses to seek coverage on the individual market, possibly at a very high cost, would likely embitter the affected employees, potentially increasing turnover.
But it doesn’t have to be an all-or-nothing proposition. One variation on the surcharge approach is to give a monetary award to employees whose spouses switch from your plan to the spouse’s employer’s plan.
Or you could have a spousal carve-out program with an escape hatch. Such an arrangement would allow the spouse to remain on your plan if the price the spouse would have to pay for coverage under his or her own employer’s plan exceeds a specified threshold.
Still another approach is to require employed spouses whose own employers offer coverage to enroll in those plans in order to receive benefits under your plan. This way, yours becomes the secondary plan, incurring only the portion of claims not covered by the spouse’s employer’s plan (the primary plan).
Unfortunately, there are no quick and easy ways to keep health care plan costs in check. But policies that ensure you aren’t paying the medical bills of employee spouses who could be getting coverage through their own employers are certainly worth contemplating.
Many businesses start life small and simple. But with growth comes the need for a stronger company infrastructure and increased operational sophistication. As you pursue a more robust business, focus on these four pillars:
1. Organizational management
Implement a formalized system for measuring performance that begins with written job descriptions and training. Issue a clearly written handbook of company policies. Give employees regular and constructive feedback.
Taking these steps is not only necessary — it also serves to motivate, compensate and reward staff members. Strong organizational management is particularly key to attracting and retaining good employees, who typically desire an objective and well-balanced performance evaluation system.
2. Business processes
At the core of your business are its processes. The more you can systematize and document them, the more easily you can train your staff to follow them for increased efficiency, productivity and quality.
Professionalizing your business processes also involves streamlining operations in mission-critical areas. These include sales and marketing, finance, human resources, and customer product and service delivery.
3. Strategic planning
For new businesses and many small ones, business planning discussions occur randomly and informally. But, as your operations become increasingly complex, you’ve got to make strategic planning a regular and formalized activity.
Hold regular strategic planning meetings. Update your written business plan and communicate your strategic goals companywide. Doing so will keep employees in the loop and empower them to make effective decisions and act in alignment with your stated objectives.
4. IT systems
There’s no way around it: Advanced technology runs today’s businesses. Yet, as a company’s operations grow, it can struggle with a conglomeration of outdated and disconnected hardware and applications.
Supporting a professionalized, process-oriented business environment requires integrated IT systems. Employees can more easily access operational information and improve productivity with connected technology.
Every business, no matter how large or small, goes through growing pains. Please contact us for help managing your growth in a measured and financially savvy manner.
What keeps business owners up at night? Many would say sluggish productivity or escalating expenses. An employee coming to work every day usually doesn’t make the list. But a staff member who never takes a day off can cause problems by showing up sick, distracted or too stressed out to be effective. There’s a name for this problem: presenteeism.
What’s the issue?
The premise of presenteeism is simple. Employees who aren’t feeling well — for whatever reason — don’t perform well. They may:
Work more slowly,
Struggle concentrating or making decisions,
Take more frequent breaks,
Make more mistakes, or
Need to repeat tasks until they’re completed correctly.
But it may not end there. When employees come to work while suffering from communicable diseases, such as a cold or the flu, the problem can grow exponentially. One worker coughs on two people who get sick, and they cough on four people who get sick, and so on.
Is there a cure?
Because presenteeism can stem from a gamut of sources, companies must be on guard for dips in productivity. When one occurs, managers should know how to discuss the matter with the potentially affected employees.
Your benefits program may hold the key. Both the employee and your organization may be better served if the worker takes advantage of available benefits — such as paid sick days, an employee assistance program or leave of absence — that will help him or her deal with the outside stressor causing presenteeism.
It’s also important to emphasize wellness. Many companies now offer formal wellness programs to encourage actions such as engaging in exercise, getting an annual physical and learning about healthy living.
What’s the number?
It’s much easier to detect presenteeism when you’re measuring productivity. Choose the right metrics and don’t underestimate this potentially costly threat to your profitability.
Ask employees whether padding expense account reports is wrong and just about everyone will say “yes.” Yet inflated expenses continue to cost businesses thousands of dollars annually. For this reason, every company must establish the right policies to stop it.
How it works
To stop expense padding, you need to know how it works. Expense inflation — where an employee exaggerates the amount of the actual cost of a meal or cab ride and pockets the change — may be the most common expense-padding method.
But cheaters are also capable of inventing expenses and submitting fake documentation to support them or requesting multiple reimbursements by submitting the same receipt more than once. And watch out for mischaracterized expenses. In such schemes, employees provide legitimate documentation for non-business-related expenses, such as treating friends to a night out on the town, and characterize them as “business development” costs.
What to do
To prevent fraud, as well as simply handle expense reporting in a more accurate manner, you’ve got to establish and fine tune effective policies and processes. For example, if you’re still relying on paper reports, switching to an electronic reporting system may make it harder for employees to cheat. Your processes need to scrutinize expense reports and supporting documentation for:
In addition, set limits such as requiring employees to fly coach class, stay in moderately priced hotels and adhere to a daily meal expense allowance. Also, specify the types of supporting documents you’ll accept — for example, original receipts, but not credit-card statements.
If expense padding becomes widespread, or its perpetrators are particularly devious, you may need to hire a fraud expert to conduct a thorough investigation. This will include examining expense records, interviewing suspect employees and gathering evidence. Be prepared to terminate — and perhaps prosecute — guilty parties.
Stop the bleeding
Don’t let employees bleed your business dry with fraudulent paper cuts. Please contact us for help reviewing your expense reporting system and identifying ways to strengthen it.
Workforce Development Grants to Train Your Employees
Department of Community & Economic Development (DCED)
WedNet PA funding is used to reimburse wide range of employee training. Pennsylvania employers in manufacturing or technology businesses, including bio-tech & environmental companies, are eligible for workforce job training grants through WedNetPA. http://www.wednetpa.com
Awards of up to $1300 per employee will be granted annually.
Apply today at: http://www.wednetpa.com/Apply/
For more info please contact your WedNet PA partner: Linda Grove
Kutztown University Grove@Kutztown.edu or 717.825-1132
If a substantial portion of your wealth is tied up in a family or closely held business, you may be concerned that your estate will lack sufficient liquid assets to pay estate taxes. In such cases, heirs may be forced to borrow funds or, in a worst-case scenario, sell the business in order to pay the tax.
For some business owners, Internal Revenue Code Section 6166 provides welcome relief. It permits qualifying estates to make an election to defer a portion of their estate tax liability for up to 14 years. Generally, during the first four years of the deferment period, the estate pays interest only, followed by 10 annual installments of principal and interest.
Consider your eligibility
An estate tax deferral is available if the value of an “interest in a closely-held business” exceeds 35% of your adjusted gross estate. A business is closely held if it conducts an active trade or business and it’s a:
To determine whether you meet the 35% test, you may only include assets actually used in actively conducting a trade or business. Passively managing investment assets doesn’t count. Unfortunately, it’s not always easy to distinguish between the two — particularly when real estate is involved. The IRS considers several factors and has issued guidance on the matter.
Get professional guidance
An estate tax deferral might lend a helping hand to your family and business. But the rules are complex. We can provide professional guidance on whether this is the right strategy for you.
Health Savings Accounts (HSAs) were created as a tax-favored framework to provide health care benefits mainly for small to midsize businesses and the self-employed. So, assuming your company falls into one of these categories, have you considered the strategy of using these accounts with a high-deductible health plan (HDHP)?
The tax benefits of HSAs are quite favorable and substantial. Eligible individuals can make tax-deductible (as an adjustment to AGI) contributions into HSA accounts. The funds in the account may be invested (somewhat like an IRA), so there’s an opportunity for growth. The earnings inside the HSA are free from federal income tax, and funds withdrawn to pay eligible health care costs are tax-free.
An HSA is a tax-exempt trust or custodial account established exclusively for paying qualified medical expenses of the participant who, for the months for which contributions are made to an HSA, is covered under an HDHP. Consequently, an HSA isn’t insurance; it’s an account, which must be opened with a bank, brokerage firm, or other provider (typically an insurance company). It’s therefore different from a Flexible Spending Account in that it involves an outside provider serving as a custodian or trustee.
The 2016 maximum contribution and deduction for individual self-only coverage under a high-deductible plan is $3,350, while the comparable amount for family coverage is $6,750. Individuals age 55 or older by the end of 2016 are allowed additional contributions and deductions of $1,000. However, when an individual enrolls in Medicare, contributions cannot be made to an HSA.
For 2016, an HDHP is defined as a health plan with an annual deductible that is not less than $1,300 for self-only coverage and $2,600 for family coverage, and the annual out-of-pocket expenses (including deductibles and co-payments, but not premiums) must not exceed $6,550 for self-only coverage or $13,100 for family coverage.
Worthy of consideration
An HSA with an HDHP is, of course, but one benefits strategy of many. But it’s worth considering. Please call us for help determining whether it would be the right move for your company this year or perhaps in 2017.
Do you know how much time your salespeople spend actually selling? In many cases, sales reps spend too much time doing reporting, administrative tasks and other nonsales responsibilities assigned to them. If you can streamline your sales staff’s workflow to keep them better focused on selling, your profitability may benefit.
To get started, take a hard look at precisely what your salespeople are doing during their workdays. When appropriate, reassign nonessential tasks to others. For instance, delivery problems can be handled by someone in shipping. Account disputes can be solved by the credit manager. Also, reports may be typed and circulated by administrative support or become more standardized.
Typically, these activities aren’t the strengths of a salesperson, who may become frustrated and ineffective when expected to perform in these areas. Do you ask your collection manager to sell your product or service? Then don’t expect your salespeople to be a credit manager.
Many salespeople’s nonsales activities consist of shifting their attention from accounts to gathering the right information. This time expenditure, however unavoidable, may be made more productive with the right technology.
How up to date and user-friendly is your customer relationship management (CRM) system? If it hasn’t grown with your company and isn’t offering the latest functionality, your sales staffers may be wasting precious time getting to the data they need. Three of the most important functions of a CRM system are being able to:
Your team needs to be swift and agile in executing tasks directly related to sales.
Make it happen
When it comes to strategic planning, you can’t ignore sales efficiency. After all, strong sales make profitability possible. Please contact us for help assessing your sales team’s effectiveness.
Many of today’s businesses have taken to outsourcing various IT functions. The goal of doing so is usually to save money. But rushing into such an arrangement could mean losing money on the project itself while diminishing employee morale and even compromising your reputation. Here are a few best practices to follow to help ensure the dollars make sense.
Ask the users
Elicit feedback from your staff and let them help you refine your approach to outsourcing. Ask for candid feedback about whether your company’s technology is really meeting their needs.
Also try to gather “lessons learned” from other businesses that have outsourced. How did outsourcing help them? What went wrong? To find such companies, ask your professional advisors or contact a relevant trade association.
Weigh benefits vs. risks
Look at your in-house capabilities and rank your ability to deliver every service your users require. If you’re coming up short on some of them, maybe an outside vendor could do a better job — and, in doing so, help your employees do their jobs better.
But consider risks as well. Generally, you should outsource innovation-based work only to accommodate peak demands or when you absolutely lack expertise. And even then, ensure knowledge transfer and retain control over vital tasks such as program management and client contact.
Be committed and disciplined
If you decide to go forward with IT outsourcing, develop a plan that includes objectives such as:
Remember, it’s not enough to budget for only the monetary expense of IT outsourcing. You’ve got to plan to manage the relationship as well.
Manage it wisely
In many industries, outsourcing has become a competitive necessity. But that doesn’t mean you can’t manage it wisely from a financial perspective. Please contact us for help assessing and executing your next IT outsourcing arrangement.
Businesses fail for many reasons — dysfunctional management, insufficient working capital, insurmountable competition. Why they succeed, on the other hand, is often easily explained. Regardless of size and sector, most healthy companies share the following three characteristics when it comes to their financials:
1. Ample revenue
You’ve no doubt heard it before, but this cliché is true: Cash is king. Without a robust revenue stream coming in, profitability will be precarious. To determine how much revenue your company needs to be profitable, perform a profitability breakeven analysis. Then review your sales and determine where you can make changes. For example, you may need to invest more in R&D or focus more on prospective customers.
2. Well-managed labor and production costs
For most companies, labor is their biggest production cost — particularly when benefits and taxes are factored into the equation. Determine whether your labor force increases the value of products or services enough to offset its high cost. If not, consider solutions such as:
When production overhead costs are too high relative to a product’s sales price, take action. You might increase the price of the product, find better production methods or even discontinue the product.
3. Lean operations
Operating expenses — costs you incur to run your business that aren’t directly attributable to production — must be minimized. For example, compensation takes a big bite out of your operations budget, so monitor staffing needs relative to sales and adjust them if necessary. And while you can’t eliminate marketing expenditures, you can review your sales levels relative to them and ensure you’re getting bang for your buck.
Establish a foundation
If you’re trying to build the foundation for a healthy, long-lived business, focus on these three keys. For help applying them to your company’s specific size and situation, please call us.
Shopping, anyone? If your business is in need of office equipment, computer software or perhaps an HVAC system, the purchase you make today could provide you with a tax break tomorrow — or, more specifically, when you’re ready to file your 2016 taxes. The Section 179 expensing deduction remains a solid potential tax-saving value for today’s companies.
Expensing your buys
Sec. 179 of the Internal Revenue Code allows businesses to elect to immediately deduct — or “expense” — the cost of certain tangible personal property acquired and placed in service during the tax year. This is instead of claiming the costs more slowly through depreciation deductions. The election can only offset net income, however. It can’t reduce it below $0 to create a net operating loss.
The election is also subject to annual dollar limits. For 2016, businesses can expense up to $500,000 in qualified new or used assets, subject to a dollar-for-dollar phase-out once the cost of all qualifying property placed in service during the tax year exceeds $2 million.
Improving real property, too
The expensing limit and phase-out amounts would have been far lower had Congress not passed the Protecting Americans from Tax Hikes Act in late 2015. The new law made the limits permanent, indexing them for inflation beginning this year. It also makes permanent the ability to apply Sec. 179 expensing to qualified real property, such as eligible leasehold-improvement, restaurant and retail-improvement property.
Finally, the new law permanently includes off-the-shelf computer software on the list of qualified property. And, beginning in 2016, it adds air conditioning and heating units to the list.
Considering all options
You can use Sec. 179 expensing for both new and used property. A related tax break, bonus depreciation, applies only to new property. Be sure to consider all options when purchasing assets. Questions? Please call us — we can help you identify the right depreciation tax breaks for your business.
A hastily chosen or ill-prepared successor can lead a company astray or, in worst cases, mismanage it into bankruptcy. Before you set sail into retirement or perhaps on to your next great professional adventure, make absolutely sure that your chosen replacement is ready to, well, succeed.
Build stakeholder confidence
Perhaps the simplest, most important thing you can do is to put your successor to work. Co-owners, board members and employees are more apt to follow a replacement’s lead if they feel confident in his or her knowledge and skills. And the only way to truly build that confidence is to allow these stakeholders to experience your successor’s leadership style and capabilities first-hand.
For instance, let your successor gain experience examining and discussing financial information for tax and financial reporting compliance and profitability analysis. In addition, allow him or her to spend time among your HR staff to learn about your hiring methods and benefits issues.
Get hands dirty
Don’t hesitate to let your heir apparent get his or her hands dirty. For example, if you’re a manufacturer, let him or her spend plenty of time down on the plant floor to see and participate in daily operations. Or, for other types of businesses, send your prospective replacement out on sales calls to face the challenges of meeting customer demands head-on.
While your successor gets acclimated, you may want to hire an interim manager. His or her objective industry and supervisory experience can be invaluable in training your next-in-line. But you must give the interim manager executive powers, including the ability to guide careers and make employment decisions.
Create a comprehensive strategy
Properly training and preparing your successor is immensely important if you want to truly leave your company in good hands. However, this is just one aspect of succession planning. For help with a comprehensive strategy that provides security for you, your family and your company, please call us.
Congress enacted Section 409A of the Internal Revenue Code more than 10 years ago in response to scandals involving Enron and other corporations. If you offer employees deferred compensation as a benefit, it’s critical to stay familiar with Sec. 409A and its many requirements.
Sec. 409A applies to most nonqualified deferred compensation arrangements, including bonus plans, supplemental executive retirement plans, certain severance pay plans, and equity-based incentive compensation plans — such as stock options, stock appreciation rights (SARs) and phantom stock.
The requirements don’t apply to qualified retirement plans, such as 401(k) plans. They also don’t apply to most welfare benefit plans — for example, vacation, sick leave, compensatory time, disability and death benefit plans.
For covered arrangements, Sec. 409A governs the timing of deferral elections and restricts the ability of participants to alter the form or timing of the payments. The law and regulations in this area are complex, but here’s a quick summary of the main requirements:
In addition, employers must maintain written plan documentation that’s consistent with Sec. 409A’s requirements.
Documentation and operations
It’s important to review your deferred compensation arrangement for Sec. 409A compliance regularly. Please call us for help evaluating your plan’s documentation and operations.
Most companies start life as a business plan. Eventually, that plan should evolve into a formal strategic plan document that lays out key initiatives for the business over the next three to five years.
Unfortunately, even when said document is created, that seed planted in the ground often ends up largely ignored, untended and malnourished. So how can you make sure to cultivate your strategic plan so it grows with the company? Here are some ideas.
Champion the process
Your top managers must take the lead in collecting relevant facts, setting priorities, weighing competing alternatives and then making choices. And they need to be highly engaged in a process of debate and discussion before decisions are made.
When the focus is on the process, not just the output, it’s easier to make it an ongoing effort. That’s because managers develop a deeper understanding of and buy into the analysis and options that were considered in developing the strategic plan. They’ll also have a greater sense of ownership, and thus be much more willing to keep it up to date.
Set the specifics
Don’t view strategic planning as simply setting long-range goals. A good plan also includes:
In addition, accountability is key. Assign responsible individuals to oversee each strategy or program. And regularly assess their progress against the metrics and milestones.
Be prepared to pivot
Some businesses annually update their strategic plans, whether necessary or not. Although this is better than doing nothing, it may not be sufficient. Always be prepared to “pivot” — or update your plan on the fly — should a market opportunity develop. Need some help aligning your strategic plan with your company’s financials? Please contact us.
Whether the job market is hot or cold, employers owe it to themselves to actively work at employee retention. Good workers can maintain operational stability and keep profitability strong. Plus, the cost of finding and hiring new employees remains steep. Here are some ideas for keeping your best and brightest on staff.
Employees whose job skills are regularly enriched by training feel more skilled — and more valued. Plan a training program that involves carefully selected methods and content. You’ll need to determine whether to do the training in-house or via an outside vendor. An outside vendor may cost more upfront, but it could save you time in planning and present the curriculum more effectively.
Engage in engagement
Ensure your managers are working with their subordinates to better understand how to keep employees engaged and challenged. Inform workers about career paths or development opportunities within the company and encourage them to reach higher. A company with a highly engaged workforce tends to have a much better retention rate than its peers.
Respect the balance
Work-life balance has gone from a catchy buzz phrase to standard practice at many, if not most, companies. From the “work” side of things, ask employees what’s important to them. Then, whether it has to do with training, hours, advancement opportunities or benefits, try to address your workers’ issues.
For example, consider flexible schedules, part-time employment and even telecommuting, if possible, to allow employees to steady the demands of their jobs against the demands of their lives. Such options may also allow you to save some money.
In both good economic times and bad, it’s easy to look at employees as mere digits on a payroll statement. But a knowledgeable, engaged and experienced staff member is very hard to replace. We can help you better understand your labor costs and identify ways to compensate employees in a profit-smart, sustainable manner. Give us a call.
Inefficient inventory management is one of the biggest cash drains on many businesses, depriving them of valuable working capital. Excess inventory is literally cash wasting away in your warehouse or on your shelves. So every company needs to do everything it can to minimize its inventory investment.
If you’re a manufacturer, one of the best ways to do this is by implementing just in time (JIT) inventory management. It involves having raw materials delivered just as they’re needed, rather than weeks in advance.
Automation plays a big role in JIT. Back office inventory and ordering software, combined with barcode scanners and other software tools, is widely available today and can give even smaller companies a leg up on the competition. Bear in mind, however, that JIT systems require greater collaboration with your customers, suppliers and employees. And they’ll likely bring substantial upfront equipment costs.
If yours is a retail business, scrutinize your inventory and categorize items based on their likelihood of selling. Hard to sell items should be marked down and moved out to make room for more popular merchandise.
To keep the rotation of product moving smoothly, you’ve got to have the right information at your fingertips. Make sure your sales and order record keeping is based on sound, safe methodologies.
The right data — laid out in an informative, easy to understand way — allows your inventory managers to forecast what you need to order and how many of those items are likely to sell over a stated period. Over time, this should prevent not only running out of hot sellers, but also excessive orders and an abundance of aged items building up on your shelves.
Clean, orderly and new
No matter what business you’re in, the ideal inventory is new, cleanly maintained and organized in an orderly fashion. If you’re holding on to a lot of old items, something probably isn’t right. Please contact us for help reviewing your inventory management and gathering the right data.
The year’s not half over. But if your company is off to a rough start, know that a silver lining may exist in the net operating loss (NOL) deduction.
A net operating loss occurs when a business’s operating expenses and other deductions for the year exceed its revenues. To qualify for the deduction, you must have business expenses in excess of your business income, though certain modifications apply.
Generally, once you incur a qualifying NOL, you can either carry back the NOL as far as allowable (typically two years) and then carry forward any remaining amount, or you can elect to carry forward the entire loss. Carrying back a loss can generate a current tax refund, which could free up cash flow during difficult times like these. Carrying forward a loss will offset income for up to 20 years in the future.
Say your business incurs a $60,000 NOL for the 2016 tax year. You could choose a carryback period for its NOL of two years preceding the loss (first to the earliest year) and then carry forward any remaining amount for up to 20 years after the year in which it incurred the loss. So you might elect to carry back the entire loss first to 2014. If your 2014 net income was $6,000, you could use $6,000 of the NOL to offset this income and receive a refund of the tax you previously paid on that income.
From there, you’d have $54,000 of remaining NOL to apply to the 2015 tax year, after which you’d have whatever you hadn’t used in 2015 to carry forward to 2017 and beyond until all the money is used or you hit the 20-year mark (whichever comes first).
This is just one example of how the NOL deduction might work. To get a better grip on the best way to handle it, please give us a call.
Anyone who owns a closely held business with at least one other partner needs to take certain steps to guard against business disruption. If one partner departs suddenly, or becomes disabled or dies, serious confusion and conflicts can ensue. Among the most important steps is to create a buy-sell agreement, which stipulates precisely how ownership interests will be valued and purchased.
2 ways to pay
In most situations, payouts for a buy-sell agreement are funded with a cash-value life insurance policy or a disability buyout insurance policy. There are two main types of life insurance-funded buy-sell agreements:
1. Cross-purchase agreement. Partners buy insurance policies on each other, using the proceeds to buy a deceased or disabled partner’s ownership shares. They receive a step-up in cost basis that may reduce taxes if the business is later sold. This option is usually preferable if there are three or fewer business partners.
2. Entity purchase agreement. The business entity buys insurance policies on each partner and uses the proceeds to buy a deceased or disabled owner’s shares, which are divided among surviving partners. Partners receive no step-up in cost basis with this type of agreement. This option is usually preferable if there are four or more partners, because it eliminates the need for each partner to buy so many insurance policies.
It’s usually wise to hire a professional business appraiser to perform a business valuation when drafting a buy-sell agreement. The valuation should then be updated periodically as circumstances that could potentially affect the value of the company change. In fact, the buy-sell agreement itself should be reviewed by all of the partners from time to time to make sure it still reflects each partner’s intentions.
An important step
Creating a buy-sell agreement is an important step in the growth and preservation of every business. For help creating or reviewing yours, please call us.
Many people collect “orphan” 401(k) plan balances as they move from job to job. Why should employers care? Helping new employees roll over their accounts from former employers can be beneficial for both parties. The same is true of assisting former participants (who have left your business).
One reason participants’ orphan their previous employers’ plans is that the process of rolling over an old 401(k) plan balance to a new employer’s plan can be cumbersome. Unfortunately, many employees fail to properly manage their accounts even when they have only one, let alone two or three. If you have employees in this situation, counseling them on the benefits of consolidating their accounts can help improve their retirement planning while boosting morale and engagement.
High plan costs
As an employer, you incur risks from a high number of small, orphaned accounts. They add to plan administration costs and could even trigger a required independent audit. To manage your 401(k) plan participant roster, you may be able to roll over accounts of former participants worth relatively low dollar amounts to an IRA in the participant’s name. But you’ll need to perform due diligence in selecting an IRA provider and implementing the process.
If your plan doesn’t roll over former participants’ accounts to an outside IRA, consider advising former participants to consult with an independent investment advisor who can help them roll their balances into an IRA. The overall fees that individuals pay on relatively small IRA accounts can be higher than those on accounts held in a 401(k) plan. Also, depending on the investments available to the participant on the rolled-over funds, the former participant might be better off leaving funds in the 401(k). But this is all worth discussing with a qualified advisor.
The extra mile
Lower administrative costs for the plan and increased savings for participants can benefit your company and its employees (both current and former). For more information and suggestions about controlling your benefits costs, please call us.
From afar, the commercial lending process may appear comical. On one side of the desk you have the lenders, who want to manage their risk by loaning money to only successful business owners. On the other side of the desk, you have the business owners — many of whom believe they can’t truly become successful until they get the money!
To avoid this disconnect, you have to approach business financing as a partnership rather than a provider-customer relationship. If you were going into business with someone, you’d want to clearly understand his or her vision for your venture. It’s the same with lenders.
What’s the plan?
For example, say you’re asking for money because your company is so far behind on vendor payments that it needs the working capital to catch up. In this scenario, you’ll need to make a case for how catching up on payments will allow you to get the raw materials needed to make a big push forward on sales.
Or, as another example, you need money to open a new location in a city nearby. Here, you’ll have to produce some solid market analysis that explains to the lender why your business stands a good chance of succeeding in a new locale.
How shall you put it?
Before you ask for a loan, devise a clear plan for what you want to do with the money and how you’ll repay it. You and your top managers should be able to verbally articulate your plan, of course. But craft a written statement as well.
The written statement doesn’t need to be a 50-page proposal bound in embossed leather. It can be one page as long as it clearly describes your strategic challenge, your plan for overcoming it, and where and how the lender’s money plays into this solution.
Need some help?
The lending process can be daunting and, at times, frustrating. We can assist you in gathering and presenting the right financial information to secure the working capital you’re looking for.
The Section 199 deduction is often overlooked by business owners, perhaps because they’re not sure what it is. You may see it referred to as “the domestic production deduction,” or the “domestic production activities deduction” or “the manufacturers’ deduction.” Here are four more facts about this potentially valuable tax break:
1. It’s a weighty percentage
The deduction is worth as much as 9% of the lesser of qualified production activities income or taxable income. But it’s limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts.
2. It’s not only for manufacturers
Despite being sometimes called “the manufacturers’ deduction,” many other types of companies can claim the Sec. 199 deduction. Businesses engaged in activities such as construction, engineering, architecture, computer software production and agricultural processing also may be eligible.
3. It has its limits
The deduction isn’t allowed in determining net self-employment earnings and generally can’t reduce net income below zero. It can, however, be used against the alternative minimum tax.
4. It involves math
There’s no denying that calculating the deduction, which involves determining what costs are allocable to domestic production gross receipts, can get complicated. On the bright side, very small businesses can simplify the calculations by using the Small Business Simplified Overall Method. There’s also a Simplified Deduction Method for businesses whose assets are no more than $10 million, or whose average gross receipts don’t exceed $100 million.
No matter what you call it, the Sec. 199 deduction may be a way for your company to get some tax relief. Please call us for help determining whether your production activities qualify and, if so, how to calculate and claim this tax break on your 2015 return.
Every business owner needs to spend some time planning how to either sell the company or pass it along to the next generation. Yet no one should try to create a succession plan alone. One idea to consider: Form a succession planning advisory board.
Such a board can serve as a voice of reason among the often cacophonous tumult of a business transition. Moreover, it can help you assess the strengths and weaknesses of potential successors unrelated to your personal concerns or biases. And, when you make your pick, the board can help in your successor’s assimilation.
Board members’ varied perspectives usually provide a more objective and collaborative approach to analyzing succession problems and developing fresh solutions. They can further assist by mediating organizational disputes, giving feedback on your heir apparent’s progress and reassuring business stakeholders.
It’s generally a good idea to start small, with a group of three to five potential advisors from outside your family and business. Once you’ve identified an adequate number of candidates, spend some time with each to gauge their interest and commitment.
Ask each member to commit to a specified term of service, so that you both can regularly reassess participation. In addition, ask members to sign nondisclosure agreements, as you’ll likely be sharing confidential information about your company. Clearly spell out the duties and responsibilities you want advisors to fulfill, too.
A new beginning
Creating a succession plan may seem like the beginning of the end to your role in a company that you’ve no doubt spent much time and energy building. But it doesn’t have to be.
Succession planning advisory boards often evolve into lasting business advisory boards that go on to help guide companies for many years. And you, as a former owner, would certainly have a seat at the table.
Most valuable asset
Many business owners rightfully consider their companies as the most valuable assets they own. As such, your company deserves a detailed succession plan so it stays in good hands. Please contact us for help establishing and maintaining that plan.
Many business owners worry about an income tax audit. But, if you sponsor an employee benefits plan, the IRS could audit it as well. Here are some common questions that plan administrators and sponsors might ask about plan audits.
Where’s the bull’s-eye?
The IRS targets plans in one of four ways:
The agency says audits aren’t merely a game of “gotcha.” The purpose is to develop corrective strategies and help plan sponsors execute these strategies.
How can you prepare?
Before a plan audit, the IRS usually requests a list of documents to review. An examiner then visits your office or facilities to conduct the audit.
Like a tax audit, a plan audit is best dealt with in consultation with a benefits expert. Make sure to authorize this person to act on your behalf in writing, using the required IRS form (Form 2848, “Power of Attorney and Declaration of Representative”), and that he or she is licensed to practice before the IRS.
What are auditors looking for?
The IRS typically examines a wide variety of plan operational areas. For starters, it will likely look into whether all eligible employees are properly participating, and whether the plan is properly crediting service and vesting in the plan.
Naturally, contributions and distributions are often investigated closely, too. And the agency may examine whether the plan document and trust meet current tax law, as well as whether you’ve timely and accurately filed federal returns and reports.
Who can help?
If you receive a notice of an IRS plan audit, please give us a call. We can work with your benefits advisor to gather the necessary documents and help you navigate the process.
Many business owners have used strengths, weaknesses, opportunities and threats (SWOT) analyses to frame their strategic planning. If you’re looking to map out your company’s next big move, now might be a good time to take a shot at it yourself.
Think about your customers
A SWOT analysis starts by spotlighting internal strengths and weaknesses that affect the success and value of a business. Strengths are competitive advantages or core competencies that generate revenue, such as a strong sales force or exceptional quality.
Conversely, weaknesses are factors that limit a company’s performance. Generally, weaknesses are evaluated in comparison with competitors. Examples might include weak customer service or negative brand image.
A company’s strengths and weaknesses are often tied to customer requirements and expectations. A characteristic affects future cash flow — and therefore, success — if customers perceive it as either a strength or a weakness.
Envision the future
The next step in a SWOT analysis is to predict future opportunities and threats. Opportunities are favorable external conditions that could generate return if the company acts on them. Threats are external factors that could prevent the company from achieving its goals.
When differentiating strengths from opportunities (or weaknesses from threats), the question is whether the issue would exist without the company. If the answer is yes, the issue is external to the company and, therefore, an opportunity or a threat. Changes in demographics or government regulations are examples of opportunities or threats a business might encounter.
Pick your path
Generally, there are two directions you can go with the information gathered from a SWOT analysis:
* Capitalize on opportunities with strengths, or
* Convert weaknesses into strengths — or threats into opportunities.
Need help with the decision? Please contact our firm. We can assist you in conducting a SWOT analysis from start to finish.
You’ve probably heard the song, “Love is a many-splendored thing.” Well, your company’s accounting software should be, too. That is, you’ve got to make sure your system does all of the big and little things necessary to efficiently and accurately track your financials.
It’s not only about revenue
Annual revenue doesn’t always dictate what software you should acquire. Some $50 million a year businesses will do just fine using a less expensive accounting software package, while some $5 million businesses will require a much higher end product. The key is to thoroughly review your accounting processes, tax-reporting requirements, transaction volumes, staff’s abilities and management reporting needs.
The future matters as much as the present
Another important factor: your company’s growth rate. If you’re growing 20% or more per year, you must have an accounting package that can grow with you. Otherwise, converting to a new accounting system every couple of years will be a painful and expensive process.
Your users matter the most
You’ll never get maximum value out of accounting software that your employees can’t fully use. Better systems provide on-screen tutorials that walk users through a sample company’s transactions and offer prompts for completing certain tasks. Extensive help should be available on-screen as well as via a 24-7 phone number. Some providers even provide support through instant messaging.
You’re not just tracking, you’re analyzing
The system should allow you to readily generate monthly and annual accounting reports. This means being able to easily record and access bank reconciliations, recurring transactions, and aging of accounts payable and scheduling of payments. A better package will customize reports that include instant unadjusted trial balances, income statements, balance sheets, cash flow statements, statements of retained earnings and more.
A second opinion is always helpful
So do you love your current accounting system? If you can’t say “yes” unequivocally, give us a call. We can review your existing functionalities and make recommendations regarding whether and how you should upgrade.
When business owners start to feel the choking effect of a slow cash flow, they often blame their customers. “Why aren’t we getting paid on time?!” But it’s important to remember that cash flow is affected by a variety of elements. For example: Operating expenses and overhead can have a significant impact. Here are five often-missed ways to cut costs and improve cash flow:
1. Review your rent or mortgage. Can you negotiate a lower rent with your landlord or refinance your mortgage? Also look into whether you may not need as much office space if you’ve begun to allow many employees to telecommute.
2. Implement energy efficiency improvements. You’d be surprised by how much of a difference little changes can make to lower your utility bills. For example, draw the shades in the summer and adjust the thermostat a few degrees. Or look into whether it’s time to make an upfront investment in better windows or HVAC equipment.
3. Take a close look at travel and entertainment expenses. Can you pare these down by conducting more meetings via teleconferencing or using a Web-based application? Can you cut back on expensive meals and, if applicable, sports and concert tickets for clients? Clearly, you don’t want to diminish relationships with clients and vendors by cutting back too much. But there may be ways to save.
4. Slow down shipping expenses. Employees often send packages overnight when two- or three-day shipping would suffice. Establish or re-establish clear policies. In addition, you might be able to find some lower cost shipping arrangements by comparing providers.
5. Give us a call. We’d be happy to take a comprehensive look at your company’s expenses and assess how they’re affecting your cash flow. Most likely, we can make some strong money-saving recommendations.
Many companies start out, and get pretty far down the road, using the “per diem” approach when reimbursing employees for lodging, meals and incidental expenses. Doing so involves the use of either IRS tables or a simplified high-low method to reimburse workers up to specified limits.
The per diem approach is relatively simple and doesn’t involve too much record keeping. But it also puts businesses at risk if they exceed the per diem limits, exposing them to IRS penalties and employees to higher tax liability. For this reason, companies often reach a point where they create an “accountable plan” for handling employee expense reimbursements.
Reaping the tax advantages
An accountable plan is a formal arrangement to advance, reimburse or provide allowances for business expenses. The primary advantage is that your business can deduct expenses (subject to a 50% limit for meals and entertainment), and employees can usually exclude 100% of advances or reimbursements from their incomes. Workers whose jobs involve frequent travel may realize significant tax savings.
Qualifying for eligibility
To qualify as “accountable” under IRS rules, your plan must meet the following criteria:
If you fail to meet these conditions, the IRS will treat your plan as nonaccountable, transforming all reimbursements into wages taxable to the employee, subject to income and employment taxes — though potentially deductible by the employee.
Getting some help
Accountable plans take time to establish and require meticulous record keeping. Let us help. We’d be happy to assist you in setting up your accountable plan and regularly reviewing its compliance with IRS rules.
It’s a tragic tale that plays out in many businesses across the country. The owner of the company believes he’s finally ready to trigger his succession plan and retire. So he names his daughter as his successor, enjoys his retirement party and departs for his vacation home.
For six months of the year, the now-former business owner lives at that vacation home while his daughter toils away at establishing control of the company. Although her father has given the daughter stock in the company, he still retains the majority vote.
And whether on vacation or at his primary residence, the former owner insists on calling into work almost every day and being kept informed via email of everything going on. When tough decisions are required, top managers still look to him for final confirmation. Every so often, he even pays a visit to the office with much fanfare, undermining the authority he has seemingly given his daughter to oversee the business.
After a year or two of this, the true consequences start to become clear. The former owner’s relationship with his daughter has deteriorated severely — mainly because of business disagreements. And, without a clear strategic direction, the company itself is floundering and falling behind the competition.
The lesson of this sad story is fairly clear: Once your retirement date arrives, stick to it. Doing so means getting out — all the way out, at least in terms of decision-making.
Remember, you can always stay available as a consultant. Just make sure not to undermine your successor’s authority. Making a clean break is usually the most effective way to ensure a succession plan succeeds.
If you’re nearing retirement, let us help you go over the details of your succession plan. We can help with both the financial aspects and the strategic moves that will keep your company strong.
Among the most contested areas of employee benefits litigation is an employer’s fiduciary duty to its plan participants and beneficiaries. The cost of defending yourself can be steep — regardless of fault. That’s where fiduciary liability insurance fits in.
Who’s a fiduciary?
ERISA defines a plan fiduciary as an individual who:
Although it’s possible to diminish exposure by delegating plan decisions to third parties, it’s generally impossible to eliminate liability risk entirely.
What is it not?
So what is fiduciary liability insurance? Let’s first look at what it isn’t.
First, it isn’t an ERISA fidelity bond. These bonds protect the plan from dishonesty on a fiduciary’s part, but don’t protect fiduciaries from claims by others.
It also isn’t employee benefit liability (EBL) insurance. While both policies cover administrative errors and omissions, EBL coverage doesn’t cover clear ERISA violations.
Finally, it isn’t a directors and officers (D&O) policy. Typically, D&O policies don’t cover incidents that happen when a person is acting in a fiduciary capacity.
Fiduciary insurance can cover both the fiduciary and the company sponsoring the plan. Policy provisions may include:
Finding the right policy
When shopping for fiduciary liability coverage, consider the carrier’s experience, financial strength and reputation for paying claims. But, before you get started, please give us a call. We can help you compare costs and fit the purchase into your budget.
All too often, the competitive efforts of many companies are internally focused. Many businesses seek to develop better products and services without knowing enough about their competition.
To truly hone your competitive edge, you need to constantly ask one simple question: “What are they up to now?” And the best way to get answers is through the practice of competitive intelligence.
Legal and ethical data gathering
In the information age, companies have a strategic imperative to analyze every bit of data they can on what the competition is doing at all times. Of course, “at all times” doesn’t mean “at any cost.” Competitive intelligence is the process of legally and ethically gathering data on competitors. And your purpose isn’t to undercut what they’re doing but to anticipate trends, compare best practices and target opportunities.
What you need to track
Specifically, you need to stay apprised of your competitors’ product and service lines, financial standing, and market position. You should also track whether the competition is expanding or contracting. Mergers, acquisitions or strategic alliances could mean you need to play defense, while closures or bankruptcy may mean it’s time to go on the offensive.
Crafting a policy
Before you dive into competitive intelligence, it’s important to establish a formal policy governing your efforts. Please contact our firm for assistance. We can help you craft a policy, in consultation with your attorney, that enables you to gather the right information while minimizing the inherent risks involved.
If your company is getting aboard the telecommuting trend, consider the following four keys to success:
1. Set a trial period. Begin with a two- to six-month period during which the employee and his or her manager can get a feel for just how (and whether) this arrangement will work. If either side is unhappy at the end of the trial period, make adjustments or scrap the idea entirely.
2. Manage for results. Generally, telecommuters should be managed based on results — not on close scrutiny of everyday work methods. That said, instruct managers to schedule regular telephone calls and request status reports (as necessary) to stay in the loop.
3. Don’t forget about them. Just because they work remotely doesn’t mean they’re no longer part of the team. Include telecommuters in companywide e-mail announcements and invite them to meetings or events held at the office — even if you think they won’t be able to attend.
4. Provide quality technology. Telecommuters should have a reliable computer, Internet connection, telephone (with voice mail), and all the necessary software and network connections. This may seem obvious, but many people launch into telecommuting without considering the nuts and bolts of doing so.
Telecommuting arrangements can also save your company money, such as on office space. Contact us for help crunching the numbers.
You probably track a variety of data to determine where your business stands. Monitoring both financial and nonfinancial key performance indicators (KPIs) — such as debt to equity ratio and customer service response times — can help you spot problems and set objectives. But a great way to take your business data one step further is to see how your KPIs stack up against previous periods or those of other companies in your industry.
Start by benchmarking your KPIs from one period of time (for example, a quarter or year) to another. Doing so will help you spot trends pointing to future problems so you can deal with them before problems actually arise. If your accounts receivable days are lengthening, for instance, this might indicate that your collections are lagging and a cash flow crunch is looming.
For industry benchmarking, various sources are available. A good place to start is your industry trade association. Bear in mind, however, that some ratios have slightly different versions. It’s important to know exactly which ratio is being used when comparing your results to those of other companies.
We can help you find the right industry benchmarking data and crunch all of the numbers, both internal and external. Please give us a call.
Like many business owners, you probably have much of your wealth tied up in your company. And this fact may be creating a conflict between the desire to transfer ownership to the next generation and the desire to stay in control. One potential solution: Recapitalize your business into voting and nonvoting shares.
From an estate planning perspective, the sooner you transfer ownership of your business to the next generation, the better. That way, future appreciation and income are removed from your estate and avoid gift and estate taxes.
Recapitalization can allow you to reap the tax benefits of gifting ownership interests without your having to cede control of the business to your children.
For example, you might retain 10% of the company in the form of a voting interest and allocate the remaining 90% among your children in the form of nonvoting shares. You continue to manage the business while removing a large portion of its value from your taxable estate.
To discuss this strategy further, please give us a call. We can help you explore recapitalization as well as other ways to refine your succession plan and estate plan.
For much of this year, uncertainty surrounded whether Congress would extend relief in the area of depreciation-related tax breaks. On December 18, clarity finally arrived with the passage of the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). Here’s a look at the impact on two “classic” depreciation breaks:
1. Enhanced Section 179 expensing election. In 2014, Sec. 179 permitted companies to immediately deduct, rather than depreciate, up to $500,000 in qualified new or used assets. The deduction was phased out, dollar for dollar, to the extent qualified asset purchases for the year exceeded $2 million. Under the PATH Act, these amounts have been made permanent (indexed for inflation beginning in 2016) rather than allowed to fall to much lower limits.
2. 50% bonus depreciation. In 2014, this provision allowed businesses to claim an additional first-year depreciation deduction equal to 50% of qualified asset costs. Bonus depreciation generally was available for new (not used) tangible assets with a recovery period of 20 years or less, and certain other assets. That 50% amount has been extended for the 2015, 2016 and 2017 tax years. But it will drop to 40% for 2018 and 30% for 2019.
To reap these benefits on your 2015 tax return, you must acquire qualified assets and place them in service by December 31, 2015. These are but a few of the ways the PATH Act affects business tax planning. Please contact us for more information.
As a business owner, you shoulder many responsibilities — but have some perks as well. One benefit worth considering is setting up your own retirement plan that allows you to make larger contributions than you could as an employee.
For example, the maximum 2015 employee contribution to a 401(k) plan is $18,000 — $24,000 if you’re age 50 or older. Compare these limits to the amounts available to a business owner (that is, a “self-employed” individual) under:
More good news: As long as you set up one of these plans by December 31, 2015, you can make deductible 2015 contributions to it until the 2016 due date of your 2015 tax return.
Additional rules and limits do apply. For instance, your employees generally must be allowed to participate in the plan, provided they meet the requirements for doing so. Intrigued? Please contact us to learn which plan would work better for you.
When you start envisioning all of the potential threats to your company, it’s easy to get overwhelmed. A good way to get a handle on risk management is to break down the overall task into focus areas. Examples include:
Competitive risk. Identify your top three to five competitors. Then devise the strategy it will take to get or stay ahead of them. Think in terms of innovation, production and marketing.
Compliance risk. Many business sectors are now subject to increased regulatory oversight. Be it health care benefits, hiring processes, independent contractor policies or waste disposal, factor the latest compliance requirements into your business objectives.
Internal risk. The economy is far better than it was several years ago. But fraudsters still have plenty of other excuses for malfeasance from which to draw. Re-evaluate and reinforce your internal controls to protect what’s yours.
A divide-and-conquer approach such as this can make risk management much easier. And you don’t have to take on this critical challenge alone. Let us help you choose the right focus areas and then pinpoint risks specific to your company.
Skilled workers are invaluable and often difficult to find. Increasingly, well-qualified job candidates in today’s workforce are “Millennials” — that is, between the ages of 18 and 35. As you welcome this generation into your organization, you’ll get more out of them with the right management approach. Winning moves include:
Plenty of feedback. Generally, Millennials received regular feedback and praise while being raised and educated. So an annual performance review isn’t going to cut it. Train managers to provide copious feedback, even in simple formats such as emails or brief conversations.
Technological integration. Millennials are the first generation to truly grow up with mobile technology. First and foremost, prioritize technological upgrades. Beyond that, give Millennials multiple avenues to integrate technology into their job duties.
Involvement with causes. This generation doesn’t want to work for only a good company — they want to work for a business that does good. Millennials tend to gravitate toward companies that align themselves with charitable causes. Offer team-based opportunities for them to contribute time and skills to charity.
Staffing issues can substantially impact the profitability of a business. We can help you leverage a strong management approach to boost productivity and control employment costs. Give us a call.
When it comes to next year’s budget, you don’t have to reinvent the wheel. But you should do more than simply recycle this year’s version. Your financial statements can help. They offer three places to start looking for the right numbers:
1. Your income statement. Here you’ll see information on sales, margins, operating expenses, and profits or losses. If sales have faltered this year, consider allocating dollars to regain the volume that will bring profits back up.
2. Your cash flow statement. This shows you where cash is coming from and where it’s going. Under- or unbudgeted asset purchases can undermine a budget, as can having just one or two departments rack up excessive expenses. If either of these problems adversely affected your current budget, reinforce your company’s policies regarding purchases and departmental expenses.
3. Your balance sheet. Your company’s assets, liabilities and owner’s equity within the given period are expressed here. Look closely at how liabilities compare with assets. If debts are mounting, cutting discretionary expenses (such as bonuses or travel costs) may be a good objective for next year.
A sound budget can act as a road map to success and an early-warning system for when things are going awry. Please let us know how we can help with the planning and execution of yours.
Year-end tax planning for businesses often focuses on acquiring equipment, machinery, vehicles or other qualifying assets to take advantage of enhanced depreciation tax breaks. Unfortunately, two “classic” depreciation breaks expired on December 31, 2014:
1. Enhanced Section 179 expensing election. Before 2015, Sec. 179 permitted companies to immediately deduct, rather than depreciate, up to $500,000 in qualified new or used assets. The deduction was phased out, on a dollar-for-dollar basis, to the extent qualified asset purchases for the year exceeded $2 million. Because Congress hasn’t extended the enhanced election beyond 2014, these limits have dropped to only $25,000 and $200,000, respectively.
2. 50% bonus depreciation. This provision allowed businesses to claim an additional first-year depreciation deduction equal to 50% of qualified asset costs. Bonus depreciation generally was available for new (not used) tangible assets with a recovery period of 20 years or less, as well as for off-the-shelf software. Currently, it’s unavailable for 2015 (with limited exceptions).
Lawmakers may restore these breaks retroactively to the beginning of 2015. If they do, quick action may be needed to take maximum advantage. Qualifying assets will have to be purchased and placed in service by December 31. Please check back with us for the latest details.
It’s easy to fall into the trap of thinking about a succession plan as being about only two people: you and your successor. But a truly graceful passing of the baton to the next leader hinges on total staff buy-in — or, at least, acceptance. Getting managers and key employees involved in the planning can help you garner that buy-in and, ultimately, ensure a successful transition.
Remember: Misinformation, rumors, threats about quitting or refusals to support the new boss are often inevitable in a succession. To help keep potential sources of conflict in check, identify stakeholders who may have strong concerns about the next leader or the succession planning process itself. Then work out problems with them early on. You may want to start with the easiest of the bunch and work your way up to the individual who appears most dead-set in his or her opposition.
In reality, a succession plan isn’t just a plan — it’s actions as well. Please contact us for help devising the best approach and executing it every step of the way.
Many employers with long-established 401(k) plans hesitate to add automatic enrollment. (Under an “auto-enroll” feature, eligible participants automatically join the plan unless they affirmatively elect otherwise.) Employers’ hesitation may arise from unfamiliarity or just a reluctance to rock the boat. Yet there are several good reasons to “bother” with auto-enroll:
Broader participation. First and foremost, many statistical studies over the years have shown that auto-enroll boosts plan participation. This, in turn, increases a 401(k)’s value to both your organization and its staff. It can also improve retention — especially if you match contributions.
Boosted productivity. Higher participation means more employees are funding their retirements. Therefore, they’re more likely to retire rather than stay on the job indefinitely to pay living expenses. A dynamic workforce tends to be more productive than a stagnant one.
Better bargaining. The greater the participation rate and dollars in the plan, the more leverage employers have to negotiate with service providers. So auto-enroll can simply lead to a better 401(k).
Converting to auto-enroll does entail some work. You’ll need to adopt a written plan document, arrange a trust for the plan’s assets, potentially upgrade your recordkeeping system and formally give notice to employees about the change. Interested? Please let us know how we can help you further consider auto-enroll and undertake the process of adding it to your 401(k).