Legal and Insurance

When Good Business Plans Go Bad

CommunityTeam — Fri, 05 Jun 2009 17:14:00 GMT

Preparing for the worst will keep you functioning at your best

By Max Berry

Every entrepreneur goes into business hoping for the best, but this doesn't mean you shouldn't be prepared for the worst. Whatever business you're in, there will always be a number of things that, at any given point, could go wrong. Developing a contingency plan-or several of them-will help you survive the bad times in minimum time and at minimum cost. It will also make your business stronger as you get back on track for more good times. Here are some important steps to take when crafting your contingency plan.

Seize The Opportunity

Small business owners are optimists by nature, so sitting around preparing for a disaster that may never occur might not seem like the most valuable use of an entrepreneur's time. But doing so provides a chance to gain a deeper knowledge of your business's strengths and weaknesses. Before you even identify the risks you need to safeguard against, get in the mindset that contingency planning will, through enhanced awareness of your day-to-day operations, only strengthen and validate the confidence you already have in what you're doing. With any luck, you'll never need to put a contingency plan into effect, but it won't hurt to know that you could.

Identify The Risks

Before you can develop a contingency plan, you'll need to identify the risks to which your business is vulnerable. Depending on where your firm is located, these could include natural disasters like fires, floods, or hurricanes. If you run a tech business, you may need to develop a plan for dealing with an IT glitch or data loss. And, in this digital world, information security should always be a priority. When making your list, include all possible incidents, no matter how unlikely they are to actually occur. Also bear in mind that, while huge natural disasters and sweeping tech breakdowns snag the lion's share of the headlines, most businesses are much more likely to suffer from "quiet disasters," like subtle economic shifts and small computer glitches, or internal issues such as the loss of integral employees.

Spread The Responsibility

If your business consists of several departments, you may want to let each department come up with its own contingency plan. Your IT department will face an entirely different set of potential setbacks than will your PR guru and will naturally need to address them in vastly different ways. Designate one person from each department to oversee the contingency planning, stressing that everyone who may be affected by a disaster-which is to say everyone at your company-should have a say in how it is handled. While each department is at work crafting its own plan, it will nonetheless pay for you to oversee the processes of each, checking in regularly and maintaining a clear picture of how all the plans will work together.

Assess the Risks

Each department should keep track of each its own responsibilities-both autonomous and shared-and make a list of everything that could go wrong throughout the process of fulfilling them. Working with the other employees from the department, the contingency leader can then rate both the likelihood of each setback and the potential damage it could do to business operations. This will provide a precise framework for each department's contingency plan and help you to prioritize which potential setbacks to address first.

Structure the Recovery

When envisioning your business's recovery from a particular setback, put down a series of milestones each department will need to reach, from the immediate aftermath of the incident through the eventual return to normal operations. Determine how you will deal with the event-both internally and with external parties like clients and investors-then determine the appropriate order in which to restore business functions. Name the employees who will be key to every step of recovery and make sure that each of them knows what their responsibilities will be. If possible, try to determine the total amount of time and money needed for recovery.

Test Your Work

Once each department has finished its own plan, review them all to see how they work together. Keep an eye out for overlap between plans; if two departments plan on handling the same task, decide which is best equipped to actually take on the responsibility. Once you've gone over all the plans and made necessary changes, provide time for interdepartmental reviews. Once each plan has passed this revision process, test them by simulating those crises you are able to simulate. The people carrying out functions in the test run should, naturally, be the ones that would carry them out during a real incident.

Revise the Plan

After you've tested your plan, record what worked and what didn't and make changes accordingly. In general, remember that a good contingency plan should be updated regularly. Every time you make a major administrative or structural change in your business, adjust your plan to account for it.

Handling an Actual Crisis

Don't panic. You've got a plan.

Cutting Heath Insurance Costs

SBOCTeam — Tue, 02 Dec 2008 15:16:00 GMT

By Christopher Freeburn

Escalating premiums are forcing many smaller businesses that offer group coverage to scramble for ways to cut costs. These usually involve tactics that may be necessary to keep your business's bottom line healthy, but will likely prove unpopular with your workers. Start by cutting back on specific benefits, by eliminating dental or vision care coverage, for example. Alternately, you can consider increasing the co-payments employees must pay when visiting physicians and purchasing prescription drugs. Both measures will lower your plan's overall premiums.

Comparing plans

Of course, the single most effective way a small business can reduce costs is by shopping around for the lowest cost plan in the first place. "There are many health insurance providers out there," advises Todd McCracken, president of the National Small Business Association (NSBA). "Small business owners should consider a range of offers from as many companies as possible." Working with an insurance broker can bring you a much greater range of possible providers than trying to solicit offers on your own.

Small businesses are increasingly a market courted by the major insurance providers, which have designed group health plans-HMOs, PPOs and POS plans-specifically to address the financial concerns of small businesses.

Additionally, you can reduce the percentage of the insurance premium you pay per employee. While most states have no legal minimum for employer premium contributions, some-California, for instance-require the employer to make some level of health insurance premium contribution. However, no state demands that a business pay more than 50 percent of the premium for each employee. In general, small businesses pay about 30 percent of an employee's individual premium, but there is no hard and fast rule about it.

Choosing the right plan

The first step in selecting the health insurance plan that best fits your company is to sit down and discuss the matter with your employees, says Mindy Ross, an independent insurance agent in Nassau, New Hampshire. "Ask your employees what sort of coverage they need-and how much of the premiums they will be willing to pay." Let them see exactly how much the insurance will cost both them and your business, Ross advises. "That way they will understand why you are choosing a particular plan, even if it might not be the one they'd like," she says. Ross explains that letting your employees know the high cost involved in setting up and maintaining their insurance can help soften the blow if you need to cut back on the plan or lower employer premium contributions later. "Most of the time, employees have no idea just how much their insurance is costing the company."

Stepping Outside a plan

Even after trimming coverage and reducing premium contributions, some businesses find the available array of health plans too expensive. But even if you opt not to obtain a group plan for your employees, you can still provide some form of health coverage. According to Section 105 of the IRS tax code, employers can reimburse employees for health care expenses. Under this option, a company decides, on an annual basis, to set aside a certain amount of money, which the employees use to purchase individual health insurance policies-or pay actual medical costs-on their own. The money allocated for this purpose is tax-free for the employee and tax deductible for the employer.

HSAs and HRAs

The dramatic escalation of health insurance costs has caused much pontification as well as some real action in Washington. In 2003, Congress created Health Savings Accounts (HSAs)-which went into effect in 2004-as an alternative to traditional medical insurance. HSAs are offered only in conjunction with a High Deductible Health Plan (HDHP). Sometimes called "catastrophic health plans," HDHPs generally cost a great deal less than traditional health insurance plans, but feature minimum deductibles for 2008 of $1,100 for individuals and $2,200 for families, with maximum out-of-pocket expenses of $5,600 for individuals and $11,200 for families. Though HSAs and HDHPs can be set up by individual consumers, they can also be offered through employers. If you offer an HDHP plan, all full-time employees must be treated equally under the plan. Deposits into employee HSA accounts are made on a pre-tax basis, with the maximum annual deposit being $2,900 for individuals and $5,800 for families. Funds deposited into HSAs are the property of the employee making the contributions and any unused funds are carried over from year to year and continue to earn tax-free interest on behalf of the employee. Funds in an HSA can be withdrawn without advance approval to cover any qualified medical expense, including deductibles for HDHP coverage and expenses not covered under the insurance plan, such as dental, vision, chiropractic services, and over-the-counter medications. Some HSAs offer a debit card to pay for such expenses, others offer checks or reimbursements; most offer a variety of ways to access the funds in the HSA. HSAs are fully portable, meaning the funds remain the property of the employee even if he or she leaves the firm or changes health plans.

Similar to HSAs are Health Reimbursement Arrangements (HRAs), which can be used in conjunction with HDHPs or other traditional insurance plans. An HRA is an employer-funded account that reimburses employees for medical expenses as they are incurred. The advantage to the employer is that such funds are expended only if they are needed, meaning that the healthy employee, who requires little or no care beyond an annual physical, will save the company money, making the HRAs of employees in genuine need that much more affordable. Unused funds remain the property of the employer. Major insurance providers have incorporated HSAs and HRAs into their coverage offerings, making it easier for small businesses to add them to their coverage options.