Net Neutrality: For It or Agin’ It?

November 20th, 2014’s been a lot of media attention lately to the issue of net neutrality. Essentially, net neutrality means that Internet service providers of broadband would be regulated like a public utility. It would be up to the government to dictate what actions these providers could and could not take with respect to certain customers or content providers.

Toward this end, the FCC is working on regulations to reflect net neutrality. One idea put forward recently by FCC Chairman Tom Wheeler would be to impose strict guidelines for certain businesses (e.g., content providers) (essentially employing 1930s public utilities rules) while using less stringent rules for consumers.

Unintended consequences
What regulation would do to the Internet is unclear. While those in favor of net neutrality assure the naysayers that it would merely protect the public and provide a level playing field for all users, those opposed to net neutrality argue that it could:

  • Limit innovation
  • Cut jobs
  • Increase costs (ISPs’ higher costs of compliance would be passed on to their users)
  • Harm investment in broadband deployment and infrastructure, which would mean inferior broadband service for consumers and small businesses and/or that those consumers who currently lack broadband access may never get it

Where the parties stand
President Obama is in favor of net neutrality, which was part of his campaign platform in 2008. His concern is that content providers such as Netflix could make deals with ISPs and receive better access (so-called “fast lanes”) than you and me by paying for this usage. The CEOs of Tumblr and Meetup, as well as many others, support net neutrality.

But there is opposition by many organizations, including Broadband for America. In addition, many small business groups are opposed as well. The SBE Council is opposed to it (find its position here). The Council recognizes that the Internet as it is now has provided small businesses tremendous opportunity (my business depends entirely on the Internet). As part of a delegation from the Counsel we met in late October with all five SEC commissioners or members of their staff to discuss the concerns of small business owners.

From my view, the regulations that could come out by the end of the year are attempting to fix what isn’t broken; they are addressing a potential concern. What’s more, countries such as China are also trying to regulate their Internet usage, and who wants to be like China? Needless to say, like the SBE Council, I’m agin’ it.

5 Financial and Tax Planning Things to Do Right Now

November 13th, 2014

The clock is ticking and the year is winding down. Don’t let December 31 take you by surprise. Act now to solidify your position for the year.

1.    Meet with your CPA
Work your tax advisor to map out some year-end tax planning strategies so you’ll minimize your tax bill for 2014. This may require you to spend more money to reap tax savings, so make sure you have the cash flow to support the strategies. The sooner you schedule an appointment, the more time you’ll have to take action.

2.    Review your balance sheet
If you may need commercial financing next year, your year-end balance sheet may be a key factor in securing a loan. Review what’s on the balance sheet so you can make favorable changes. It could mean, for example, paying an outstanding loan.

3.    Finalize year-end bonuses
Decide who will get bonuses and how much. If your calendar-year business is on the accrual basis for accounting purposes, then bonuses paid to rank-and-file employees within the first 2-1/2 months of 2015 are deductible on your 2014 return. The bonuses must be reflected in the minutes of your company’s annual meeting. Bonuses to a S corporation owner are not deductible until actually paid.

4.    Face your inventory challenges
Have you been sitting on inventory that just hasn’t moved despite your best marketing efforts? In order to make adjustments to closing inventory by writing off obsolete items, you must offer them for sale at least 30 days prior to the end of the year (the date you take the write-off).

5.    Fix benefit plans for the coming year
Are you offering health care coverage? A retirement plan? Now’s the time to act. If you plan to offer employees health care coverage in 2015, you must give them 30-days notice of the coverage so they can decide what to do (e.g., opt out if a spouse’s coverage is better). Also, if you don’t yet have a qualified retirement plan, you must sign the paperwork by December 31 if you want to make 2015 contributions. So talk to an insurance broker for health coverage information and to a financial advisor for retirement plans so you can get started immediately.

Don’t wait until you’re thick in the midst of the holiday season to attend to your tax and financial matters. Do this now!

Let’s Talk Federal Regulations

November 6th, 2014

Red tape can be a nightmare, right? But it may be scarier to see how regulations are made.

That’s my view after taking part in the SBE Council’s first Regulatory Accountability Day and visiting federal regulators and their staff. The group was led by Karen Kerrigan, President and CEO of the SBE Council, and included Brian Moran, Victoria Braden, Todd Flemming, and me. For two days, we visited the Securities and Exchange Commission (SEC), Health and Human Services (HHS), the Federal Communications Commission (FCC), among others.

Here is what I learned:

  • There are a lot of federal employees involved in the regulatory process.
  • All of those we met with seemed highly knowledgeable and hardworking.
  • The pace of regulatory process is slow, and depends in part on political winds.
  • The input from small business is genuinely valued.
  • Showing up matters. Regulators may not understand the impact of their proposed rules, and putting a face on the potential impact is critical.
  • Small business owners need to directly engage in this “shift in power”—from Congress to the regulatory agencies.

My message to small business owners:

Stay abreast of regulatory developments that may impact your business. Note proposed regulations and the period during which you can submit comments. Submit your comments; the agencies proposing the regulations are required to read each and every one them and actually do so (there have been about 4 million comments submitted to the FCC regarding the net neutrality proposals and have read about 3 million to date). Make your comments constructive by specifying ways in which the proposed regulations can be improved, and how they directly impact your business.

One resource to keep up-to-date on regulatory matters is the SBA’s Office of Advocacy’s email communications, including its bimonthly eNewsletter. Subscribe here.

Find out more about the SBE Council’s regulatory visits here.

Preparing Your Workplace for Flu Season

October 30th, 2014

October is the start of the flu season, which generally runs through March. Steps you take now can go a long way in creating a healthy workplace and keeping your company fully-staffed.

Encourage a healthy workplace
Staying healthy is the first line of defense against the flu.

  • Sanitize work surfaces. These include telephones, keyboards, and doors of refrigerators and microwaves. Provide sanitizing wipes for this purpose.
  • Provide information on the flu to staff (e.g., importance of getting flu shots, which may be covered by your company’s medical plan).

Discourage presenteeism
According to one source, 60% of employees report for work even though they are ill. This presents two major concerns:

  • Sick employees are not as productive as those who are well.
  • Sick employees can spread disease.

One of the best ways to do this is to pay for sick days. Only California, Connecticut, Washington, the District of Columbia, and a little more than a dozen cities nationwide require employers to pay for a limited number of sick days (find specifics as of May 2013 here). But even if not required, it may be cost effective to pay for sick days to keep unwell employees from bringing infectious diseases into the workplace.

My preference is for small businesses to pay for an unlimited number of sick days (some workers are ill only once every few years), with the understanding that responsible employees won’t abuse this offering (if they do, they won’t remain on the payroll).

•    CDC’s information for businesses and employers
•’s business planning
•    OSHA’s workers guidance
•    Staples Flu Center

Economy Better but Small Businesses Aren’t Hiring

October 23rd, 2014

Various economic indicators continue to show that the U.S. economy is getting stronger: GDP is up, unemployment claims are down.

How is this good news being received in the small business community? The Hartford’s 2014 Small Business Success Study found that owners are feeling better about things in general, but this isn’t translating into expanding their payrolls.

Some key findings from this study:

  • 77% feel successful (up from 70% in 2013)
  • 56% view slow economic growth as a risk to their business (down from 67% in 2012)
  • 40% think taxes are a major risk (down from 59% in 2012)
  • 39% consider health care costs as a risk to their business (down from 53% in 2012).

So if owners are feeling better in general and feeling less threat from certain major risks, why aren’t they hiring?

The Hartford study found that 67% of small businesses haven’t hired anyone in the past year. It also found that if owners had an extra $100,000, only 8% would spend it on hiring.

Some reasons given for not hiring or not hiring as much as they would have liked:

  • Their business was not growing: 36%
  • They can’t afford to hire: 34%
  • They are taking on additional responsibilities themselves: 31%

Are these the only reasons for not hiring? My anecdotal evidence shows that there isn’t a single answer; each small business owner has his or her own story. One may have target sales in mind before hiring, while another may expect technology solutions to be a substitute for a new worker.

Historically, small businesses have been the job creation engine of the U.S. economy (the SBA said that small businesses created 63% of all jobs between 1993 and mid-2013). While the engine seems to be idling at the moment, as good economic indicators continue to make small business owners feel better, things may shift into high gear soon.

Note: I work with The Hartford to help small businesses achieve success.

It’ll Never Happen to You, But What if it Does?

October 16th, 2014

Dramatic traumatic events, like the Oklahoma beheading at the Vaughn Foods front office on September 25, is not likely to happen in your company, but what if the unspeakable should happen? Maybe something less dramatic but still traumatic could happen.

Can you avert a crisis? How would you handle it if something terrible happens?

It could happen to you
The statistics on workplace violence are startling. According to the CDC, homicides in the workplace average 700 per year. “From 2003 to 2012 over half of the workplace homicides occurred within three occupation classifications: sales and related occupations (28%), protective service occupations (17%), and transportation and material moving occupations (13%).” The number of nonfatal violent crimes was 572,000 in one year (2009).

Even nonterrorist or noncriminal activity can produce trauma in the workplace. A tragic accident can affect your staff and operations.

The result to your company if something terrible should happen: incalculable losses to impacted employees (e.g., their psychological trauma), plus direct and indirect actual costs to your business (e.g., disruption in operations, added costs for remedial actions).

What are your obligations?

According to the Society for Human Resource Management (SHRM), “[n]o federal law explicitly establishes an employer’s duty to prevent or remedy workplace violence against employees. However, employers must comply with the general duty clause [Section 5(a)(1)] of the Occupational Safety and Health Act of 1970, which states that each employer must furnish a place of employment that is ‘free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees.’”

But of course small business owners feel a personal connection with their staff and want to be sure their workers are safe. Being aware of the risks that can befall a company is the first step in preparedness.

Encourage workers to express their concerns to a designated person if a co-worker is acting erratically or there is a domestic violence threat that could spill over into the workplace (the designated person can be the owner or anyone else who is clearly identified for this purpose), making sure of confidentiality and a promise of any necessary follow-up or support. The FBI has a sample threat assessment questionnaire that you can use.

While there’s no way to absolutely ensure a terrible act of violence won’t occur in your company, there are some preventive measures you can take to minimize your risk:

  • Think “security.” This means limiting access if appropriate, using security cameras, and if you use security guards, making sure they are well trained.
  • Hire smartly. While there’s no guarantee, doing background checks on job applicants may help to avoid problem employees. But watch legalities about what you can and cannot check (e.g., some states bar inquiries about an applicant’s prior criminal past).
  • Do risk assessment. Periodically revisit what’s going on in your company—your staff, your security measures, your neighborhood’s activities.
  • Create an emergency action plan. When something occurs, make sure employees know what to do. This may include, for example, training employees in CPR.

Crisis management
Ok, you’ve done everything possible to prevent a workplace tragedy, but one happens nonetheless. This could be the result of a civil riot, a domestic or foreign terrorist attack, or other unexpected event. In the aftermath, what will you do? Do you know how to obtain trauma counseling for your staff?

Last thought
When taking any action, make sure that what you’re doing, or planning on doing, is legal. If you have questions, talk with an employment law attorney.

Should You Sign a Business Associate Agreement?

October 9th, 2014

No, this isn’t a contract to do business with another firm. It is an acknowledgment you may be asked to sign if you do business with a medical office or other “covered entity” and you have access through your work to protected patient information (including a patient’s name, address, and Social Security number). It requires you, as a business associate, to protect the privacy of the covered entity’s patient information.

If you never do business with any covered entity, you can ignore the information about a business associate agreement, but if you now do or plan to do business with a covered entity, here’s a heads up.

Who may be asked to sign
The regulations related to a business associate agreement came out last year, but not all health care providers have yet reached out to their potential business associates.

A business associate is defined as: A person or entity that performs certain functions or activities that involve the use or disclosure of protected health information on behalf of, or provides services to, a covered entity (e.g., doctor or dentist, medical practice). A business associate often is an individual or a small business.

The following is a list of examples of potential business associates compiled by HHS:

  • A third party administrator that assists a health plan with claims processing.
  • A CPA firm whose accounting services to a health care provider involves access to protected health information.
  • An attorney whose legal services to a health plan involve access to protected health information.
  • A consultant that performs utilization reviews for a hospital.
  • A health care clearinghouse that translates a claim from a non-standard format into a standard transaction on behalf of a health care provider and forwards the processed transaction to a payer.
  • An independent medical transcriptionist that provides transcription services to a physician.
  • A pharmacy benefits manager that manages a health plan’s pharmacist network.

Even though omitted from this list, I think that an outside bookkeeper (e.g., a QuickBooks expert) would also be treated as a business associate if the person has access to protected health information.

Obligations under the agreement
The business associate agreement sets forth the obligations of each party to it. HHS requires the agreement to:

  1. Establish the permitted and required uses and disclosures of protected health information by the business associate;
  2. Provide that the business associate will not use or further disclose the information other than as permitted or required by the contract or as required by law;
  3. Require the business associate to implement appropriate safeguards to prevent unauthorized use or disclosure of the information, including implementing requirements of the HIPAA security rule with regard to electronic protected health information;
  4. Require the business associate to report to the covered entity any use or disclosure of the information not provided for by its contract, including incidents that constitute breaches of unsecured protected health information;
  5. Require the business associate to disclose protected health information as specified in its contract to satisfy a covered entity’s obligation with respect to individuals’ requests for copies of their protected health information, as well as make available protected health information for amendments (and incorporate any amendments, if required) and accountings;
  6. To the extent the business associate is to carry out a covered entity’s obligation under the privacy rule, require the business associate to comply with the requirements applicable to the obligation;
  7. Require the business associate to make available to HHS its internal practices, books, and records relating to the use and disclosure of protected health information received from, or created or received by the business associate on behalf of, the covered entity for purposes of HHS determining the covered entity’s compliance with the HIPAA privacy rule;
  8. At termination of the contract, if feasible, require the business associate to return or destroy all protected health information received from, or created or received by the business associate on behalf of, the covered entity;
  9. Require the business associate to ensure that any subcontractors it may engage on its behalf that will have access to protected health information agree to the same restrictions and conditions that apply to the business associate with respect to such information; and
  10. Authorize termination of the contract by the covered entity if the business associate violates a material term of the contract.

Note: Agreements between business associates and business associates that are subcontractors are subject to these same requirements.

Violating an agreement
If you sign a business associate agreement (you may not have a choice if you want to do business with a covered entity), you face an array of problems.

  • You have costs associated with patients’ notification if there is any security breach of their privacy. This cost may be shared with the covered entity if you spell this out in your agreement.
  • You are contractually liable to the covered entity for violations of your agreement.
  • You are directly liable for violations of HIPAA rules. This can expose you to civil and, in some cases, criminal penalties.

Learn more
The Department of Health and Human Services (HHS), which oversees the Health Insurance Portability and Accountability Act (HIPAA), has a sample business associate agreement and other information here.  Talk with a knowledgeable attorney before you sign anything!!

Business as Benefactor to Workers and Government

October 2nd, 2014

A century ago, businesses’ contract with workers was simple: Workers put in a certain number of hours (albeit what would be excessive in FLSA parlance) and companies paid them a fixed wage. Clearly, this is not the only thing for which companies are responsible.

How and when did the change in business’s responsibilities toward workers (and the government) change?

Business vis-a-vis employees
This basic compact began to change in the 1940s when defense contractors used the perk of health coverage to recruit workers to their plants, according to an NPR programThe Internal Revenue Bureau (the IRS’s predecessor) ruled in 1943 that that employer-paid health coverage was a tax-free fringe benefit and this treatment was codified in the 1954 Tax Code (the treatment remains unchanged today.) After World War II, most large employers (in many cases negotiated by unions) offered coverage, but small employers usually did not. However, over time, small businesses had to offer some type of coverage in order to compete in the marketplace for talented workers.

A Kaiser Family Foundation report last year found that as of 2012 only 43% of very small employers (3 to 9 employees) offered coverage while “virtually all” employers with a 1,000 or more workers offered coverage. Other findings: 68% of employers with 10 to 24 workers; 85% of those with 25 to 49 workers, and 91% of those with 50 to 199 workers.

Under Obamacare, employers with 50 or more full-time and/or full-time equivalent employees must provide health coverage or pay a penalty to the government (employers with 50 to 99 employees don’t have to meet this obligation until 2016) (remember 91% already did in 2012).

The government is also moving toward some type of mandatory retirement plan offering to help workers save for retirement in light of statistics showing that workers don’t save enough and that Social Security can’t provide a secure retirement (and may not even be around unless the system is fixed). For example, companies offering 401(k) plans are now induced to enroll workers automatically in exchange for guaranteed nondiscrimination status for the plans (employees can opt out of coverage). In Australia, employers must deposit 9% of workers’ pay into retirement accounts, and there have been cries to implement a similar system in the U.S.

Business vis-a-vis government
The contract that business made with government is that business would follow regulations and pay taxes; government would provide infrastructure to enable business to function.

Today, business is often asked to do part of the job that lies within the government’s purview. Businesses must report their activities (e.g., business census forms; workplace injuries) to the government so it can compile statistics about business activities and create regulations for businesses to follow.

Most recently, the Government Accountability Office wants the IRS to require employers to submit W-2 forms to the government by January 31 (employers already have to furnish them to workers by this date). Why? So that the IRS can better match employee-reported income and thwart identity theft.

For large employers, moving the deadline for submission of W-2s from the current February 28 to January 31 likely won’t be a major hardship because their reporting is computerized. For some microbusinesses, however, this could be problematic. For example, a retailer that conducts inventory in January following the holiday season would be faced with yet another administrative burden in the same time frame as it is focusing on its business.

Bottom line
How much can small businesses do for everyone? It’s hard to mount arguments against employer’s underwriting the cost of benefits for workers (in direct contributions or in administrative costs to facilitate benefits). It’s hard to argue against employers helping the government combat identity theft and achieve other objectives (e.g., safe workplaces). But I ask you, in light of an ever-growing burden: who’s helping small business?

Don’t Waste Your Time and Effort

September 25th, 2014

Time Wasting Concept

As business owners, we’re busy people and must make every minute, and every dollar, count. We know that certain business goals are commendable, but often our efforts to see them through are worthless.

Here are 5 actions you shouldn’t take, and a better way to achieve the desired results.

1. Asking for something without any compensation
Want a referral? Want responses to your questionnaires? Merely asking for action likely will produce only a minimal response.

Better way: To receive a better response, offer compensation of some sort (e.g., a gift certificate, a future discount). Make the compensation commensurate with the effort that you’re asking for.

2. Charging customers for breakage
Signs such as “you break it, you buy it” warning your shoppers of their obligation to pay for items they accidentally damage or break may not be worth the paper they’re written on. To recover your loss, you’d have to sue and probably wouldn’t collect—an accident is merely a cost of doing business. Of course, if a remorseful customer offers to pay for the damage, accept it gladly.

Better way: Make sure your insurance provides adequate protection for such losses. Any losses not reimbursed by insurance can be deducted on your tax return.

3. Charging interest for late payments
If you send invoices for goods shipped or work performed and aren’t paid on time, you consider charging interest (e.g., putting a note on the invoice that there’s 1% late charge or such). But don’t bother because I’ve never heard of any customer paying the interest.

Better way: Get paid up front—via credit card, check, or cash—so you don’t have to wait for payment following an invoice.

4. Continuing in-house collection efforts
When a customer is late in paying a bill, you may resend an invoice and then follow up with a phone call or email. After a couple of efforts on your part, further hounding by you likely won’t induce payment.

Better way: Turn delinquent accounts receivable over to a collection agency. While you won’t get the full amount you’re owed (the agency keeps a percentage of what it collects), at least you increase the chances of getting some payment. Even better, follow the advice in #3 above so you’re not chasing customers for payment.

5. Failing to make good estimates
When you’re giving a quote for a job, you have to estimate how much time and materials you’ll need to complete it properly. But if you give a bad estimate—one that falls short of the actual costs for doing the job—customers perceive that you’ve been lying to them. You’ll wind up losing money or a customer, which is not your goal.

Better way: Bill by the hour instead of charging for the entire project so you know you’ll be properly compensated. If you must provide an estimate, then use software or apps designed for your industry to help you create a better, more accurate, estimate so that both you and your customer are satisfied.

What Does the IRS Have Against Food?

September 18th, 2014

© <a href=Nothing, unless you want to deduct it or otherwise get a tax benefit from it. There are only limited situations in which you can get a tax break for eating, or feeding others.

Pizza dinners for children-employees

One mom who put her three children to work paid them in pizza, along with tutoring and other things of their choosing.

They did documented work for her business: filing, stuffing envelopes, shredding, etc. But when she tried to write these payments as compensation, the IRS said no and the Tax Court agreed.

While compensation can be paid in-kind (rather than in cash or an equivalent), a parent can’t transform a parental duty to feed one’s children — a nondeductible personal expense — by claiming it to be wages (the so-called wages here did not match up with the work performed).

Coffee, donuts, and more
Many companies stock a lunchroom or common area with coffee, donuts, soft drinks, and other snacks. It’s well established that businesses can deduct the cost for these items and employees aren’t taxed on them; they’re viewed a de minimis fringe benefits. Similarly occasional meals or meal money given to enable an employee to work overtime is tax free.

And some meals are furnished on the company’s premises.  As long as this is done for the convenience of the employer (e.g., an employee is on call during meal time), the company can deduct the cost while employees aren’t taxed on them.

Meals furnished to employees in the food service business during, immediately before or after their work hours is treated as furnished for the employer’s convenience (e.g., a waiter who works the breakfast and lunch shift isn’t taxed on breakfast and lunch he eats in the restaurant each day — before, during, or after the shift). Find more details here.

But some companies, including a number of well-known high tech companies (e.g., Google) let employees eat what they want from morning to night at no cost to workers. The IRS is taking a careful look at this arrangement and whether it should continue to afford employees to receive this tax-free perk; it has placed “employer-provided meals” on its 2014-2015 priority guidance plan.

Business meals
A breakfast with a client, lunch with a vendor, and dinner with a prospective client may be tax deductible. But there are some ifs, ands, and buts:

  • The meal must be a legitimate business expense. This means talking business, even if you also discuss Thursday night football. You can’t take your co-owner out to lunch on Monday and have her reciprocate on Tuesday; this arrangement won’t fly.
  • The meals can’t be lavish or extravagant. This depends on the facts and circumstances of the situation.
  • Assuming you satisfy these thresholds, then only 50% of the cost is deductible. Half the cost of business meals usually can’t be deducted (there are some exceptions, such as the cost of the company picnic and holiday party).

You can’t deduct your meal costs if you dine alone in town (the city or area in which your business is located). So, for example, if you usually brown bag it but are forced to eat lunch in a diner because you’re across town to make a sales call, the meal is still treated as a nondeductible personal expense.

However, if you’re out of town on business, your meal costs (subject to the 50% limit) are deductible whether you dine alone or with business associates or others connected to your business.

Special diets
Gluten free? Low carb? The cost of special diets can add up. However, a medical expense deduction can be claimed for the added cost (i.e., amounts over and above what would be paid for a normal diet) can be claimed on an individual’s return if:

  1. The food does not satisfy normal nutritional needs,
  2. The food alleviates or treats an illness, and
  3. The need for the food is substantiated by a physician.

Bottom line
We all have to eat, but Uncle Sam will pick up the tab only in limited circumstances. In all cases in which a deduction may be allowed, be sure to keep good records of cost and other required information.