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Start-Up Series: Business Coaches and Mentors

SBOCTeam — Fri, 12 Mar 2010 13:27:05 GMT

What can a business coach or mentor do for your small business?

By Reed Richardson

Entrepreneurs, by their nature, prefer going it alone. Listening to others tell them what can or can't be done just isn't part of their DNA-that's why they hung out their own shingle in the first place. Still, even the most self-assured and independent-minded small business owner can look for a little outside guidance, a simple sounding board, or maybe just a bit of ‘been there, done that'-type wisdom at times. That's when a business coach or mentor can be of help. But how does an entrepreneur swamped with what feels like a million other tasks find that someone and when is a good time to seek such assistance out? To get some answers, read on.

What is the difference between a business coach, mentor, and consultant?

While all three terms-coach, mentor, and consultant-can at times be used synonymously, there are generally accepted differences in what each will and will not do for a small business.

Typically, a mentor is a businessperson more senior or experienced than the entrepreneur seeking help, preferably someone who ran or is running their own small business, possibly in the same or a similar profession or industry. Mentor/mentee relationships are usually informal and non-binding, with the former volunteering to lend a friendly ear and some anecdotal advice to the latter. As a result, mentors are free of inherent conflicts of interest-they're not trying to sell you their services-but, then again, there's no real sense of accountability either. Interactions between a mentor and mentee often occur infrequently-over an occasional lunch or during a late-evening phone call, say-and can range from very broad discussions about strategy to incredibly specific questions about things like operational or sales tactics.

Business coaches, by contrast, represent a formal step up from mentors. Typically, they are hired by and work for the client in a professional capacity, much like an attorney or accountant. As such, they are paid a commensurate rate for their services-typically ranging anywhere from $150 to $1,000 an hour. As with mentors, businesses coaches can help the entrepreneur deal with big-picture or in-the-weeds issues (or both) and they usually maintain a one-on-one counseling relationship with an individual, remaining apart from the day-to-day interactions of the client's business. They can challenge your conventions, make periodic recommendations, and facilitate solutions, but in the end a coach's real goal to is to empower a client so they can achieve their desired business goals on their own.

Bringing in a professional consulting firm is a much more complicated and less common occurrence in the small business world, since the significant costs and the highly intrusive footprint involved rarely matches up well with the balance sheet and the independent ethos of most start-ups. Consultants also differ from mentors and coaches in that they typically work for their clients on a temporary or project basis; their mission is to come in, fix a problem, and move on, not build a long-term one-on-one relationship. (For more on these differences, check out this online video: http://feedroom.businessweek.com/?fr_story=e0efcb33f1d1c57c34527fbe15a81499971e72cb)

When is a good time to seek out a coach or mentor for a small business?

There is no right or wrong answer for when an entrepreneur should seek out a mentor or business coach. It's really all about what feels right for your situation. Many start-ups go from a one-person, home-based side business to a bustling, full-time small company with dozens of employees without ever once talking with a coach or mentor. Other entrepreneurs may lean upon the advice of a mentor or coach from the earliest brainstorming stages, long before they ever formally launch their business. Most often though, an entrepreneur's mentoring or coaching needs arise when a change (or lack thereof) in their small business's circumstances don't align with their particular business skill set.

For example, a software engineer with a great idea for the next "killer app" may be strong on the technical aspects of his potential product, but may lack confidence when it comes to launching his own company to bring that new product to market. In this case, he might be well served to seek out an experienced small business mentor from the very beginning, someone who can talk knowledgably about the broader planning, managing, and operational issues involved with starting a business. On the other hand, consider an entrepreneur who has been running a small company for several years but still hasn't achieved the sales and revenue growth she initially expected. Feeling locked into an endless cycle of sameness, she might be a good candidate to formally hire a professional business coach, one who has a demonstrated expertise in specific business functions like increasing profitability, streamlining productivity, or improving time management.

Whatever your timing and reasons, to really get the most out of a mentor or coaching experience, it's critical that you be able to define what you want them to help you and your business achieve down the road. At the outset, however, it's not uncommon for these objectives to be very loosely defined and more emotional than financial or operational in nature-like simply wanting to regain a feeling of control or to reignite that motivational spark that prompted you to start a business in the first place. From this vague starting point, a good coach should be able to drill down to the underlying business issues contributing to those feelings and then help you develop a concrete action plan to overcome or correct them.

How do I find a mentor or business coach?

Finding a business mentor or coach is easy, perhaps too easy. Practically unheard of a generation ago, the profession of business coaching has grown astronomically since, with more than 20,000 people worldwide now defining themselves as a full-time "business coach." As a result, if you plug that phrase into a search engine, you'll be overwhelmed with responses, each one with a different pitch, spiel, or specialty. Some of these so-called coaches are of questionable legitimacy and experience, however, having earned their credentials by simply paying a small fee and/or sitting through a weekend seminar rather than having spent years running their own business. As a result, an entrepreneur should perform considerable due diligence before hiring any outside expert for help. Reputable business coaches understand this and usually agree to a free initial consultation to ensure there is a good fit between coach and client.

To further separate the worthy from the worthless business coaches, experts recommend choosing a professional that has been credentialed by one of the professional's trade organizations, like the International Coach Federation (http://www.coachfederation.org/) or the Worldwide Association of Business Coaches (http://www.wabccoaches.com/). Both of these groups have widgets on their websites that will allow you to find a coach using various search criteria, from geographical location to subject matter expertise.

For those entrepreneurs who can't afford coaching sessions at several hundred dollars an hour, though, there are still many opportunities to get valuable business mentoring for little or no cost. Perhaps the best of these opportunities involves the non-profit Service Corps of Retired Executives, or SCORE, which is now in its 46^th^ year. With 364 chapters and more than 12,400 veteran business owners as members, SCORE counselors provide tens of thousands of small business owners with free mentoring on a range of topics both large and small each year. (SCORE also offers a handy 60-second guide to finding the right business coach on its website: http://www.score.org/60_guide_business_coach.html)

One newer, mentoring option specifically aimed at helping small business owners involves the website MicroMentor (https://www.micromentor.org/). This free online service is an offshoot of the non-profit community development organization MercyCorps. MicroMentor acts as a volunteer online meeting place for existing small business owners to both seek advice and share expertise as mentee and/or mentor.

In addition, each U.S. state offers a Small Business Development Center (http://www.asbdc-us.org/), run in partnership with the federal Small Business Administration. These SBDCs are typically housed within the business schools of a public university or on the campus of a local community college, but, despite their academic location, their primary mission is to provide training and mentoring to private-sector entrepreneurs. (To find a SBDC office in your state, go here: http://www.sba.gov/aboutsba/sbaprograms/sbdc/sbdclocator/index.html)

Start-Up Series: Debt vs. Equity

SBOCTeam — Fri, 05 Mar 2010 18:15:34 GMT

When does (and when doesn't) a business loan make sense for your small company?

By Reed Richardson

Whether you're a budding entrepreneur looking for seed money or an experienced owner of an established small company seeking to fund an expansion, capital is the fuel that makes small businesses go. When choosing between the two main types of funding-debt vs. equity - there are advantages and disadvantages to each. And, particularly in the current economic climate, the choice over whether or not to seek a business loan merits even more careful consideration to ensure that your small business both survives and thrives.

Debt: hard to get, easier to get rid of?

"The nice thing about debt funding is that it offers small business owners a lot of stability while giving them complete control," says Michelle Bomberger, managing attorney and founder of the Bellevue, Washington-based Equinox Business Law Group. That stability she speaks of comes from the fact that paying back a business loan is easy to plan for from a cash flow management perspective and that the interest on debt is tax deductible. The other advantage of debt funding, she explains, arises from the fact that a bank won't demand voting rights or preferred stock in exchange for their money, whereas a venture capitalist or equity investor might.

Of course, all this presumes that a small business owner can get a loan in the first place - certainly not a sure bet lately. The bursting of the housing bubble and the steep rise in energy prices has had a significant impact on the availability of credit. And this credit pullback isn't just affecting large corporations: A recent Federal Reserve survey of commercial bankers found that more than half had tightened their lending criteria to small companies with annual sales under $50 million. "As shifts in housing and credit markets continue to impact consumers' spending habits, small business commerce will likely experience a slowdown as a result," noted Ryan Scully in a recent Discover Small Business Watch survey.

So for small companies, particularly those seeking to both expand and maintain their operational independence, traditional business loans might appear to be a more difficult route for raising capital, but that's not necessarily the case. "I continue to see my small business clients getting loans," says Bomberger. "Banks are still willing to give credit to small businesses that rate well with the five C's (character, capacity, conditions, collateral, and capital)." And while the first three of these five criteria will vary from person to person, company to company, and industry to industry, the last two-collateral and capital-follow more universal guidelines. According to the U.S. Chamber of Commerce, lenders generally prefer a small business to have between at least a 1:1 and 1:2 ratio of debt to equity on their balance sheet. (Another common yardstick used by lender to measure credit worthiness is debt-to-capital ratios. For a list of preferred ratios by industry, go here: http://finance.yahoo.com/how-to-guide/career-work/12825) "This reassures [lenders]," explains Bomberger, "because it tells them that you have skin in the game."

Even if your small business doesn't meet these financial criteria, though, it still may be able to obtain a loan, Bomberger points out. That's because many small business loans are "small business" in name only and are instead, from the bank's perspective, tied to the entrepreneur's individual creditworthiness. "A lot of small business owners are surprised that banks still require personal guarantees when they apply for their small business loan," notes Bomberger. She adds that most lenders will continue to demand a personal guarantee on loans until a small business has proven itself (usually until it has attained three straight years of profitability). Of course, legally binding your personal wealth to your small business venture's finances has obvious disadvantages. But by the same token, if a budding entrepreneur is in need of capital and willing to take that risk, they might be surprised to find that they can obtain debt financing - even in today's tighter lending market-if their individual credit profile is strong enough.

Equity: free money that isn't so free after all

Using equity to fund your startup or small business puts you in popular company. Several small business surveys have found that just over half of all small companies were started with privately invested money. In fact, a plurality of entrepreneurs - 31 percent-said they used their own savings to initially fund their companies with roughly another one fifth - 19 percent-saying they received financing from friends and family. This kind of equity financing isn't exactly money for nothing, but it's close.

However, unless your last name is Forbes or Rockefeller, your savings account and the number of relatives willing to write you that "go get 'em" check will probably be exhausted pretty quickly. Consequently, small businesses looking to fund aggressive growth often turn to the next level of equity financing-venture capitalists and angel investors. These more mature sources of equity also carry a whiff of "money for nothing," as they have the potential to inject millions of dollars into a company almost overnight, all without charging interest or demanding immediate repayment. That kind of boost to the bottom line not only helps a small business owner's cash flow, it can have intangible benefits as well, attracting high-profile talent and providing an infusion of confidence and enthusiasm.

In addition, equity financing tends to be more resilient to market fluctuations and quicker to rebound when there are downturns. According to Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire, total funding from angel investors was off 30% during the first half of 2009 when compared to the same period a year earlier. However, the number of overall investments increased slightly-from 23,100 to 24,500-and Sohl expects these trends to at least remain steady, rather than decline further, through 2010. (For a directory of angel investors and venture capital firms, check out the new search engine launched by the company Angelsoft last year: http://angelsoft.net/startup-tools/investor-search)

Make no mistake-in spite of its many attractive features, equity financing does bring with it costs, some of which can be especially difficult for strong-willed, go-it-alone entrepreneurial types to accept. Unlike business loans, which create a temporary relationship between your company and a lender, equity financing typically results in your business gaining permanent partners. In addition to sticking around, these new partners often demand a say in how the company will be run, a situation that might run counter to the very reasons a small business owner started his or her own company in the first place. And because properly documenting these private equity partnerships can be expensive-between $8,000 and $15,000 to complete the necessary legal paperwork-small business attorney Bomberger says that equity financing really doesn't make sense for small amounts of cash, even in the current economic climate where credit is harder to come by.

To view an interactive video tutorial on the differences between debt and equity financing and the advantages of each, check out Standard & Poor's online Financial Library (http://fc.standardandpoors.com/srl/srl_v35/main_category.jsp?catid=000497#) and click on the "Financing with Debt vs. Equity" link.

Start-Up Series: Hiring a Bookkeeper or Accountant

SBOCTeam — Tue, 02 Mar 2010 23:27:17 GMT

When should my small business hire a bookkeeper or accountant?

By Reed Richardson

Every company, whether it's a part-time, home-based sole proprietorship or a multinational Fortune 500 corporation, shares something with all the others: a need to manage the money coming in and out of its coffers. For entrepreneurs, this responsibility, like many others, often falls upon their own shoulders. But being one's own bookkeeper or tax preparer is, at best, a temporary or stopgap solution, and, at worst, a recipe for entrepreneurial disaster. For a sense of how can your business can avoid the latter and recognize when the former has run its course, read on.

Early signs that its time to relinquish the bookkeeping reins

Many entrepreneurs launch their businesses with little thought put toward who will keep their financial books or file their taxes. With the plethora of relatively straightforward, plug-and-play software-based financial and accounting tools currently available, they just assume they can and will perform the task themselves. But too often, these same entrepreneurs can end up struggling or even failing because their best accounting intentions don't match up with reality. It's estimated that the average small business owner who does his or her own books spends 10 hours a week on the task; someone has to ‘plug' in all that financial data, after all, before the accounting software can ‘play' it. So, before you launch a start-up or even if you're in the early stages of running your own business, you might ask yourself the following questions as a self-assessment to see if an early bookkeeping intervention could prevent problems down the road.

-Do I feel confident I can establish a coherent, comprehensive and easily expandable bookkeeping system on my own?
-Am I going to be diligent enough about following up and maintaining my bookkeeping system for it to be work?
-Are my financial management skills strong enough to ensure that my business won't miss growth opportunities?
-Will the time I must devote to bookkeeping adversely affect my business's long-term prospects for success?
-Can I stay sufficiently versed on financial disclosure rules and tax law changes to avoid legal troubles or costly audits?

If you find yourself answering ‘no' or even ‘not sure' to most of these questions, it might be wise to investigate using a professional bookkeeper from the outset of your new business.

Bookkeepers-more affordable alternative to accountants

For entrepreneurs in the earliest start-up stages, money is often tight and the hourly rate of a Certified Public Accountant might quickly empty the cash register. As an alternative, very small businesses looking for day-to-day or week-to-week managing of their finances should consider a bookkeeper instead. Bookkeepers are just that, professionals who specialize in managing balance sheets, cash flow and the like, but who haven't received all the formal education necessary to become accountants.

Typically, bookkeepers charge a lesser fee-often two or three times lower than a accountant-and can be available part-time, criteria that make them doubly attractive to small companies with limited funds and less complicated financial ledgers that are looking to outsource the task. However, just because a bookkeeper lacks a C.P.A. degree doesn't mean that he or she can't fulfill the role of business advisor as well, providing financial and tax savings tips in addition to their normal day-to-day administrative functions. To achieve this, however, it's key to search for professionally certified bookkeepers that have current or previous experience working with similarly sized small businesses (and preferably, in similar industries).

The best resource for finding a bookkeeper is usually through word-of-mouth, but be forewarned, hiring a bookkeeper or accountant means making this individual privy to lots of confidential information about your business and personal life. As a result, it might be wise to steer away from the potentially awkward dilemmas or serious conflicts of interest created by having a bookkeeper who is a close family friend or who has one of your direct competitors as a client.

To start your search for a certified bookkeeper, try visiting the American Institute of Professional Bookkeepers home page (http://www.aipbjobs.com/). And to download a free practice test for use in evaluating potential bookkeeping candidates, check out the AIPB's hiring page (http://www.aipb.org/testrequest.php).

For established small businesses: when to upgrade to an accountant

If your small business is growing and looking to move beyond the start-up stage, it might be a good time to review your bookkeeping practices to see if hiring an outside accountant, or even bringing in one full-time, better fits your new circumstances. This can be particularly important if you foresee your business moving to a more complex organizational structure, like incorporation, or if you intend to seek out venture capital investment. Scenarios such as these can easily overwhelm the standard accounting software and may even prove too much work for, say, a part-time bookkeeper, who also doubles as your company's office manager. To determine if the expertise of a C.P.A is now the safer bet, consider the questions below.

-Am I anticipating significant growth in staff and/or revenue in the near future?
-Will this growth result in drastically different financial and tax circumstances with regard to payroll and employee benefits?
-Will my company be incorporating, looking to add equity partners, or start issuing ownership shares anytime soon?
-Is my current bookkeeping system capable of handling a large injection of capital, either through debt financing (business loan) or equity funding (venture capital)?
-Can my bookkeeping scale up to handle more complex billing and cash flow issues?
-Do I have in place a financial plan for my eventual retirement or exit from the business?

Again, it you can't answer affirmatively to many of these questions, your small business might be ready to enlist the services of a C.P.A.

Accountants: financial expertise, net positive ROI

Stable, profitable small businesses that are looking to take that next big step are prime candidates to hire a C.P.A. And with their advanced financial and tax training, accountants can often fulfill the invaluable role of business and financial advisor in addition to managing a smaller company's balance sheet. While even an established entrepreneur may balk at a C.P.A.'s higher hourly fees or market-rate salary, these costs are often quickly recouped through the tax savings and increased revenues that they can provide.

Many accountants boast of different sub-specialties, such as Personal Financial Specialists (PFS) or Certified Information Technology Professional (CITP), so it's important to consider additional needs of your business when looking for a C.P.A. But just as it is with bookkeepers, the right accountant for your company will match your personality and business philosophy as much he or she meets your training and previous client experience expectations. There are a number of online resources you can use to locate a C.P.A.

(http://www.aicpa.org/Consumer+Information/Find+a+CPA/, http://www.cpadirectory.com/, and http://www.nsacct.org/professional.asp). And for a more detailed, step-by-step guide to hiring a C.P.A., check out this article at CPAdirectory.com (http://www.cpadirectory.com/professionalresources/details.cfm?id=257&pageid=161.)

Start-Up Series: When to Hire a Lawyer

SBOCTeam — Fri, 19 Feb 2010 13:29:02 GMT

Though their profession isn't always the most popular, business attorneys offer a range of critical services for small business

By Morin Bishop

There are a host of reasons why small business owners might be averse to consulting an attorney. First, of course, there is the sometimes negative view the American public holds of the legal profession in general. Fairly or not, many Americans just don't trust lawyers. Second, there is the natural tendency of independent-minded entrepreneurs to want to go it alone, to figure out how to get things done themselves, and to reject the very notion that one needs to rely on a class of experts to manage one's business. Finally, there is quite simply the fact that lawyers cost money, sometimes a great deal of it, and for many small business owners faced with the ongoing challenge of meeting payroll and covering all their other basic business expenses, spending much needed capital on a lawyer might seem unnecessary, if not downright wasteful.

All of these attitudes are entirely understandable, but in many instances they are also downright wrong. If you're not consulting a lawyer in connection with the four fundamental areas discussed below, you are courting disaster:

Starting your business

Though you may have studied the intricacies of the various corporate structures (C-Corp, S-Corp, limited liability, partnership, etc.) available to you as a budding business owner, it is highly unlikely that you understand them as well as a trained attorney, nor is it likely that you are entirely familiar with all the local, state, and federal regulations that may be relevant in your situation. Do you really understand all the tax implications of your preferred structure? And, even if you do, are you sure you understand specifically how to go about instituting it? Finally, although you may be confident on all these points, doesn't it still make sense to consult with a lawyer just to be sure of your answers? Of course it does-and the funds expended for such certainty represent a drop in the bucket when compared to the dollars you might be forced to spend if you choose the wrong corporate structure or fail to follow the proper rules in setting it up.

Signing on the dotted line

Your signature on a document of any kind can be a very serious matter. The longer that you are in business, the more you will begin to feel that you have in many ways signed your very life away. No one would suggest that you consult an attorney every time you sign a legally biding document, but it does make sense for you to get a lawyer's opinion on any significant contract you enter into, particularly one that involves any significant exchange of capital. In some instances, in consultation with a trusted attorney, you may be able to devise language that can become boilerplate for you and your company, and hence be flexible enough for use in multiple contracts. But anytime you depart significantly from the boilerplate, or engage in an agreement of an entirely different nature with a supplier, customer, or partnering firm, make sure you run it by your lawyer again. The person or entity with which you are entering the contract probably has consulted a lawyer, who is undoubtedly attempting to fashion the agreement in his or her best interests. Doesn't it make sense for you to do the same? It is far better to have your attorney involved at the front end, rather than discover later on that there is language in the contract you failed to properly understand or account for that now is causing you undue hardship. Finally, should a dispute arise over the terms of a contract, an attorney is absolutely essential to the process of negotiating an acceptable settlement. Avoid litigation and you'll save yourself a bundle of money.

People Problems

We live in exceptionally litigious times and few areas have spawned more lawsuits than that of employer-employee relations. It is also an area in which the law is in a state of near-constant flux, with new rulings being issued almost daily that alter the landscape and influence the range of acceptable conduct. Do you feel confident that you understand which questions you can and cannot ask when conducting a job interview? Do you know the best ways to protect yourself from a discrimination or wrongful termination action in the event you choose to fire an employee? Are you fully conversant with what constitutes sexual harassment in the workplace these days? In all of these areas, a lawyer's expertise is invaluable and can save you considerable headache, not to mention substantial expense. (A lawyer can also assist in the formation of an Employee Handbook, which may be a somewhat ambitious undertaking for many small businesses, but which can nonetheless offer substantial protection from many of the issues discussed above.) When in doubt at all about a firing, a hiring, or an episode in the workplace, call the lawyer. You'll be glad you did.

Final Stages

One situation in which most business owners are wise enough to hire an attorney is when they are considering a sale of their business, a closing of their business, or the passing on of their business to a family member or other successor. For a whole host of reasons, it is critical that every component of such a transaction is handled in such a way as to protect you and your assets in your exit as well as your successors or new owners in their entry. Any uncertainties or legally gray areas in the transaction are invitations to trouble, and oftentimes very serious trouble, in the future. When you leave your business, you want to do so with absolute peace of mind. Hiring a lawyer to shepherd you through the process is perhaps the single most important step you can take to bring about that most desirable outcome.

None of the above should be read as suggesting that there are not indeed unscrupulous, unethical, and incompetent attorneys, just as there are similar bad apples in the barrel of every profession. For that reason you should be most careful in how you select a lawyer to consult. Talk to fellow business owners, particularly ones facing similar challenges to your own, and ask for recommendations. Be sure that the attorney you choose has experience in dealing with small business and with the issues for which you are seeking his or her expertise. One size may not fit all, as one attorney may be more experienced and adept in dealing with contractual issues or with deals involving the sale of a business, while another may be far more experienced in dealing with employment and HR matters. Finally, be sure you have the kind of comfort level with your attorney that enables you to be absolutely frank in asking whatever questions are of greatest concern to you. A lawyer with whom you can establish that kind of a rapport is truly worth his weight in gold.

"Used properly, a business attorney is a cost-saving tool for your company," says F. Douglas Mileski, an attorney at Guran Lucow Miller PC, a Detroit-based law firm. "A business attorney answers questions specific to your business and lets you sleep better at night and stay focused on growing your business by day. As the old saying goes, an ounce of prevention is worth a pound of cure, and legal services are no exception. The cost of fixing a problem can far exceed the up-front costs of preventing the problem."

So go out and hug a lawyer today. You may discover that you've found the trusted confidant you've always needed.

While we strongly recommend word of mouth as the best route to finding the legal help you need, the following web site is not a bad place to start: http://smallbusiness.findlaw.com.

Health Care Forecast

SBOCTeam — Fri, 12 Feb 2010 13:57:20 GMT

Why 2010 will likely bring higher costs for your small business and what you can do about it

By Reed Richardson

While Congress and the White House are still struggling to craft a health care insurance reform bill that, if it passes, will mostly take effect in 2011 or later, many small business owners may wonder where health care costs are headed in the short term. The answer, perhaps unsurprisingly, is up, but not quite as much as in years past. Nevertheless, entrepreneurs may find that the expected rise in premiums forces them into some tough decisions about whether or not to shrink plan coverage, shift premium costs, or drop health care benefits altogether.

Historically speaking, health care costs kept in check in 2009, but still high

For 2010, the growth in overall medical costs is estimated to be 9 percent, according to a recent study by the accounting firm PriceWaterhouseCoopers. This figure is slightly lower than the increases seen in 2007 and 2008 (9.9% and 9.2%), but it still exceeds both inflation and real earnings growth by workers, a trend that has continued unabated for more than a decade. In fact, a Kaiser Family Foundation survey from this past September found that health care premiums have risen 131% since 1999, a rate three times faster than real wages and four times faster than general inflation.

What 2010's increase could translate into in actual dollars depends on your small business's individual situation, of course. But, based on the national average of $4,824 and $13,375 for single and family health care premiums, respectively, a 9 percent rise would equal an overall $434 increase on individual premiums and a more than $1,200 jump in premiums for employees who also insure their spouses and children through their employer-based plan. Although most small businesses require their employees to share in paying for these premium costs-in 2009, workers at smaller companies contributed, on average, 12.9 percent of their individual plan premiums and 31.4 percent for family plans-employers still could be facing increased costs in the neighborhood of hundreds of dollars per employee.

However, the study notes that there are two factors keeping the anticipated health care insurance costs for next year somewhat in check. "The recession and the prospect of health reform will help temper medical costs," it notes. But despite these downward pressures, the report notes that the health cost increases expected to take place will hit small businesses and individuals the hardest. This bodes particularly poorly for very small companies with between three and nine employees. This segment of the business sector has already experienced an 18% decline (from 56% in 1999 to 46% in 2009) in the number of companies willing to offer health care insurance over the past 11 years. (For all businesses with 10 or more employees, the percentage willing to offer health insurance benefits remained roughly unchanged during that same period.)

Should my small business opt out of providing health insurance altogether?

In the face of these increased costs, some companies may ponder whether or not they should continue to offer health insurance at all. After all, if paying yet another year of fast rising premiums puts your company's fiscal health at risk, it is entirely understandable for you to at least consider such a step, even if only on a temporary basis. Eliminating health insurance would undoubtedly remove a not insignificant-and easily measurable-overhead cost from your business's top line, giving your business a quick injection of much needed capital to your cash flow.

But before making such a move, it's also important to consider the less tangible, negative aspects, which show up as decreased morale, lower productivity, and-even in a recession where jobs are hard to come by-higher employee turnover at your company. Perhaps that's why the Kaiser study found that, despite the poor economic conditions, only 2 percent of employers reported themselves "very likely," and 6 percent "somewhat likely," to completely drop health insurance this past year.

Other cost-savings alternatives to consider

Though many small companies remain unwilling to take such a drastic step, it's clear that they are open to considering other ways to save money. The PriceWaterhouseCoopers survey noted that these same employers are increasingly willing to "push more of the costs of health insurance to their workers in 2010 while expecting more responsibility from workers for managing their personal health."

To achieve the former, the PWC report found that 42 percent of employers expected to increase their employees' share of premium contributions. Likewise, more than four in ten employers planned on making changes to their medical and prescription drug plans in 2010 to increase cost sharing by their employees. In addition, cost reduction strategies that involve a shift toward more consumer-driven (and consumer paid) health care plans, are growing more popular as well. According to the Kaiser study, nearly one quarter of all businesses said they would be very or somewhat likely to add health savings account-qualified high-deductible health plans (HSAs/HDHPs) in the next year. Similarly, one in five reported they were very or somewhat likely to implement high-deductible health plans with health reimbursement arrangements (HDHP/HRAs) in the near future.

Getting employees to take "more responsibility" for their own health care costs has prompted many employers to add wellness programs to their health care plans. And while surveys show that most business owners, and small business owners in particular, remain dubious about the efficacy of these preventative health measures, more than 57% of businesses with fewer than 200 employees (and 93 percent of large firms) now offer some kind of wellness program in conjunction with their health benefits, whether it be risk assessments, smoking cessation, nutritional counseling, weight management, or gym membership discounts.

The waiting game

As most experts point out, the health insurance landscape could be significantly changed within a few years depending on the direction taken by the legislative reform efforts currently underway in Congress. As a result, it might be wise to ride out the current economic storm and rising tide of health care premiums by taking a conservative, less-is-more approach. After all, by this time next year, small businesses could be enjoying a much more favorable economic climate and should know much more about where our nation's health insurance policy and its associated costs are heading.

Looking Back, Leaning Forward

SBOCTeam — Fri, 05 Feb 2010 13:34:20 GMT

Review tips to get your small business running

By Reed Richardson

For many business owners-large or small-there may not be much interest in looking back at the year that was 2009. Sure, your personal retirement savings may have rebounded, but the stock market's resurgence still hasn't been accompanied by a corresponding upturn on Main Street. As we begin sprinting through the new year, however, there are some hopeful signs of life in the broader economy and for a small company to be fully ready to capitalize on the recovery-when it does come-it pays to look back at 2009 to gain a thorough understanding of where it stands and what it needs to do going forward.

Infrastructure

Since the financial crisis in the fall of 2008, many small businesses put off investing or upgrading their company's infrastructure in order to conserve cash. As a result, they may have been limping along the past 16 or so months with overtaxed computers or under-maintained machinery in an office too small or a shop too big for their future needs. So, it's worth getting a sense of what your company has been neglecting or unnecessarily hanging onto, infrastructure-wise, in order to anticipate the kind of long overdue upgrading or downsizing your company needs to do in 2010.

Reviewing all your overhead contracts-rent, energy, fuel, etc.-is a good place to start, asking yourself if what you have suits not only your needs now but 12 months from now as well. If you've been pulling back on the spending reins for a while to squeeze as much productivity out of your current computer hardware and software, it might finally be time to consider the benefits of a system-wide upgrade, thanks to the significant price declines seen recently in desktop and laptop prices. Likewise, if you have an old copier or antiquated delivery vehicle that spends as much time getting repaired as it does working, you might not be saving as much money as you think, when you factor in lost time and opportunity costs-maybe it's time they are finally retired and replaced with more efficient and reliable versions. If you've been making do the past year with a "temporary" workaround in your small business' manufacturing flow because you wouldn't (or couldn't) purchase a new piece of equipment, now may be the time to seriously re-look at ways to pay for it as well.

By the same token, if the recent economic turmoil has forged a new, leaner and meaner version of your small business, your might be ready to do some decluttering of your infrastructure. If half of your office cubicles now sit empty everyday and most of your work is done out and about via phone calls, email, and text through your smartphone, it could be time to review your lease and talk with your landlord about downsizing your space or going completely office-free. But keep in mind, even downsizing can necessitate new expenditures. If your business now expects employees to start telecommuting, you might have equip them all with networked, VOIP phones and software for remote server access, for example, to keep communication flowing as easily as it did when everyone shared the same physical workspace. If you do take this road, don't forget to update your company's contact information on its website and on your employees' business cards as well. (For more tips on annual upkeep and housecleaning of your company website, go here: http://searchengineland.com/a-small-business-year-end-web-site-checklist-12915.)

Staffing

Small businesses, in particular, remain gun-shy about staffing changes in 2010. A recent Discover Small Business Watch survey taken just as the holiday sales season began found that roughly three out of four small companies had no plans to increase or decrease the workforce in the early months of 2010. Nevertheless, even the smallest of businesses have probably experienced some significant staffing changes during the recession and many may have not yet struck the right balance between employees and work to keep them properly employed.

Reviewing where your workforce stood a year ago may be painful if your company has experienced layoffs, but it's a worthwhile exercise, as even after only a few months, it can become hard to remember the exact situations that prompted those cutbacks. And while few small businesses anticipate adding staff-only 7 percent in that same Discover survey-a savvy entrepreneur will put in place a staffing plan to deal with an eventual increase in workload well ahead of time. This process should start with asking hard questions about what necessitated the staffing cutbacks in the first place: Was it simply a lack of work or were there staffing and scheduling inefficiencies that contributed to it as well? From there, an entrepreneur can start to make informed decisions about what his or her company's employee picture will look like going forward. That picture that may look substantially different-possibly combining several old positions into one new full-time job or dissolving one previous position and farming out its duties among current or even part-time employees.

This part of the review must also encompass employee compensation and benefits. While it's certainly true that fewer employees are likely to jump ship in the midst of the worst job market in 28 years, it's still worth examining how your company stacks up by plugging in the wage and benefits data of your business's key personnel into sites like http://www.salary.com/ and http://www.bls.gov/bls/blswage.htm. Rising health care costs can be an especially important benefit to consider when thinking about your workforce situation in 2010. It may make sense, on paper, for your small business to drop health insurance altogether, but increasingly, the presence of health care is the best way for a company to ensure loyal and more highly motivated employees.

Finances

For tax reasons, the year's end is a natural time to look back over the previous 12 months to get a sense of your company's overall financial health. But this year, it's worth digging deeper than a simple P & L statement in order to really understand how and why your small business spent its cash. For those entrepreneurs who simply hand off a shoebox full of receipts to an accountant every January, this could mean taking the extra time to have a more involved discussion with your tax preparer or financial planner, one that focuses on how your emerging financial picture could necessitate larger changes in 2010.

To get a relatively quick yet thorough diagnosis of your company's financial health, you'll want to look at two other metrics besides its profit margin: current ratio and debt ratio. The first of these compares current assets against current liabilities. In general, a company strives to have a greater than a 1:1 current ratio, but keep in mind that if this ratio rises to 4:1 or 5:1 or beyond, your business may be in danger of building up too much inventory behind not strong enough sales, which is not a good way to manage your company's cash flow. Debt ratio is simply total debts divided by total assets and, in this case, a company should try and keep it below a 1:1 ratio. If your company's figure rises above that, it has become highly leveraged and is likely to start having trouble getting access to capital through loans or equity investments. (For more on these financial measurements, check out: http://sbinfocanada.about.com/od/management/a/3ratios.htm.)

If your small business did eke out a profit in 2009, but did so only after slashing payroll by half or burning off months of excess inventory, you're probably not poised for another positive year without some rethinking. You might need to take a long, hard look at your sales projections from last year and apply a reality check to them to get a sense of what minimum revenues you can expect this upcoming year. Then, you can work up your balance sheet, examining ways to trim top-line expenses, like, say, renegotiating with your vendors to lower material costs or restructuring employee hours to include more cheaper temporary or part-time workers. And if your company's been hoarding cash in a liquid, but low interest-bearing account, 2010 might be the right time to reinvest that capital elsewhere, like in a longer-term, higher-yielding financial vehicle or, better yet, back into your business.

Marketing/Advertising

Typically, marketing and advertising budgets are early and frequent targets of business cutbacks during economic downtimes. This, despite several well-known studies proving that companies pursuing more aggressive advertising campaigns during recessions tend to have better returns and become market leaders in the long run. But for entrepreneurs who never had much in the way of marketing dollars to begin with, lopping this line item off the balance sheet may not have been that much of a loss. And more than a year after the financial crisis hit, small business owners still look warily at ad expenditures-the November 2009 Discover Small Business Watch survey found that 53% of small companies planned further cutbacks in things like advertising for the first six months of 2010.

After severe drops in 2008 and 2009, most advertising industry surveys expect further spending declines in 2010 in traditional media like TV, radio, newspaper, and magazines. This trend hints at a larger paradigm shift in the advertising industry, one that bodes well for small businesses that lack huge marketing budgets and creative advertising teams on their payroll. In short, more focused and, less expensive, media platforms like social media websites and smartphones represent the next marketing wave as consumers fracture into smaller and more demographically distinct segments. And as a result, small business owners that, just a year ago, may have never considered any kind of advertising beyond an ad in the yellow pages now have many more opportunities to directly market to potential customers.

In fact, a recent "Advertising and Marketing Investment Forecast" by media analyst Jack Myers predicted that the few segments that will see ad investment growth in 2010 are satellite radio, online search advertising, online video, social networking widgets, and mobile phone advertising, which includes apps for the iPhone and other PDAs. The good news for small businesses is that these platforms all have a relatively low cost threshold for entry and, thanks to their highly selective audiences, offer better ROI for ad dollar spent. In particular, online search and social media have a lot to offer smaller companies looking to reach new customers or just build buzz in 2010 without having to spend a lot of cash. (For a few online marketing tips for your small business, check out this checklist: http://searchengineland.com/small-business-yeare

Operations/Vision

Perhaps the toughest issue to confront during a review is the one least tied to a spreadsheet, timesheet, or balance sheet: Where, exactly, is your small business headed? For many companies-large and small-this answer may not be readily known or it may sound radically different than it would have 18 months ago. But unless you're willing to step back and assess just how well your business's reality matches up with your hopes and dreams, you've left out the most important step.

For many entrepreneurs, the past year has been a humbling one. It may have meant waiting or missing out on a series of opportunities if not a taking several steps backward. One trap that many business owners can fall into during an economic downturn is to let the external events that temporarily overwhelm their business plan permanently alter their long-term vision for their company. Spend too much time in "crisis management" mode, in other words, and you'll soon get so tied up in day-to-day challenges that you neglect to plan for next week, next month, and next year. So, it's critical to step back and ask big-picture questions like "Is my business plan still relevant?" "Do my products or services still match the market?" "Am I poised to grow my company?" and "Do I have the resources available to manage that growth once it occurs?"

Of course, many entrepreneurs launch companies with little more than the proverbial idea sketch on a cocktail napkin, let alone an exhaustively researched business plan. But if, after several years, your small business is still operating in startup mode, veering from one project or sales quarter to the next with no real direction, now might be the time to sit down and sketch one out. Even a basic business plan template (like the one found at the SCORE website: http://www.score.org/downloads/Business%20Plan%20for%20a%20Startup%20Business_July.doc) can help you develop fairly comprehensive long-term strategies for your business that will, in turn, make decisions about what to do or not to do during 2010 that much easier. What's more, having a written plan or vision that you can refer back to will serve as a helpful emotional barometer as well, letting you check yourself for those feelings of independence, fulfillment, and achievement. After all, those emotions, more than the potential profits to be earned or prestige to be gained, are probably the main reason you started your small business in the first place.

DIY or CPA?

SBOCTeam — Fri, 29 Jan 2010 13:28:10 GMT

Which tax prep method makes sense for your small business?

By Reed Richardson

How do the costs/benefits break down among tax preparation choices?

This is a point of lively debate within the tax community. In the 2005 Form 1040 filing instructions, the IRS included a controversial table that compared time and cost estimates across the three filing categories (self-prepared without help, self-prepared with tax software, and prepared by tax professional). According to the IRS's estimates, no matter how simple or complicated an individual's tax situation, using tax-prep software not only cost more, it took several hours longer than preparing your taxes without help. Having a tax professional or accountant prepare the same non-business return, the IRS said, would save time, but the extra cost-on average, $155 more than doing it yourself-would no doubt be prohibitive to many taxpayers.

Soon after its publication, representatives from both the tax preparation software industry and the American Institute of Certified Public Accountants (AICPA) publicly disputed the IRS's time and cost estimates. A spokesman for Intuit, maker of the popular TurboTax software program, objected to the agency's assertions, saying the claims "fly in the face of logic." Similarly, the AICPA maintained that the IRS's estimates for the effectiveness of tax professionals "do not reflect marketplace reality."

And though a National Tax Journal article generally supported the IRS's controversial time and cost estimates when they appeared four years ago, it also noted that when demographic characteristics and tax complexity are factored in, "all groups appear, on average, to be using the cost preparation method that costs the least for them." In other words, most people do a pretty good job of understanding which method best fits their individual tax situation. (To see the IRS's tips on choosing a tax prep method, check out their online guide: www.irs.gov/individuals/article/0,,id=133088,00.html).

After encountering such strong pushback from the tax prep industry, the IRS backed off and since 2005, the contentious table has not reappeared. Instead, a shorter, less specific table that lumps all three types of filing methods-do-it-yourself, software, and tax professional-into one overall average has replaced it for the past several years. (You can find this table on page 98 of the 2009 Form 1040 instructions here: www.irs.gov/pub/irs-pdf/i1040gi.pdf).

For the 2009 tax year, the IRS estimates that the average individual return will take 17.3 hours to prepare and cost the taxpayer $225. Business 1040 returns, defined as those that include a Schedule C, C-EZ, E, or F, Form 2106 or 2106-EZ along with a 1040, will make up 31 percent of all individual tax returns and are anticipated to require an average of 31.9 hours to prepare and cost $434. Separate business tax returns, defined as those that file a Form 1065 (partnership), 1120S (S-Corporation) or 1120 (C-Corporation), will cost, on average, $551, $665, or $692, respectively, if you use a paid tax professional to file your 2009 taxes, according to a recent biennial survey conducted by the National Society of Accountants.

Doing it yourself vs. outsourcing to an accountant

So, who feels like going it alone is the best option when preparing our taxes? Increasingly, the answer is not many of us. The number of taxpayers preparing their own returns by hand dropped by roughly 75 percent between 1993 and 2006-from just over 40 to just under 10 percent of the population-according to a 2007 IRS Taxpayer Usage Study. And with thousands of pages of instructions and potentially dozens of different forms and schedules to be filled out (although, truth be told, only a handful are necessary for most individuals and businesses), the trend toward some kind of tax assistance is understandable.

For many, the fear of making a mistake and paying dearly for it in the form of an audit may just not seem worth the money saved. For others, spending hours flipping through obtusely written tax jargon is time better spent elsewhere. And then there's the worry that, as tax novices (how often do you read up on tax law changes, after all?), you might overlook a big deduction and inadvertently flush part of your small business's hard-earned money down the drain.

"If your taxes don't involve anything besides a W-2 and some 1099s, you probably don't need any kind of professional help to do your taxes," says Tom Ochsenschlager, vice president of the AICPA's taxation division. This is particularly true, he says, if you only plan on filing a Schedule C or Form 2106 with your individual 1040 return. In fact, even the most affordable tax-prep software products, which are now geared toward maximizing deductions for people with more sophisticated financial portfolios, real estate holdings, and small, home-based businesses, might be less cost-effective than doing your taxes yourself. Still, Ochsenschlager notes that mistakes happen on even the simplest of returns. "The IRS Inspector General recently released a study that found almost 250,000 people still take the wrong deduction," he notes. "Instead of itemizing, they take the standard deduction or vice versa, and it could end up costing them money." And missing just one significant deduction could easily equal or surpass the money your small business would have spent on a professional tax preparer.

Still, if you're adventurous enough and willing to hack through the tax instruction jungle, you might consider preparing your small business's tax return yourself. However, what you gain in money saved might be more than made up for in time lost, an important point to consider. And this challenge is not for the faint of heart, as the IRS estimates that just the record keeping and tax planning aspects alone could eat up the equivalent of several full working days.

Doing Your Taxes Digitally-The tax-prep software method

Computer-aided tax preparation, nonexistent 20 years ago, is now growing by leaps and bounds. Since 1993, the share of people using software to self-prepare their individual taxes has more than tripled and, increasingly, small businesses are taking the same route as these software companies have expanded their product platforms upmarket. These software programs' "plug and play" nature attracts Americans unwilling to try and decipher page after page of arcane tax instruction and uncomfortable with sharing their finances with an outside tax preparer or accountant. And whether or not the process actually takes longer than doing it by hand is almost beside the point-for them, the fact that it makes the process much less painful and ensures a more accurate return are the primary selling points.

If you're a small business with only a few employees and a relatively straightforward organizational structure, tax-prep software probably represents a fairly low-cost and highly effective alternative to doing it yourself or hiring an accountant. What's more, the level of customer service you can now expect to get has increased dramatically over the years as most major tax-prep software products now provide some form of free tax guidance via email and instant messaging chats, or live phone consultations. Additionally, these tax-prep software products offer the ability to save your tax data from year to year.

For some taxpayers, though, the tax-prep software model presents some drawbacks. That these software companies often archive your small business's tax data online, for example, raises privacy concerns among some people, despite the fact that this information is more likely to be compromised by someone rooting through your trash (or your accountant's) than hacking into a tax-prep software company's database. As more and more tax-prep software companies coax consumers (through lower prices) into switching from the traditional "disc-in-a-box" model to the online versions of their products, these worries have only increased in some quarters. And even using the "box" version of a tax-prep software product can lead to your tax data ending up on a remote server somewhere if you e-file your return rather than print it out-something else to keep in mind.

Managing Your Payroll

SBOCTeam — Fri, 22 Jan 2010 18:34:24 GMT

Why it pays to think about how often you pay your small business's employees

By Reed Richardson

For many start-ups and even some established small businesses, just being able to pay the bills and generate a little extra profit is a big enough challenge. As a result, seemingly innocuous questions like when and how often to pay out that money in salary-to owners, partners, and employees-often doesn't get much thought. But it should, because a company with a poorly executed pay system can easily run into legal trouble as well as send frustrated workers heading for the exits.

Even if your company is small now, think big

"Payroll is all about setting expectations," explains Bryan Dear, a former CPA who owns The Payroll Department, Inc., a payroll processing company located in Durango, Colorado. "So why not set it up in the right way from the start, so you won't have go through a painful transition to something else later on?" To that end, Dear recommends settling on a payroll system that is both simple and routine, yet flexible enough to adapt and grow as your small business does. "We find that paying every two weeks seems to work well for most of our smaller business clients," notes Dear. And he's someone who follows his own advice-his own company's payroll system is biweekly as well.

Putting some forethought into your small business's pay periods can become particularly important if you ever anticipate having a mix of exempt and non-exempt employees working at your company. That's because many states have different pay rules regarding salaried versus hourly workers, especially when it comes to tracking and paying overtime. Also, many states have specific rules dictating the maximum "holdback" period, or how long a business can wait to pay its employees after the pay period has ended.

For entrepreneurs just starting out or if your small business still handles payroll internally, it would be worthwhile to check out the U.S. Chamber of Commerce's payroll guidelines[1] and state-by-state payroll toolkit[2] to get a sense of the pay period and holdback rules in your state. In New York, for example, the state mandates that hourly workers must be paid weekly, most other salaried employees at least semi-monthly, and salespeople no less than once a month. Illinois requires employers to pay at least biweekly or semimonthly and limits the holdback period to 13 days. Florida, though, leaves decisions about pay and holdback periods completely up to the business's discretion for all types of employees.

Pick a day or pick a number

Perhaps the most fundamental decision regarding your small business's pay periods involves whether or not to follow a weekly or monthly calendar. A weekly pay calendar means that your company's pay periods will always begin and end on the same days of the week and that payday will likewise always be on the same day of the week, usually five to seven days after the pay period ended. A typical biweekly pay schedule might begin on a Monday and end 14 days later on a Sunday, with the eventual payday for those two weeks of work falling on the Friday five days after that. These workweek-based pay periods offer the benefit of making paydays very predictable for both the employees and the small business owner. More importantly, if your small business also includes hourly workers, a workweek-based pay calendar makes it much easier to track hours in easy, repeatable amounts because your company's pay period will always align with the traditional workweek, unlike semimonthly or monthly pay periods, which can begin and end of any day of the week.

Monthly or semimonthly pay periods work fine for a staff of all salaried employees, but if you have to account for overtime a pay period that ends mid-week can make life difficult. And precisely because a pay period will occasionally end on a Thursday or Friday, Dear notes on his company blog[3] that businesses would be wise to stretch out their paydays a few extra days to account for federal holidays and the resulting three or four-day weekends. "If you do choose semimonthly," he writes, "consider a delay of seven days between the period end date and the check date to give your organization enough time to process your payroll."

Yet despite the somewhat limited appeal of a month-based pay schedule, it still has some advantage over a workweek-based system. For one, a semimonthly pay period means your company will never face a situation where payday comes a day or two before the 1st of the month, as can occasionally happen if you pay biweekly. For small companies with very volatile cash flow, having payroll, vendor bills, and overhead payments all going out around the same time can make for at least one or two close calls during the year.

Likewise, a small business using a month-based pay system will never encounter the unique problem facing some companies at the end of 2009-what to do when their weekly pay schedule falls on the yearly calendar in such a way as to create an extra-27th or 53rd-pay period. Thanks to the difficult economic times, many workweek-based companies might be tempted to simply skip this pay period, but, as one might imagine, such a decision needs to be accompanied by a careful explanation of why and how this will work or else employees could grow angry or feel cheated. Or, to avoid this dilemma, companies could pay the extra check as gesture of goodwill, even though it might tangle their 2009 finances a bit.

When does it make sense to outsource payroll?

Entrepreneurs often find themselves wearing a lot of different hats while running their small businesses and for companies just starting out it's not uncommon for the owner to also play the roles of bookkeeper and paymaster as well. But as a company grows, it can be increasingly difficult to carve out time to handle administrative tasks like totaling up employee hours and cutting checks. And though employees of small businesses tend to pitch in wherever they're needed and be more forgiving about mistakes, it only takes a few missed paydays to burn through whatever sense of willing sacrifice those workers bring to work each day. So, a small business owner would be wise to recognize-ahead of time-signs that they might be ready to handoff payroll to an outside firm.

"Within its first two or three years, a small business will usually get some kind of tax notice," Dear points out. And even if that letter from the IRS isn't an audit notification, he explains "That's the point when many of my small business clients have decided ‘I'm just not going to do this anymore.'"

Another common tipping point indirectly involves recruiting and hiring. If you find your company is having an increasingly difficult time attracting new talent because it lacks many of the health and retirement benefits found at larger businesses, this might be a subtle signal that your in-house payroll system is out-of-date or overmatched. While it's true that many do-it-yourself payroll software programs can handle more complicated paycheck deductions like health care premiums, cafeteria plans, vacation time, and 401(k)s, adding a simple thing like direct deposit for your employees can still prove difficult without outside help. But if you think that outside help could be your tax preparer or accountant, you might think again.

"In my experience, most CPAs don't want to deal with payroll," explains Dear, adding "and even if they do, they aren't able to do direct deposit." Fortunately, there is now a plethora of outsourcing options-from large banks and business service conglomerates to small payroll processing firms-that can quickly and easily accommodate your payroll needs for a reasonable fee. And come tax time, these outside payroll processors can really pay dividends, as they're more up to speed with the latest changes in tax law and make far fewer filing mistakes than business owners who go it alone. In the end, how and when you pay your employees is about more than just paychecks, Dear says. "It's also about eliminating one additional issue for you to worry about, so you can focus more on running your business."

Tax Law Changes for 2009 and 2010

SBOCTeam — Mon, 04 Jan 2010 15:19:06 GMT

These 15 important modifications could significantly lower your tax burden

By Reed Richardson

Spurred on by the federal government's economic recovery efforts, there have been numerous changes to the federal tax law for 2009 and 2010. Here's what your small business needs to know now to take advantage of this year's expiring rules and what it needs to keep in mind for next year.

2009

1. Section 179 Expensing: For 2009, one of the most important changes involves the extension, for another year, of the expanded Section 179 deduction[1], which covers depreciable assets like manufacturing equipment or office computers and furniture. This year, the deduction remains at the $250,000 level. The Section 179 total annual threshold on all depreciable assets also remains at $800,000 annually.

IMPACT: By now, an entrepreneur should have a good idea if their business will turn a profit in 2009. If the numbers look to be in the black, taking advantage of the increased Section 179 deductions by making a major capital investment during the last few weeks of 2009 could be a smart way to upgrade your company while lessening your tax bill next spring.

2. Bonus First-Year Depreciation: Much like the Section 179 deduction, the bonus first-year deduction for the 2009 tax year continues to be at the same lucrative rate-50%-as it was in 2008. And just as with the Section 179 deduction, for any property or equipment purchases to qualify, they must be placed into service by your small business before January 1, 2010.

IMPACT: Combined with the Section 179 deduction, this more robust bonus first-year depreciation deduction means savvy small businesses could make significant substantial re-investments in their companies this year and still keep their tax burden low. To see what significant tax savings your own small business could enjoy by combining the Section 179, bonus first-year, and normal depreciation deductions this year, check out the online deduction calculator[2] at the Section 179.org website.

3. Payroll Tax Credit: As part of the American Recovery and Reinvestment Act, Congress passed a 6.2% tax credit on earned income for 2009. This credit, capped at $400 for single filers and $800 for joint filers, begins to phase out at an annual income of $75,000 and ends entirely at $95,000 for individuals. For couples, the credit starts phasing out at $150,000 in yearly income and drops to zero by $190,000. Also, keep in mind that for self-employed people, annual net earnings subject to Social Security taxes were raised[3] to $106,800 in 2009.

IMPACT: Most small business employees already began receiving this credit this past spring in the form of less withholding from their paychecks. But self-employed entrepreneurs who pay quarterly estimated income taxes may not have adjusted their payments at that time and could therefore be due a refund once they file their 2009 tax returns next year. If you file your own taxes, be sure to account for this change and for the increased threshold in Social Security taxes.

4. New Vehicle Sales Tax Holiday: The state sales taxes paid on any new vehicles purchased between February 16, 2009 and January 1, 2010 are fully tax deductible[4] on the first $49,500 in cost; a potential savings of several thousand dollars depending on which state you live in. What's more, this deduction can be taken even if the filer doesn't claim sales taxes as part of their itemized deductions.

IMPACT: If you've been holding off on the purchase of a new car for yourself or a new delivery truck for your small business, the 2009 sales tax deduction-as well as the often substantial, end-of-year sales discounts at most car dealerships-might make the last few week of this year a lucrative time to finally pull the trigger.

5. Estimated Taxes: The 2009 federal stimulus package also included a provision[5] that lets small business owners (and employees) pad their cash reserves slightly by paying less of their individual estimated taxes during the year. According to the new guidelines, individuals who draw more than 50% of their income from a business with an average of fewer than 500 employees and who earn less than $500,000 in annual income must only pay 90% of their estimated tax during their quarterly payments.

IMPACT: If you missed out on this change until now, you can still take advantage of it when it comes time for your final quarterly estimated tax payment for 2009, which is due by January 15, 2010. Keep in mind, however, that this doesn't change your overall tax burden and might mean you have to pay more income taxes once you file your final return in the spring.

6. Net Operating Loss Carryback: As was the case with the 2008 tax year, in 2009 eligible small businesses (companies that averaged less than $5 million in gross revenue for the past three years) can carryback[6] a net operating loss from this year over the previous three, four, or five tax years instead of the usual two years.

IMPACT: By taking the losses from an unprofitable 2009 and retroactively spreading them over a longer, more profitable period in the past through revised tax filings, small business owners could realize an unexpected refund come springtime. To get a sense of just how much your company might save by carrying back losses over five years, check out this online NOL calculator[7].

7. Targeted Hiring Benefits: Also included in the federal stimulus package were two new work opportunity tax credits[8] for employers. These credits, which top out at $2,400 per hired worker, are awarded to businesses that hire certain unemployed veterans and those under 25 who've been out of school for six months or more.

IMPACT: If your small business is looking to fill a position in the near future with someone who fits either of these categories, officially bringing them aboard in the last few days of the 2009 calendar year could end up earning your business a nice credit, one that might even cover a couple of the new employee's paychecks.

8. Differential Wage Payment Credits: If your small business made differential wage payments to an active duty member of the military in 2009 to make up the difference between their normal employee salary and their military salary, your company can take a 20% credit[9] on the first $20,000 of those extra wages paid to them.

IMPACT: Small businesses that had an employee called away to active duty military service for all or part of 2009 and covered the gap in pay between their civilian and military salaries could be entitled to up to $4,000 in credits for every applicable employee.

9. COBRA Premium Assistance Credit: If your small business had to lay off staff during 2009 and those unemployed workers are now paying in to the COBRA program to continue their health care coverage, your company could be in line to receive a rebate[10] from the federal government for the 65% of the premium cost not being paid by the individual. The maximum time limit over which this reimbursement can occur, however, is nine months.

IMPACT: A company that is still bearing the brunt of the health care costs for a number of eligible laid off workers could reclaim thousands of dollars by claiming this tax credit.

10. Tax-Free Parking and Commuting: Starting in 2009, companies can now pay up to $230 in parking or commuting costs for employees tax-free every month.

IMPACT: For a struggling small business that is unable to offer a salary increase to its employees right now, enrolling workers in this tax-free program could be a creative way to put as much as $1,500 back into their pocket annually (depending on the employee's tax bracket).

11. Standard Mileage Rate: For 2009, the standard mileage deduction[11] for business travel was set at 55 cents per mile.

2010

1. Small Business Stock Investment: With an eye toward investors, the tax rates[12] on future capital gains of some small business stock purchases this year and next have been relaxed. As a result, investors that purchase stock in qualified small companies (C corporations with gross assets less than $50 million) and hold that stock for at least five years can exclude up to 75% of their eventual gains from taxes. This represents a 25 percentage-point increase over the 2008 capital gains exclusion rate of 50%.

IMPACT: For incorporated small businesses looking to attract external sources of capital, this tax change could be an additional enticement to potential investors. Keep this tax law change in mind if you're thinking about the best way to raise money-stock issue vs. equity stake vs. debt borrowing-in 2010.

2. S-Corporation Gains Taxes: Staring in 2009 and continuing through 2010, a change[13] in tax law will allow small businesses organized as S-corporations to enjoy a shortened recognition period on built-in gains taxes. Normally 10 years, newly elected S-corporations now will only be exposed to the top corporate tax rate on realized gains during their first seven years of existence.

IMPACT: For small companies currently organized as C-corporations, the IRS has effectively re-opened a loophole to make re-forming as an S-corporation more enticing. For struggling small businesses looking for a simpler organizational structure and more straightforward profit realization, now might be a good time to make the switch without having to pay as steep a financial penalty later.

3. Energy Efficiency Tax Credits: If you run your small business out of your home, there are two residential tax credit programs[14] that can be used to, respectively, offset the cost of weatherizing your home and install alternative energy systems.

The first of these is a 30% credit for purchases made to install energy-efficient windows, exterior doors, water heaters, air conditioners, and furnaces, up to a maximum of $1,500. The credit is available in both 2009 and 2010, but the $1,500 cap is cumulative across both years.

The second credit involves homeowners that purchase and install qualified solar, geothermal, and wind-based energy systems. This credit is also 30% of the purchase price, but unlike in the past-when the tax credit maxed out at $2,000-this program no longer has a fixed dollar cap.

IMPACT: Small home-based businesses might consider taking advantage of these tax credits to both update the value of their homes and cut the overhead costs for their business. It should be noted, though, that the total cost of installing a solar water-heating system or replacing all of the windows on a typical two-story, three-bedroom house would far outstrip the tax credits available. As a result, a home-based small business owner would probably face a choice between doing a modest weatherization project that runs a few thousand dollars and a more ambitious energy-efficiency campaign with a price tag that begins around $10,000 and goes up swiftly from there.

4. Roth IRA conversions: Starting this year and moving into 2010, the IRS made significant changes regarding the rules of a financial transaction called Roth IRA conversions. The changes do away with many of the Roth IRA's previous contribution limits and, if taken advantage of now, could provide a great way for a small business owner to shelter more of their savings from taxes once they retire. For a more in-depth look at these changes, refer to our earlier article on the topic here[15].

1. www.irs.gov/formspubs/article/0,,id=177054,00.html
2. www.section179.org/section_179_calculator.html
3. www.irs.gov/formspubs/article/0,,id=177958,00.html
4. www.irs.gov/irs/article/0,,id=214016,00.html
5. www.irs.gov/formspubs/article/0,,id=208103,00.html
6. www.irs.gov/formspubs/article/0,,id=207330,00.html
7. www.2009stimulusforbusiness.com/net-operating-loss-calculator.html
8. www.irs.gov/formspubs/article/0,,id=177948,00.html
9. www.irs.ustreas.gov/pub/irs-access/f8932_accessible.pdf
10. www.irs.gov/formspubs/article/0,,id=207305,00.html
11. www.irs.gov/formspubs/article/0,,id=178004,00.html
12. www.irs.gov/formspubs/article/0,,id=210602,00.html
13. www.irs.gov/formspubs/article/0,,id=181061,00.html
14. www.irs.gov/newsroom/article/0,,id=206871,00.html
15. smallbusinessonlinecommunity.bankofamerica.com/blogs/EmployeeBenefitsAndRetirementPlanning/2009/09/08/the-10-spot

Tax Preparation Software Roundup

SBOCTeam — Tue, 15 Dec 2009 15:02:12 GMT

Which version is right for your small business?

By Reed Richardson

For those small business owners who choose to do their own taxes this year, there are more software choices than ever to help them file. Indeed, tax prep software companies, like banks and credit card companies before them, are now increasingly targeting small businesses. And recognizing that many small business owners seamlessly blend their personal and professional lives, some software companies are now bundling their individual and small business tax return products together to save you time and money as well.

But sorting through the many different product tiers, price structures, and claims can be confusing, so here's a quick rundown of what three popular tax prep software companies are offering this year.

Lay of the land

Pricing for most tax prep software generally follows some tried and true conventions. For the most part, purchasing an online or downloadable product amounts to buying the ability to prepare and file a federal tax return. If you would like to electronically file that federal return-and shorten the turnaround on getting back an expected refund to as little as eight days-tax prep software companies now typically include one free efile as part of each version's standard price as well. However, if based on where your small business is located you are required to file a state tax return, you might be required to pay an additional flat fee of between $8 and $30 per state to file. And to electronically file those state tax returns you'll likely trigger yet another fee.

As pricing has become more competitive, tax prep software companies have tried to differentiate themselves by touting more qualitative benefits. One popular way involves offering maximum refund and/or accuracy guarantees. By now, though, almost all major tax prep software products come with one, if not both, of these guarantees, making them more like industry best practices than something that sets them apart from one another.

Likewise, when it comes to ease of use, nearly every tax prep software product now easily imports data from bookkeeping programs like QuickBooks and Microsoft Money, a handy feature that can significantly shorten time spent on tax preparation and avoid simple mistakes arising from data entry errors. Offering multiple platforms of customer support-phone, email, and live chat-and various kinds of after-you-file "audit support" have now become commonplace as well for most major tax prep software companies, although H&R Block, which allows its software customers to consult a dedicated tax preparer from one of the company's storefront locations for an additional price, can be an attractive choice for those looking for a more personal touch.

One final caveat: it's important to keep in mind that tax prep software has its limitations. Even TurboTax's top-tier Business version states quite plainly that it works best for a small business that "has revenue of less than $250,000 and fewer than five employees." More affordable but less well-known tax prep software companies tend to offer less comprehensive business platforms, if they offer one at all. As a result, entrepreneurs that experienced even modest growth this past year might find that their company has unexpectedly vaulted beyond the point where any level of do-it-yourself tax software makes sense.

Intuit's TurboTax

As the best-selling and most well-known tax prep software brand, Intuit's TurboTax products also come highly rated, with last year's versions having earned "Editor's Choice" awards from tech publications CNET and PC Magazine. This year, TurboTax rolls out five different software versions, two of which focus on small businesses. The first, TurboTax's Home & Business version, is, as it sounds, focused on those entrepreneurs who run a side business out of their home or are full-time sole proprietors or single-owner LLCs and would likely file their personal and business taxes together. The more robust Business version is TurboTax's top-of-the-line product and it includes a suite of corporate forms geared toward small businesses partnerships, multi-member LLCs, as well as S and C Corporations.

TurboTax's business software stands at the high end of the market, with costs ranging from $75 for a typical sole proprietorship up to $160 for a C Corporation that files at least one federal and state tax return electronically. Also of note, the latter scenario doesn't include the cost for the small business owner to file their personal federal and state taxes, which would necessitate buying an individual TurboTax suite like Premier, adding another $86 to the bill.

The higher cost of TurboTax software brings with it some greater flexibility, however. Along with free audit support for all products, with TurboTax Home & Business, for example, you can enjoy the freedom of preparing and filing your taxes completely online instead of having to use a downloadable or CD version. (TurboTax's Business edition is download or CD only, however.) In addition, all TurboTax business software packages let you file five different federal returns from just one software purchase, a big plus if you're an entrepreneur with multiple ventures.

TurboTax Home & Business version: http://turbotax.intuit.com/personal-taxes/online/home-and-business.jsp

TurboTax Business version: http://turbotax.intuit.com/small-business-taxes/business.jsp

H&R Block At Home

In an attempt to emphasize H&R Block's unique two-pronged approach to tax preparation, the company's previous "TaxCut" software products have been renamed "At Home" this year. (Its storefront operations were also rebranded, as H&R Block "Offices.") For the 2009 tax year, H&R Block offers four At Home software tiers, two of which, Premium and Premium & Business, would be of use to small business owners. Premium, which is offered in both online and downloadable versions, is limited to small rental property owners or the self-employed who don't file any business forms beyond a 1040 Schedule C, however. At Home Premium & Business, on the other hand, is only downloadable in a Windows version and encompasses all other small business structures from limited partnerships to multiple-owner LLCs to S and C Corporations. And to encourage established tax prep software users to switch H&R Block, the company claims its At Home platforms are now set up to quickly import previous tax year data from its rival TurboTax's programs.

Price shopping between TurboTax and At Home can be difficult, though. At $49.95, H&R Block's Premium version is more comparable in price and amenities to TurboTax's Premier version ($49.95) than it is to TurboTax's Home & Business suite ($74.95). The Premium & Business version, however, costs only five dollars more ($79.95) but offers small business owners the ability to efile up to five free federal business returns (even for C Corporations) as well as one federal and state 1040. The price difference becomes particularly stark for owners of C Corporations, who would pay only $120 when using At Home Premium & Business to file both their federal and state personal and business tax returns electronically, a price less than half of the $246 needed to accomplish the same tasks using comparable TurboTax products.

For self-employed entrepreneurs that would only file 1040s and Schedule Cs and who seek the security of having the critical eye of a tax professional on their side, H&R Block also offers its $99.95 "Best of Both" package. With this package, customers prepare their taxes using the company's software, but a dedicated H&R Block tax preparer is also available to answer questions during the process and review all tax forms before they're filed. State returns are extra, however, and run $29.95 each.

H&R Block Premium version: http://www.hrblock.com/taxes/products/32.html

H&R Block Premium & Business version: http://www.hrblock.com/taxes/products/38.html

H&R Block Best of Both program: http://www.hrblock.com/taxes/products/33n.html

TaxACT

Launched in 1998, TaxACT has grown to be the second most popular online tax prep software destination behind TurboTax. TaxACT, much like TurboTax and H&R Block's At Home, offers several tax prep software tiers ranging from a basic/free federal-only version for individuals to several business-specific federal and state software packages. TaxACT tends to fall at the more affordable end of the market price-wise, below even H&R Block, and offers a more á la carte product menu, letting small businesses separately purchase downloadable Business 1065, 1120, or 1120S software packages for $39.95 each, all of which include the filing of one federal business return either by mail or electronically. To file additional state 1065, 1120, and 1120S returns, however, you must pay an extra $14.95 per state and TaxACT charges another $7.95 apiece to efile each of those state tax returns. For companies with a wide geographical footprint, TaxACT also offers an All-States edition that lets you file in as many states as necessary for just $51.80.

For entrepreneurs looking to combine the preparation of their personal and business taxes, TaxACT does have a Home & Business package for $54.95 that bundles a Business 1065, 1120, or 1120S return (and free federal efiling) with free federal and state 1040 returns. But as with its other platforms, the filing of state business returns and efiling of state personal and business returns cost extra. As a result, the owner of a C Corporation that intends to efile both corporate and personal tax returns in at least one state would pay just over $85. This compares to the $120 price if one used H&R Block's At Home Premium & Business edition and the $246 price found by combining TurboTax's Premier and Business editions.

TaxACT Business Software Products: http://www.taxact.com/products/index_business.asp

TaxACT Home & Business Bundles: http://www.taxact.com/products/homebiz_overview.asp