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?).

Conclusion
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="http://www.dreamstime.com/reddaxluma_info#res2965056">RedDaxLuma</a> | <a href="http://www.dreamstime.com/#res2965056">Dreamstime.com</a> - <a href="http://www.dreamstime.com/royalty-free-stock-photo-monimum-wage-increase-ahead-image39252345#res2965056">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!

Great Advice to Run Your Business By

August 14th, 2014

I’ve been in business for a long time and over the years I’ve received wonderful advice from some respected people. I’ve followed this advice and feel better for it. I want to share some of it with you.

“Do what you can in the time you have.”

Sidney Kess, my mentor and partner for over 30 years, knows how many projects I have going all the time. Perfection isn’t an option because there just isn’t enough time. Excellence, however, can be achieved by doing my very best on each and every project.

So I complete the work in the time I have, give it my all, and don’t reproach myself that I could have done better if I’d had more time (which I didn’t).

“When something goes wrong, think of 3 good things that come out of it.”

I can’t remember who shared this wisdom with me (it was a woman on my radio show several years ago), but I’m grateful for learning it.  Here’s how it works:
A shipment that was supposed to be delivered to your customer did not arrive on time and the customer is very angry.

Three good things to come out of it:

  1. If you don’t yet have one, you can create a customer response script for your staff can to use when handling angry customers, addressing their concerns, and retaining their business and your reputation.
  2. In the future you refrain from making promises that may not be kept because of conditions beyond your control. Better way: Say you’re shipping for a particular delivery date but make sure the customer knows that things may happen to delay arrival.
  3. Take this opportunity to investigate other shippers that may have better on-time delivery rates.

“Learn a little each day.”

My first boss, Bernie Greisman, taught himself several languages by learning a word or two each day. The task of learning Latin seems daunting to me, but I witnessed that over time, any skill can be mastered by building it up gradually.

I’ve taken this to heart by spending time every day learning something new. Following this advice has helped me retain my interest and enthusiasm in what I do.

Conclusion
Think about advice you’ve received and pick some good ideas to follow.

Attention Franchisees: Who’s in Charge?

August 7th, 2014

The National Relations Board (NLRB) started in the Great Depression as a government board to protect the rights of employees to collectively bargain if they choose to do so. On July 29, 2014, the chief counsel of NLRB ruled that McDonald’s is a co-employer with its franchisees and, therefore can be held responsible when its franchisees violate the rights of employees who protest.

According to Joel Libava, The Franchise King® and owner of the Franchise Biz Directory, the NLRB ruling completely ignores the franchise model in which franchisees merely buy a system but own their businesses. As business owners, they have the right to hire and fire and set other HR policies (as long as they don’t violate the law).

Joel raises this question: If the NLRB ruling stands up, why would anyone want to invest thousands of dollars (more than $1 million for a McDonald’s franchise) merely to be controlled by the franchisor?

What now?

The Fast Foods Worker Committee filed NLRB claims against franchisees alleging retaliation (an unfair labor practice) for trying to organize. The NLRB’s counsel decided that a number of the claims had sufficient merit to proceed and has included McDonald’s as a co-employer in these claims.

There could be a settlement to the claims. If not, the claims will be heard by an administrative judge who will then issue a decision on whether there was retaliation. And then, if the decision is unfavorable to employers, action in the federal courts may result.

McDonald’s will fight the decision. If it wins, nothing in labor law changes. If it loses, the results are unclear.

Some possible results:

  • The franchisor could be held responsible for labor conditions at its franchisees, prompting it to institute greater control over franchisees.
  • The franchisor could increase the price of buying a franchise and the ongoing charges to franchisees to cover its new responsibilities and potential liability exposure.

My question for the NLRB: Does it not understand what franchising is all about, or does it simply not care?

Just Another Reason That It’s Time To Re-do the Tax Code

July 31st, 2014

The current version of the Internal Revenue Code is large, complex, and flawed. There have been calls on both sides of the aisle in Congress to substantially revise it, and there are several compelling reasons to do so:

  • It’s been a long time since we’ve had a new version. The time between the 1939 Code and the 1954 Code was 15 years. The time between the 1954 Code and the 1986 Code, which is the current version, was 32 years. It’s now been 28 years since enactment of the 1986, so it’s really time for a change.
  • There are many tax rules that are outdated or mean to help a specific taxpayer or industry (e.g., special write-off allowances for film and TV and motorcross arenas). Several rules were created to incentivize certain actions by individuals and businesses; they may no longer be necessary or desirable. For example, there were a slew of energy-related tax breaks (some of which expired but could be extended).

I’d like to suggest another reason for a change:

A number of rules have fixed dollar limits that have not been updated in years. (Dozens of tax rules are indexed annually for inflation, but many are not.) As a result of inflation, however modest in recent years, these fixed dollar limits are ridiculous and do not reflect Congress’ original intent. Examples:

  • The dollar limit on deducting business gifts is $25 per person per year. This limit was fixed in 1962. In today’s dollars, it would have to be $197.30 (based on the BLS inflation calculator).
  • The dollar limit on deducting capital losses in excess of capital gains (the amount that can offset ordinary income is $3,000). This limit became effective in 1978. In today’s dollars, it would be $10,966.70.
  • The dollar limit for treating losses from Sec. 1244 (small business) stock as ordinary income is $50,000, or $100,000 on a joint return. This limit became effective for stock issued after November 6, 1978. In today’s dollars, it would be $182,778.37, or 365,556.75 on a joint return.
  • The dollar limit for excluding dependent care assistance (employer paid or an employee-funded FSA) is $5,000. The limit was set in 1986. In today’s dollars, it would be $10,873.31.

Conclusion
It’s time to have a national discussion about what we want the Tax Code to be. (The House Ways and Means Committee started the discussion with the release of a bill entitled The Tax Reform Act of 2014, which would cut the size of the code by 25% and make other dramatic changes.)

Here are some questions I’d pose in the discussion about a new Tax Code:

  • Should it be a sure revenue raiser so the federal government has the funds to pay its bills as well as start to pay down the national debt?
  • Should it encourage certain activities by individuals and businesses (e.g., going “green;” hiring certain types of workers; purchasing capital equipment)?
  • Should it be an anti-poverty tool? (That’s what Nina Olsen, the National Taxpayer Advocate, called the earned income tax credit.)
  • Should it make U.S. corporations competitive with those in other developed countries?
  • Should it eliminate the marriage penalty entirely (so that it makes no difference taxwise whether a couple is married or not)?

I’m up for this discussion. Is Congress?

The House Gets Small Business — Where’s the Senate?

July 24th, 2014

There are only a few days left before Congress recesses to begin campaigning for the mid-term election. It won’t be back until after November 4, at which time it will be a lame duck session. In the past several weeks, the House has passed a number of rules that I view as favorable to small businesses. The Senate won’t take up the measures until after Election Day.

Here are some of the bills that have passed the House:

Permanent sales tax moratorium on Internet access. Since 1998, Congress has temporarily banned states from imposing sales tax on the Internet if it had not previously done so. Now, the House voted favorably on the Permanent Internet Tax Freedom Act (H.R. 3086).

This measure would not only bar states that haven’t yet taxed access, but also eliminate sales taxes in those 7 states that did. The Senate agreed to this last year, so hopefully the law will be enacted before the end of this year.

One sticking point:  Some Senators want to expand the law to cover sales taxes on Internet sales, which would bring up a whole other issue, so passage of a permanent ban on sales taxes for Internet access isn’t certain.

Permanent research credit. First enacted in 1981 and extended 15 times, this tax break rewards companies that increase their R&D expenditures. Finally, the House voted favorably on the American Research and Competitiveness Act (H.R. 4438), which makes the credit permanent.

The White House has indicated its opposition to a permanent extension by threatening a veto; the Senate has also raised concerns about the cost of a permanent credit.

Note: In the past, the U.S. had the best tax credit in all industrialized countries, it is now ranked 27th and would move to 15th with the permanent credit.

Permanent tax breaks for buying equipment and machinery. Instead of depreciating the cost of these items over 5, 7, or longer periods, special accelerated write-offs in the tax law are designed to spur these capital investments:

  • Sec. 179 (first-year expensing) is a deduction for costs of up to set dollar limit (because of an overall annual investment limit, the rule applies only to small businesses). Last year, the deduction limit was $500,000. This year it is scheduled to be $25,000. This break entered the Tax Code through Small Business Tax Revision Act of 1958 (it was $2,000, or $4,000 for married persons each claiming a write-off), in 1981 it went to $5,000, and after 1986, $10,000. The dollar limit really started to jump beginning in 1997. You can read a complete legislative history here.
  • Bonus depreciation lets costs to be deducted in the first year up to a set percentage (over any Sec. 179 deduction). Last year, the deduction was 50% of costs; this year it is scheduled to be zero. This measure first appeared after 9-11 at 30% and has come and gone since then; it’s been as high as 100%.
  • The House voted to make the 2013 rules for both tax breaks permanent through America’s Small Business Tax Relief Act (H.R. 4457) and Act to Modify and Make Permanent Bonus Depreciation (H.R. 4718).

Analysis
In my view, a permanent law is better than a temporary one. It enables businesses to plan ahead with some measure of certainty. Of course, a permanent law can always be repealed or replaced. But when laws are only temporary, businesses have to wait out Congressional bickering before knowing what the rules will be so plans can be made.

You may recall that at the end of 2013, 55 tax provisions expired. Many of these (including the research credit, the enhanced Sec. 179 deduction, and bonus depreciation) have been continually subject to extenders. Yet 2014 is more than half over and we still don’t know for certain what the tax rules for the current year will be. Is this any way to run a government?

Hobby Lobby Case and Your Small Business

July 17th, 2014

On June 30, 2014, the U.S. Supreme Court announced its decision in a case brought by a company contesting the government’s rule under the Affordable Care Act (“Obamacare”) that it provide 20 types of contraceptives to employees despite the religious objections of its owners to 4 of these types. The company’s owners were victorious. The court said that regulations issued by the Department of Health and Human Services violate the Religious Freedom Restoration Act of 1993 (RFRA), which generally prohibits the government from substantially burdening a person’s exercise of religion.

Bottom line: The Court said that a closely-held corporation (the legal entity of the litigants Hobby Lobby Stores, Inc. and Conestoga Wood Specialties Corp.), is a person for purposes of the RFRA, thus protecting, at least on this contraception issue, the religious liberty of the humans who own and control it.

Immediate impact
The decision allows owners of businesses that are not public companies to follow their conscience (there must be a “sincere” religious belief) when it comes to the contraception coverage mandate of the Affordable Care Act . The way in which a business is organized — as a sole proprietorship, partnership, limited liability company, or corporation — does not matter.

When it comes to corporations, the government may seek to limit the application of the decision to those defined in the Internal Revenue Code as a closely-held business, which are corporations that:

  • Have more than 50% of the value of its outstanding stock owned directly or indirectly by 5 or fewer individuals at any time during the last half of the tax year, and
  • Are not personal service corporations.

Of course, the requirement to provide health coverage (“employer mandate”), and all that this entails, does not apply to most small businesses. The mandate only applies to large companies — those with 50 or more full-time and/or full-time equivalent employees. The mandate takes effect in 2015 for companies with 100 or more employees, or 2016 for companies with 50 to 99 employees. Only 2% of all small businesses have more than 50 employees.

Long-term impact
No one can say for sure what this decision will mean in the future. The decision should not be taken as a free pass for small businesses to object to all government actions or positions on a religious basis; they may not prevail as did Hobby Lobby. For example, small businesses likely won’t be able to refrain from serving gay customers on religious grounds (this issue has not come before the U.S. Supreme Court but lower courts around the country have ruled against businesses taking this stance).

On the other hand, there could be some backlash from the decision. One possible argument that can now be made by creditors is that the so-called corporate veil, which protects the personal assets of owners, is less than inviolate. The claim may seem far fetched, but the argument would be that if that veil is pierced for purposes of the Patient Protection Act, could it not also be breached for purposes of company debts?

Conclusion
While the First Amendment of the U.S. Constitution and RFRA protect the free exercise of religion by small business owners, this protection won’t give blanket protection in all situations. Consult with an attorney when taking any position on religious grounds that runs counter to government rules.

Note: On July 17, 2014, the Department of Labor issued a ruling that any business dropping coverage for certain contraception methods must give notice to employees.

Summertime Reading

July 10th, 2014

For many people, spreading out on the beach may mean reading pulp fiction or gossip magazines and zoning out. For others, like me, it’s an opportunity to read books on business that have been waiting to be read. (I’m not making any judgments about which path is better, and maybe you can do both.)

Whether you like holding a book or an iPad (or other Kindle device), keep Benjamin Franklin’s advice in mind: “An investment in knowledge pays the best interest.”

Here is a list of books that I hope to tackle this summer (likely I won’t get to all of them despite my ambitions). Some are new publications; others have been out for some time but I haven’t read them yet.

  • Shark Tank Jump Start Your Business; How to Launch and Grow a Business from Concept to Cash by Michael Parrish DuDell. The book contains contributions from the Sharks on the ABC show: Mark Cuban, Barbara Corcoran, Lori Greiner, Robert Herjavec, Daymond John, and Kevin O’Leary.
  • The Business Book (Big Ideas Simply Explained) by DK Publishing. The book uses interesting graphics to help explain business concepts.
  • Thinking, Fast and Slow by Daniel Kahneman. This best seller explains influences on thinking.
  • The Innovator’s Dilemma: The Revolutionary Book that Will Change the Way You Do Business by Clayton M. Christensen. The book focuses on “disruptive technology” which means new technology that changes the way things are done.
  • The Entrepreneurial Mind: 100 Essential Beliefs, Characteristics, and Habits of Elite Entrepreneurs by Kevin D. Johnson.
  • Like a Virgin: Secrets They Don’t Teach You in Business School by Richard Branson. An interesting guy should make for an interesting book.

What books are you reading, or planning to read, this summer? Please share them with me.