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.

9/11 Is a Current Event

September 11th, 2014

While the terrorist attack on the World Trade Center and Pentagon happened 13 years ago, it’s not ancient history. With what’s going on in the world today, let’s hope our leaders take appropriate action to thwart any similar attacks on the U.S.

Also, as small business owners, let’s use the lessons learned from 9/11 to protect our businesses to the extent that we can if the unthinkable happens. These lessons apply not only to terrorist attacks, but can also be applied to natural disasters and incidents of civil unrest.

Read your current BOP
What does your business owner’s policy (BOP) cover or exclude. Will it cover any property losses resulting from a terrorist attack? For example, The Hartford’s business owner’s policy would typically cover loss or damage associated with terrorism. However, policies vary and include specific limitations and exclusions.

It is important for small business owners to talk to their independent insurance agent or carrier to ensure they understand their policy and have the proper coverage in place that meets the unique needs of their business.

Consider business interruption coverage
Can you afford to pay your bills while recovering from any disaster? Business interruption coverage pays utilities, payroll, insurance, and other ongoing costs to help you stay afloat until you can get back to normal operations.

Disaster planning
In the event of any disaster, it may be feasible for some companies to permit employees to work remotely. Have you considered this contingency and discussed it with employees? What is necessary to implement this contingency (cloud solutions? making sure that employees are equipped to work remotely?).

The more planning you do now, the greater protection you’re going to have in case any disaster — natural or man-made — occurs. Talk to your insurance agent now to understand the extent of your current protection and whether you need to increase your coverage.

How Much Money Does It Take to Start a Business in America Today?

September 4th, 2014

With Labor Day behind us, some people may be thinking that being a worker is not as rewarding as being a business owner.

They may also be asking themselves: What’s the price tag for starting a business? That’s the question that Intuit asked small business owners in a recent survey.

Some of the key findings:

  • 64% of small business owners start with less than $10,000.
  • 75% of small business owners relied on their own personal savings to get started, but 11% relied on financial institutions, 10% on family and friends, 2% from other investors, and 1% from government grants and funding programs.

Has financing a start-up gotten easier since the Great Recession? Only 51% think so; 49% believe there’s been no change.

True cost of starting a business
It may not be measurable in dollars and cents. Starting a business today takes some valuable intangibles:

  • Bravery — a small business owner must have the guts to risk it all; there’s no paycheck guarantee.
  • Patience — a small business owner has to deal with government regulations and red tape. A café owner may think he or she can open the doors on October 1, but the town, city, or state may delay the grand opening — perhaps for months — with additional inspections, delayed permits, and further document requests.
  • Persistence — customers come and go, and it’s up to owners to be diligent in meeting customer expectations while prospecting for new business.
  • Luck — perhaps the most important commodity in starting a business is luck. Despite the requisite money, hard works, and great ideas, it’s essential that luck be on your side.

So start with the cold cash, check yourself for intangibles, and get started.

Good luck to new small business owners everywhere!

A Minimum Wage Increase and Small Business

August 28th, 2014

© <a href="">RedDaxLuma</a> | <a href=""></a> - <a href="">Monimum Wage Increase Ahead Photo</a>The federal government raised the minimum wage that federal contractors must pay to its workers and the Administration is pushing for a national minimum wage increase to $10.10 per hour.

The Department of Labor says it will benefit 28 million workers. Opponents of the increase argue that it will hurt small business.

Where do small business owners stand?

Opinion polls
Of course, it depends who you ask. According to some polls, the majority of small business owners would support an increase:

In contrast, a CNNMoney-Manta survey found that 49% of small business owners opposed an increase. Also, some key small business organizations—NFIB and the National Small Business Association—say they’ve polled their members and found that they oppose any increase.

Reality check: Minimum wages are already higher
Regardless of what small business owners would or would not prefer, the majority of states have already increased their minimum rate to an amount higher than the current federal rate of $7.25 per hour. In 2014, the following locations have rates higher than the federal rate (amounts in parentheses are rates effective in 2015 and beyond):

  • Alaska: $7.75
  • Arizona: $7.90
  • California: $9.00 ($10 starting in 2016)
  • Connecticut: $8.70 ($9.15 in 2015; $9.60 in 2016; $10.10 in 2017)
  • Delaware: $7.75
  • D.C.: $9.50 ($10.50 in 2015; $11.50 in 2016)
  • Florida: $7.93
  • Hawaii: ($7.75 in 2015; $8.50 in 2016; $9.25 in 2017; $10.10 in 2018)
  • Illinois: $8.25
  • Maine: $7.50
  • Maryland: ($8.00 and $8.25 in 2015; $8.75 in 2016; $9.25 in 2017; $10.10 in 2018)
  • Massachusetts: $8.00 ($9 in 2015; $10 in 2016; $11 in 2017)
  • Michigan: $7.40; $8.15 on 9/1 ($8.50 in 2016; $8.90 in 2017; $9.25 in 2018)
  • Missouri: $7.50
  • Montana: $7.90
  • Nevada: $8.25
  • New Jersey: $8.25
  • New Mexico: $7.50
  • New York: $8.00 ($8.75 in 2015; $9 in 2016)
  • Ohio: $7.95
  • Oregon: $9.10
  • Rhode Island: $8 ($9 in 2015)
  • Vermont: $8.73 ($9.15 in 2015; $9.60 in 2016; $10 in 2017; $10.50 in 2018)
  • Washington: $9.32
  • West Virginia: ($8 in 2015; $8.75 in 2016)

Find more details about state minimum wage legislation from the NCSL.

Henry Ford model
In 1914, Henry Ford more than doubled the daily wage to $5 of workers in his Model T factories (he also cut the work day from 9 to 8 hours). He did this to reduce worker turnover (many could not take the monotony of the assembly line).

The increased wages actually saved the company money in rehiring and retraining costs. But many claim that there were two important byproducts of this action:

  • It created goodwill (his actions were reported worldwide)—this increased car sales.
  • It created consumers (his workers earned enough so they could afford to buy his cars).

One Forbes opinion piece says it’s “ridiculous” to apply the Ford model to the current McDonald’s controversy where workers are advocated for $15 per hour—will it enable workers to buy more burgers?

Keeping pace with inflation
If the minimum wage were adjusted annually for inflation, what would it be today? The federal $7.25 per hour rate took effect on July 24, 2009. Based on the BLS calculator, that rate would be $8.05. Clearly, any federal minimum wage increase should be tied to an inflation adjustment so the conversation on increases won’t have to be repeated every several years.

My opinion
I’m not opposed to the idea of a higher minimum wage. My issues with an increase relate to the overall struggle that small business owners face in rising prices: higher health insurance premiums, higher prices for the goods and services they use, and higher taxes. A discussion of an increase in the minimum wage should not be devoid of consideration about other additional costs faced by small business and how they can be expected to survive. A higher minimum wage only benefits a worker if there’s a job for him or her.

Small Business and Politics

August 21st, 2014

© <a href=A recent Manta survey had some interesting results about the political views of small business owners:

  • 32% believe the Republican party to be the biggest supporter of small business, but this number is down from 54% in 2012; 26% don’t believe any of the major political parties are supporters of small business
  • 81% plan to vote out sitting incumbents

Do you need to be political?
How much should small business owners be involved with politics? There’s no right answer, obviously. From my view, it depends on what’s going on locally as it impacts small business, and the level of interest in politics that owners may or may not have.

Whatever your political leaning, you may want to become involved in a race to support your candidate. Support can be financial (though no tax deduction or credit is allowed for political contributions) or via your time and effort.

The mid-term elections

November 4 is Election Day, which is less than 3 months away. On this day, all members of the House of Representatives and one-third of the Senate are up for election. In addition, there are many state and local offices being filled on this day.

Here are my feelings about voting:

  • Register to vote if you haven’t already done so. This preserves your right to cast a ballot.
  • Become an educated voter. Learn about the issues that may impact you and where the candidates stand on them.
  • If you don’t vote, you don’t have a right to complain about what goes on.
  • A vote is a precious thing to waste. Don’t!