Tips For Smart Budgeting Small Business Owners

bb3If you run a small business, it’s likely that you’re operating on a relatively limited budget. Whether you bootstrapped your business or are trying to pay back loans you took out to cover your startup costs, it’s in your best interest to conserve money wherever you can.

Without a thorough budget plan, however, it can be difficult to track and manage your finances. This is especially true for any unexpected business expenses that may come up, as they often do. A 2015 survey by small business credit provider Headway Capital found that although 57 percent of small business owners anticipated growth this year, nearly 19 percent were concerned about how unexpected expenses would impact their business.

If you want to keep your business operating in the black, you’ll need to account for both fixed and unplanned costs, and then create — and stick to — a solid budget. Experts offered their advice for small business owners looking to keep their finances in order.

Define and understand your risks

Every business venture has a certain degree of risk involved, and all of those risks have the potential for a financial impact on your company. Paul Cho, managing director of Headway Capital, said that small business owners need to consider their long- and short-term risks to accurately plan for their financial future.

“How will changes in minimum wage or health care requirements impact your workforce?” Cho said. “Do you operate in a geography at high risk of a natural disaster? Do you rely heavily on seasonal workers? Understanding the potential risks facing you on a short- and long-term basis is important for all small businesses. Once you’ve mapped out the threats to productivity, a clearer picture can be built around emergency planning, insurance needs, etc.”

Overestimate your expenses

If your business operates on a project-to-project basis, you know that every client is different and no two projects will turn out exactly the same. This means that often, you can’t predict when something is going to go over budget.

“Every project seems to have a one-time cost that was never anticipated,” said James Ontra, CEO of presentation management company Shufflrr. “It usually is that one unique extra item [that is] necessary to the job, but [was] not anticipated when bidding the job.”

For this reason, Ontra advised budgeting slightly above your anticipated line-item costs, no matter what, so that if you do go over, you won’t be fully unprepared.

“I go by the cost-moon-stars theory,” he said. “If you think it will cost the moon, expect to pay the stars.”

Pay attention to your sales cycle

Many businesses go through busy and slow periods over the course of the year. If your company has an “off-season,” you’ll need to account for your expenses during that time. Cho also suggested using your slower periods to think of ways to plan ahead for your next sales boom.

“There is much to be learned from your sales cycles,” he said. “Use your downtime to ramp up your marketing efforts while preventing profit generation from screeching to a halt. In order to keep your company thriving and the revenue coming in, you will have to identify how to market to your customers in new and creative ways.”

Plan for large purchases carefully and early

Some large business expenses occur when you least expect them — a piece of equipment breaks and needs to be replaced or your delivery van needs a costly repair, for instance. However, planned expenses like store renovations or a new software system should be carefully timed and budgeted to avoid a huge financial burden on your business.

“Substantial business changes need to be timed carefully, balancing the risk with the reward and done with a full understanding of the financial landscape you’re operating within,” Cho told Business News Daily. “An up-to-date budget and data-driven financial projections are important components that help guide when to make large investments in your business.”

Remember that time is money, too

One of the biggest mistakes small businesses make is forgetting to incorporate their time into a budget plan. Ontra reminded business owners that time is money, especially when working with people who are paid for their time.

“Timing underestimation directly increases costs,” Ontra said. “For us, the biggest underestimation is allotting time for client feedback. It is a Herculean effort sometimes to meet a deadline with lots of people focused on a single task. Then, the client needs to give feedback for us to proceed. If the client is distracted with other issues, feedback planned for a three-day turnaround, can become a week or longer. Not only do you start to lose time to the delivery schedule, your team also loses momentum as their collective thought shifts focus to another project.”

Ontra recommended treating your time like your money, and set external deadlines later than when you think the project will actually be done.

“If you believe the project will finish on Friday, promise delivery on Monday,” he said. “So, if you finish on Friday, deliver the work early and become a star. If for some reason time runs over, deliver on Monday and you are still a success.”

Constantly revisit your budget

Your budget will never be static or consistent — it will change and evolve along with your business, and you’ll need to keep adjusting it based on your growth and profit patterns. Cho suggested revising your monthly and annual budgets regularly to get a clearer, updated picture of your business finances.

“Regularly revisiting your budget will help you better control financial decisions because you will know exactly what you can afford to spend versus how much you are projecting to make,” Cho said. “Take into account market trends from the previous year to help you determine what this year may look like. Once you have a clear understanding of your business’s budgetary needs, you can accurately forecast what can be set aside for an emergency fund or unexpected costs.”

Tips to Building a Winning Startup Team

bb2In many cases, a startup is only as good as the people behind it. The success of a business can heavily depend on whether the people involved are doing their jobs well.

As the founder of two tech startups, entrepreneur Lynn LeBlanc has learned that a successful business needs a strong, highly skilled team right from the start.

“A good startup team needs to have [experience that] spans most of the core functional areas of a successful company,” said LeBlanc, the CEO of IT management platform HotLink. “This way, you’ll have predictable outcomes from the combination of each member’s knowledge and skills.”

To put together a winning group for your business, LeBlanc advised seeking individuals who fit the following criteria.

– They have experience in areas that you and the rest of the team don’t. Hiring people with similar backgrounds might seem like a good idea initially, but in order to truly flourish, your company needs dedicated experts in all core areas of business. If you have a strong technical background but no experience with sales and marketing, hire someone who knows that area inside and out, and vice versa.

– You know them well (or they know each other). Many entrepreneurs learn the hard way that hiring unqualified family members and friends based on a close relationship is a bad idea. However, it is important that the people you do hire for your startup are ones you know well. You should feel confident in their background and expertise, and know that they’ll make a positive contribution to your business. If you don’t personally know a potential hire well, someone else on your team should so he or she can vouch for the candidate.

– They can afford to work for a limited salary at first. Look for financially stable people with enough savings or another source of income to live on a limited salary for the first year of the business. It may be a tough sell for some, but if you can save money on payroll upfront, you’ll have a lot more flexibility when it comes to your business finances.

– They want to use your product. This may seem obvious, but the people you hire to work with your startup can and should serve as early evangelists for your product or service. LeBlanc said that some businesses make the mistake of not having their target-end users participate in the product development process, which can lead to issues you never thought of once actual customers begin using it. Your team shouldn’t just want to help you create a great product; they should want to provide feedback as potential customers before it goes to market.

Some Tips for Getting Your Team to Work Together

bb1“Collaboration” has become a pretty big buzzword in the modern business world. Every company hopes that cloud technologies and content sharing platforms will enable its staff to efficiently work together, no matter where they are. But unless leaders are truly committed to creating a culture of collaboration, their employees will never reap the full benefits of these tools.

“A collaborative culture should be something that employees feel, rather than something that the executive team talks about,” said Kevin Lynch, CEO of cloud content collaboration service Volerro. “[When this happens], it inspires a sense of community within an organization, while driving productivity, insight and innovation.”

To truly make cloud collaboration technologies work for your business, you first need to show your team how to work well together. Lynch shared six simple ways to encourage an open, cooperative workplace:

– Set team goals. Use timelines, plans and structured content that clearly define current and future goals for the team. This way, all team members can share a distinct point of view.

– Foster a creative environment. Allow team members to brainstorm in an open, non-judgmental framework that embraces the team’s diversity.

– Build cohesion. Create a means of communicating that allows for easy workflow, establishes a distinct set of priorities and makes all colleagues feel included. Keeping everyone on the same playbook enables team members to focus and flourish.

– Visualize ideas. Provide team members the opportunity to use visuals to clarify and share their ideas at the simplest level. You can do this with anything from rough sketches to full-scale presentations.

– Break down barriers. Using multiple channels of communication such as email, phone and text messaging can ultimately create barriers to successful collaboration. Agree upon and enlist just one channel that allows the team to communicate efficiently and effectively.

– Execute. With all of the focus on idea creation, don’t forget the most important step: acting on the good ones. Nothing will kill employees’ desire to create new ideas faster than a failure to implement existing proposals.

Some Tips for Retaining Customers

Smart businesses know that it costs less to retain existing customers than it does to acquire new ones. That’s why so many brands are focused on loyalty marketing — campaigns designed specifically to bring in repeat business and referrals.

But it’s not enough to just send out a generic, “Hey, come back!” email to previous customers. In today’s market, you need to personalize your loyalty campaigns to fit your customers’ needs.

“Loyalty marketing needs to be personalized because, at its core, you are asking for a deeper relationship with your customer,” said Jason Greenspan, CEO at tech hygiene company WHOOSH!. “Would you ever think of giving a loved one a birthday cake saying, ‘Happy Birthday, Customer?’ Of course you wouldn’t.”

There’s plenty of proof that personalized marketing works, too: Recent research by Virtual Incentives found that 56 percent of consumers surveyed feel personalized incentives improve their consideration of a brand, and three-quarters said these incentives make them feel respected as a consumer. Another survey by Accenture Interactive revealed that 65 percent of customers are more likely to shop at a retailer that remembers their previous purchases.

However, there’s a fine line between personalization and privacy invasion, and brands need to be aware of how they’re coming off to consumers. Sixteen percent of those surveyed by Virtual Incentives described personalized offers as “creepy,” and a quarter said they felt these efforts are a violation of their privacy. [See Related Story: Great Loyalty Programs Keep Customers Coming Back]

If you want to make your loyalty marketing efforts smart, customized and effective — without scaring your customers away — follow these tips from our expert sources.

Clearly define your objectives

Danielle Brown, vice president of marketing at loyalty commerce platform Points, said it’s important to think about the objectives for your loyalty program before you launch or make changes to it.

“It’s easy to say, ‘I want a customer to be more loyal,’ but what do you want to do? Drive a larger [purchase] size? Get customers to recommend your product to others?” she said. “A big mistake is that programs don’t really define that [goal].”

Knowing your goals for the program is also essential to knowing what data you need to collect and analyze in order to better understand your customers.

Customers expect you to know, based on data and surveys, what they want, Brown told Business News Daily. “If you get that wrong, it knocks your credibility,” she said.

Understand what your customers actually want

When companies ask for loyalty, they need to return the favor by making the customer incentives reachable and desirable, Greenspan said. Otherwise, they’ll lose interest in the opportunity.

It’s important to find out what customers expect and what’s important to them, Brown added.

A good place to start is a customer’s past purchases. The Virtual Incentives survey found that 63 percent of respondents prefer rewards based on their specific purchase history, as opposed to their purchase location.

“Incentives don’t have to be physical goods — status is as valuable as ‘stuff,'” Greenspan said. For example, certain hotel brands offer upgraded rooms at check-in to preferred customers, he noted.

Know your limits

A successful loyalty campaign is all about collecting the right customer data and using it well. But not every company has the resources to run a loyalty program like the “big guys” — you need to understand your capabilities to collect and handle data, and make it work for your business, Brown said.

At the most basic level, loyalty-related data can include survey results, account details and customer preferences, Brown said. As you get into more advanced analytics, you can do a little more digging to glean insights and concrete recommendations based on past behavior.

“You’ll see more returns at a higher rate, but it’s expensive,” she said. “Be honest about what you can provide and support.”

Fully commit to it

Loyalty marketing efforts aren’t a “one and done” deal; they’re a lot of work, and you need to stay committed to engaging your customers over the long term if you want to see a return, Greenspan said.

“Customers notice when people they ask for loyalty in the early part of the relationship and then slowly stop showing any special attention over time,” he said.

Finally, Greenspan reminded businesses to treat their loyalty programs as a means to build ongoing one-to-one relationships.

“One-to-many is how you find the customer,” he said. “One-to-one is how you keep them.”

Tips to Expand Your Business Internationally

For most entrepreneurs, building and maintaining a local customer base is one of the first steps on the road to success. Once they have achieved this goal, some business owners feel they’re ready to take on the next step: expanding internationally.

Becoming a global company is an impressive feat, and not every business that sets out to do it accomplishes the goal. To successfully convert your business from domestic to international, you’ll need to consider a new set of factors that might not necessarily affect a local-only company. International business experts shared their insights on what it takes to break down your company’s national borders and run a multi-country operation.

Are you ready to go global?

Creating a strong international presence is rarely as simple as telling your customers you ship overseas and then waiting for the sales to roll in. There are numerous things to think about when selling and marketing in another country, and these factors must be considered carefully. Ask yourself the following questions to determine whether your business is

Have I ensured that a customer base exists in the country or countries I want to enter? A product that sells well in your home country may not necessarily have the same appeal elsewhere, so it’s crucial to invest time and energy into researching potential foreign markets.

“First, make sure your customers exist,” said Joseph Paris, Jr., chairman of business consulting firm XONITEK and founder of the Operational Excellence Society. “Is there a need for your offering? Are they inclined to purchase? Don’t think that they might — know that they will.”

Mike Zani, CEO of business consulting firm PI Worldwide, advised traveling to the country or countries you want to expand into to really do your homework and get a first-hand idea of how your business will fare. This will give you the opportunity to not only conduct research and test your product in the foreign marketplace, but also to experience the culture and social norms of the people you’ll be marketing to, he said.

Is the foreign market I’m looking at compatible with my own market? Michael Lee, head of international marketing and business development for e-commerce platform, advised looking for markets that are similar to yours. While the business environment won’t be identical to that in your home country, you should make yourself familiar enough with it that you can ensure smooth, seamless business discussions.

“Take into consideration trade barriers, proximity, currency and culture,” Lee said. “Seek out homogeneity — the fewer differences between your country and the one you export to, the easier it will be to do business with [that country].”

Do I have the available resources and staff to focus on both expansion and my established business? Trying to juggle an overseas operation while maintaining your current domestic customer base with a small staff is incredibly difficult, and you likely won’t be able to sustain your growth. Before you decide to expand, make sure you have the financial and structural stability to add staff members who can handle the new influx of work that comes with such growth.

“An organization should have a strong team solely focused on international growth that is ready to face challenges and fully support the expansion,” said Taki Skouras, co-founder and CEO of international wireless accessories retailer Cellairis.

The challenges of international business

While the international market may be a perfect target for your business, expanding beyond your home country isn’t without its challenges. Here are a few that you’ll need to prepare for.

Language and cultural barriers. Selling to customers or working with vendors who don’t speak your native language can be a significant obstacle for any business owner. That’s why Skouras recommended hiring bilingual staff members who can easily translate back and forth.

“If you don’t have the budget for full-time translators, outsource tasks like overseas customer service and translation of promotional materials to freelancers,” Skouras said.

Beyond language, differing cultural norms may also stand in the way of a successful business expansion, if your company doesn’t respect them. Lee advised entrepreneurs to research cultural practices in the countries they plan to expand into, especially as these may relate to the company’s product or service. Foreign customers’ and business partners’ needs may not be the same as those of your domestic stakeholders, and this could affect your sales, marketing and overall business strategies, he said.

“You will have to understand the different ways people communicate,” Paris added. “For instance, in northern Europe, there is far less ‘chit-chat,’ and you might feel that the party is being blunt to the point of rudeness — this is not the case. In southern Europe, there is a lot of personal conversation and activity before business issues are addressed, and cutting to the chase is seen as being impatient.”

Tax codes and compliance issues. If you think it’s difficult to navigate the various tax codes and business regulations from state to state, try selling in another country. Paris reminded entrepreneurs that the United States taxes worldwide income, and the IRS also imposes special reporting requirements on this income. Additionally, foreign banks may be hesitant to deal with a U.S.-based account due to the administrative burden, so you might need to set up a separate, foreign business entity and bank account to make handling transactions worth while for the banks.

Paris also noted that other countries have different labeling and packaging standards that you may need to comply with, depending on what you sell.

“In the states, the instructions you include with your product will be in English — sometimes Spanish or French,” Paris told Business News Daily. “But in Europe, your instructions, even for the simplest product, will be in multiple languages, sometimes up to 24 languages. If your product is sold more regionally, you will have to consider the increase in packaging cost associated with labeling. In addition, your product will have to be certified as safe [by those countries’ standards].”

Slower pace. In America, the business world moves pretty quickly. Executives and even lower-level employees work day and night, making appointments and closing deals long after they’ve left the office for the day. David Hellier, partner at Bertram Capital and board member of ACG New York, told entrepreneurs that business doesn’t move at the same pace in other countries; building relationships is a long-term commitment.

“Overseas, doing business is as much a personal event as it is professional,” added Bill Bardosh, CEO of green materials and chemicals company TerraVerdae BioWorks. “You may be able to broker a deal just through formal business meetings [at home, but] in China and the Far East, it is necessary to spend extensive time getting to know your counterparts outside the boardroom during tea sessions or dinner banquets, for instance. Things will always take longer to be resolved overseas, but that isn’t necessarily a sign of a lack of momentum — you have to be patient and prepared for multiple interactions to build trust.”

Local competition. It’s not always easy to convince a foreign customer to purchase your company’s product when there’s a comparable product available that’s made in the customer’s home country. While some big-name U.S. chains like McDonald’s and Starbucks have clout overseas, small and midsize companies need to work a little harder to convince the international market that their brands are trustworthy and better than the competition.

“Why would [customers] buy from you over the local champion?” Paris said. “Can you penetrate the market? If you do, can you be profitable under the circumstances? Is the juice worth the squeeze?”

Advice and best practices

If you feel you’re ready to tackle the challenges of international business, follow this advice from business leaders who have been there before.

Find the right partner(s).When you’re expanding your business, it’s critical that you don’t try to go it alone. Even if your “partner” is in the form of a mentor, you’ll need the help of someone you trust, who can vouch for you in the country or countries you’re looking to break into.

“You need someone who has a passion for your brand, understands … the local market, has experience in the [industry], has capital needed to grow, and ideally has additional businesses where he or she can leverage shared resources,” said Jim Rogers, chief marketing officer of Tony Roma’s restaurant franchise.

Hellier emphasized the importance of setting expectations when seeking foreign business partnerships, and really sticking to them.

“Know what you want in a business partner or acquisition, and have a clear understanding of expectations,” Hellier said. “Sticking with those expectations … will help avoid aligning with the wrong partner or investing in the wrong business. Oftentimes, businesses will give up too much to a partner just to get into a new market or country. You don’t want to be stuck with a bad partner.”

Hire a great team. The need for help “on the ground” also extends into your hiring practices. The people you hire to deal with your overseas business partners and customers must be fully immersed in the local environment, but you also need to be sure they’ll be looking out for your interests.

“The foreign companies that you may deal with probably have more experience doing business in the U.S. than you have in their country,” Bardosh said. “Without a core team on your side with the necessary cultural, language and local business contacts, you’ll be competitively disadvantaged.”

Consider the impact of any new ideas. Introducing a new product or marketing campaign becomes a whole new ballgame when you operate internationally. Instead of only thinking about how your own country’s customers might receive your new ideas, you’ll also need to think about and accommodate for the impact these ideas will have on your foreign customers.

“As you ‘spitball’ new ideas, someone definitely needs to think about scalability to your international territories — usually you,” Zani said. “Time zones, language and cultural appropriateness all need to be considered when you branch out internationally. If you don’t do this ahead of time, you run the risk of offending your international partners by appearing to be more concerned about yourself [than] them.”

Remain consistent in branding, but adapt to the environment. As mentioned above, varying cultural norms and customer needs in foreign countries may require you to adjust your sales approach, or even your whole product. Rogers noted that while you must stay true to your overall brand, it’s important to tweak your product (or menu, in the restaurant industry) slightly to account for local tastes.

“[Allow for] appropriate localization and flexibility to adhere to local customs and customer needs,” Rogers said. “One of the key areas to adjust is with [material] sourcing. If you can maintain quality, local sourcing has the opportunity to improve cost margins and supply-chain reliability.”

Always do your due diligence. Any major business decision requires taking the time to think through all possible scenarios based on your business’ strengths and weaknesses, but this is especially important for international expansion.

“Research each aspect of your business strategy,” Lee said. “Explore alternatives and safeguards. Do as much as you can to understand the markets you are entering, and take your time to get it right.”

How to Keep Control of a Fast Growing Startup

Rapid startup growth can be both a blessing and a curse. On the one hand, your sales are up and you’re getting recognized for all the hard work you’ve put into building your company. On the other hand, having to scale your business at an accelerated pace — and dealing with the organizational and managerial challenges that come with it — can be overwhelming to a new entrepreneur.

For Greg Skloot, the 23-year-old co-founder of event management software company, the answer to managing his startup’s rapid growth was bringing in a team of senior executives with a wealth of business experience he didn’t yet have.

“Young, creative team members give startups great energy, but they’ve likely never dealt with investors or overseen the hiring process,” Skloot told Business News Daily. “That’s why any new company looking to scale needs to find experienced senior executives to guide the business forward, particularly when product-market is found and the startup is ready for serious growth.”

Having a balance of ages and experience levels on staff will improve your company because it allows people to cater to their strengths, Skloot said. The younger employees can execute and brainstorm new ideas, while executives can use their years of experience to advise on company strategy, planning and growth. As long as every team member is on board with the company vision and culture, hiring a mix of people will help your company grow quickly and effectively.

Once you bring in these new advisers, you’ll need to step back and focus on the bigger picture, which requires some changes to the way you approach your business.

Skloot offered the following tips to help young entrepreneurs adjust.

Hire people who are smarter than you. On a small team, every person is an important part of the business. Early hiring mistakes can cause a lot of trouble in the future as the business scales, so it’s crucial to recruit the absolute best people available. Hire people who are smarter than you to run each department so you can focus more on the overall strategy. You can find great candidates by consistently reaching out to your network, using social media, and leveraging your investors for introductions.

– Keep things organized. During growth mode, lack of organization can be detrimental and slow everything down. Put in the extra effort to make sure everything is clearly organized, documented and available to the team. This might include processes like how to onboard a new customer, or a routine that ensures all signed contracts are scanned and placed in a certain shared folder. Once you have room in your budget, consider hiring an executive assistant to take these types of day-to-day administrative tasks off your plate.

– Prioritize and stay focused. Fast growth brings many opportunities, some of which you may need to turn down. It’s not easy to say no, but you have to do it and do it a lot. Make sure the team is focused on your annual/quarterly goals, metrics, mission and vision. Anything that doesn’t align with that is a distraction that will slow you down.

– Don’t overlook the details. Be sure to pay close attention to the details and don’t let them get lost in the shuffle as you grow. Details can make or break a company, and you must keep them in mind as your workload piles up. As the team grows, you can delegate the details to some of your new employees so the burden doesn’t all fall on you.

– Measure everything. It’seasy to keep track of things when you’re small. Fast growth adds a new challenge, making measurement a necessity. Great entrepreneurs define clear key performance indicators (KPIs) for each department and sometimes each employee at the company so they always have a view on what is working and what needs improvement. This might include metrics like cost to acquire a customer, lifetime customer value, average sales price, revenue per employee, etc.

– Constantly communicate. People are afraid of the unknown. As a leader, you can alleviate that fear by constantly communicating and sharing key information with your team. This ensures that nothing slips through the cracks as you continue to grow.

Some Thing That Have Common In Small Businesses

Small businesses that have seen increased sales, revenue and profitability over the past year credit their success in part to an increased investment in technology, according to a new study from the financial services company Bank of the West.

Overall, 52 percent of businesses experiencing growth have bolstered their technology budget over the past year, compared with only 15 percent of declining businesses.

The research found that growing small businesses are nearly twice as likely as contracting businesses to think investing in technology will be important to their business’s success in the next year. Specifically, these businesses expect technology to play a critical role in attracting new customers, providing a better client experience and making internal processes more efficient.

“While some businesses see technology as a way to improve their customer experience, it may also be an opportunity to propel small business expansion moving forward,” Michelle Di Gangi, executive vice president of small- and medium-size enterprise banking at Bank of the West, said in a statement.

One way in which growing businesses will use technology to improve the customer experience is with an increased investment in point-of-sale technology. The study found that 43 percent of expanding small businesses expect to start using mobile payment systems in the next year, compared with 15 percent of contracting businesses. Additionally, 27 percent of growing businesses are planning to implement tablet payment systems, compared with 12 percent of declining businesses.

“Technology serves an important role in advancing the customer experience, while boosting profitability by streamlining operations and freeing up resources to pursue growth,” Di Gangi said. “Small businesses that can keep up with the pace of change and pinpoint strategic technology investments will push ahead of the pack.”

After years of just trying to weather the economic storm, many small businesses are now trying to transition into a growth mode. The study discovered that over the past year, 35 percent of all the businesses surveyed invested in new products, while 28 percent increased their marketing budgets. Additionally, one-third of small businesses plan to hire new staff in the coming year.

Not everyone, however, is seeing the type of growth they would like. Nearly 40 percent of the businesses surveyed have made cutbacks in the last year, such as reducing employee hours, discontinuing products or services, or cutting back on marketing budgets.

“Small businesses that have built a strong foundation for expansion through sound business financials and strategic investments appear prepared to seize the growth opportunity ahead,” Di Gangi said.

The study was based on surveys of 499 U.S. residents who own a business with two or more nonowner full-time employees and less than $10 million in annual revenue, and which has been in operation for at least five years.

Let’s Learn About Retirement Plan Options for Small Business Owners

Planning for retirement can be overwhelming and complicated. But because the average American will spend about two decades in retirement, it makes sense for small business owners to learn the basics about the various retirement plan options available to them.

Offering a company-sponsored retirement savings plan has benefits that extend beyond your own well-being. Considering that only 14 percent of small businesses offer any sort of retirement plan for their employees, you can distinguish your business and attract top talent by providing this incentive. Though certain types of plans do not require you to contribute to your employees’ retirement plans, if you choose to, you also will enjoy a range of tax benefits.

Whether you’re managing multiple employees or just work for yourself, there’s an affordable option out there that’s right for you. Here are the most common types of retirement plans available to small business owners and self-employed individuals.

Self-directed or personal IRAs

In a self-directed or personal individual retirement account (IRA), the account owner directs all investment decisions on behalf of the retirement plan, while a qualified trustee or custodian holds the IRA assets on behalf of the IRA owner. Terry Dunne, senior vice president and managing director at financial services company Millennium Trust, said that individuals who have left a job and want to move retirement funds from their former employer’s 401(k) plan typically choose to roll over their assets into an IRA.

When considering a self-directed IRA, there are two types to choose from: traditional and Roth.

1. Traditional IRAs allow annual tax-deductible contributions that depend on the individual’s modified gross adjusted income. Withdrawals are taxed, but earnings on principal and interest accumulate tax-deferred until funds are withdrawn from the account penalty-free after age 59 and a half, and minimum required distributions are mandatory after age 70 and a half. Dunne noted that the traditional IRA is a good choice for individuals whose tax strategy is to defer taxes until after retirement, or for those who anticipate that tax rates during their retirement will be lower than their current rate.

2. Roth IRAs have distinct tax benefits, Dunne said: Earnings from a Roth IRA accumulate tax-free, and unlike a traditional IRA, withdrawals are free of tax and penalties, provided certain conditions are met. Contributions are not tax-deductible but can be made past age 70 and a half.

One recent option that has become available to small businesses and self-employed individuals is myRA. This Roth IRA program is offered through the U.S. Department of the Treasury for people without access to employer-sponsored savings plans. There’s no cost to open a myRA, it has no fees or minimum contribution requirements, and participants can withdraw money at any time without paying taxes or a penalty.

Employers that offer myRA can set up payroll deductions for employees interested in the program but do not need to administer or contribute to the accounts. Contributions are invested in Treasury bonds; the government guarantees the principal, so there is no risk of losing money.

Denise Downey, a certified financial planner and founder of Financial Trex, said that while this makes the investment selection very easy, investors should consider the growth potential.

“U.S. Treasuries are very safe investments, but they struggle to earn enough to keep pace with inflation,” Downey said. “Once a myRA account balance reaches $15,000 or in 30 years (whichever comes first), the account owner must transfer the account into a Roth IRA.”

Employer-sponsored IRAs

Employer-sponsored IRAs are ideal for small business owners who want to offer their employees a retirement plan. There are two options: Simplified Employee Pension IRAs (SEP IRAs) and Savings Incentive Match Plan IRAs (SIMPLE IRAs).

1.SEP IRAs allow employers to make contributions of up to 25 percent of the employee’s compensation, or a maximum of $53,000 in 2016 (whichever is less), according to the IRS. They are also funded 100 percent by the employer; employees do not contribute. The employer is not required to make a contribution every year but must contribute the same percentage for employees that they may contribute for themselves in a given year.

Peter Calfee, president of Calfee Financial Advisors, said that SEPs are the easiest plans to set up, and offer business owners the greatest flexibility in when and how much they contribute.

2. SIMPLE IRAs enable employers with fewer than 100 employees to establish an IRA for each participating employee. The SIMPLE IRA has requirements similar to those of a traditional IRA, but with this plan, employees can make salary deferral contributions of up to 100 percent of their compensation, not to exceed $12,500 in 2016. Employers must also contribute to the accounts by either matching employees’ contributions dollar for dollar for up to 3 percent of their compensation, or contributing 2 percent of each eligible employee’s compensation.

401(k) plans

Perhaps the most well-known type of retirement plan, a traditional 401(k) allows employees to contribute a portion of their wages to individual accounts. Employers have the option to make and/or match contributions on behalf of plan participants, and have the right to reclaim those contributions if an employee leaves the company before a set time. Additionally, employers who sponsor traditional 401(k) plans are subject to an annual qualifying test by the IRS.

Unless employees contribute to a Roth 401(k) account, money is taken out of an employee’s wages pretax and therefore reduces the amount of income tax he or she has to pay. Because of this, the IRS places a cap on how much an employee can put into a 401(k) account each year: $18,000 for 2016.

In addition to the traditional 401(k) plan described above, there are several other types of 401(k) plans available, and it’s important to understand the features of each one before choosing a plan for your business.

1.Solo 401(k) plans are similar to self-directed IRAs. However, these plans are suitable only for single-employee businesses, because only the business owner and his or her spouse may participate and make contributions to the plan. The plans also offer more generous annual contribution limits than any of the other options, and tax-deferred contributions can be up to three times that offered by other plans, Dunne said.

2. Safe harbor 401(k) plans mandate that employer contributions be vested as soon as they are made. Therefore, employees can take the money with them when they leave the company, regardless of how long they have been there. Safe harbor 401(k) plan sponsors are not subject to the annual IRS test.

3. SIMPLE 401(k) plans are ideal for smaller ventures, as they can be offered only by businesses with fewer than 100 employees. As with the safe harbor 401(k) plan, the SIMPLE 401(k) plan requires employer contributions to be vested as soon as they are made, and does not mandate annual testing.

Andrew Meadows, vice president of brand and culture at Ubiquity Retirement + Savings, cautioned business owners to read the fine print when setting up a 401(k) plan, because many providers will tack on hidden fees.

“A lot of employees think a 401(k) plan is free, but their savings are being eroded by a fee off the back end,” Meadows told Business News Daily. “Take a look at the funds, and see how much you’re actually paying. Administrative costs might be low, but you may find that [there are] low balances in the 401(k) accounts [due to] hidden fees.”

For more detailed information on the types of 401(k) plans available, visit Business News Daily’s reference article on the subject.

Profit-sharing plans

Any employer with employees who have worked at least 1,000 hours in a previous year can offer a profit-sharing retirement savings plan. The U.S. Department of Labor states that the maximum annual contribution for this plan for 2016 is $53,000, or up to 100 percent of an employee’s compensation if it’s below $53,000.

Choosing a plan

Before deciding on a plan provider, it is important for individuals and small business owners to determine what kinds of investment options they would prefer to have. Dunne advised employers to ask themselves these questions before they decide on a retirement plan:

– Do you prefer simple administration?
– Do you expect to have employees?
– Is it critical that your employees be able to contribute to the plan?
– Will it be important to attract and keep good employees?
– Do you want to maximize your contributions?
– Will you want to contribute every year?
– Do you want plan contributions to be deductible as a business expense?

Your answers to these questions can help you better evaluate which plan will work best for your business. It’s also important to speak with a professional — such as an accountant, lawyer or financial planner — to determine what your business needs versus how much it can afford.

“Start by interviewing folks who are knowledgeable,” said Marilyn Capelli Dimitroff, principal and director of wealth management at Planning Alternatives wealth advisory firm. “It’s something that most small business owners don’t deal with on a day-to-day basis. The skills that make you a good entrepreneur may not equip you to manage investments on an ongoing basis.”

Information About What Small Businesses Need to Know

On Oct. 1, more than three years after it was signed into law, the Affordable Care Act will take effect. With just two months remaining, it’s time for small businesses to start understanding and preparing for the changes, said Adam Shay, a North Carolina-based certified public accountant.

Shay, owner of a certified B-corporation taxes and accounting firm, frequently works with entrepreneurs. To help prepare fellow small business owners for the changes, he created an easy-to-understand outline of the Affordable Care Act.

“I am thinking of the act from a tax standpoint, and I do believe there is a short and simple way to explain these implications to owners,” Shay said. “Having this knowledge will bring them one step closer to not only a smooth transition come October, but will put them one step ahead of their competitors.”

According to Shay’s outline, there are several important facts about the Affordable Care Act that small businesses should know:

Only companies with at least 50 employees will be required to offer health care, so that requirement will not apply to many small businesses.
If your business has fewer than 25 employees with an average pay of less than $50,000, you may receive a tax credit of up to 35 percent of your insurance costs.
Company and individual employee plans can potentially be purchased through the Health Insurance Marketplace, which opens Oct. 1.
It will be mandatory for all individuals to have health insurance starting in 2014. If your employees purchase their own plans, they may have to report their employer and business tax identification number on a W2 form.

Shay also has tips for how business owners can take advantage of the act now. Business owners should educate both themselves and their employees on what changes the Affordable Care Act will bring, in order to help them to stay ahead of the curve and reduce any stress and fear about the potential changes or cost increases. If you don’t currently offer employee coverage, determine whether having such an option will lower your personal health care costs and begin mapping out a strategy. Plan ahead for the future of your company, and think about how the act could influence growth, spending and other overall factors.

“There’s no doubt that the health care act can significantly impact some small businesses,” Shay said. “If it does, a proactive, organized approach can make the whole process much easier to navigate for both owners and their employees.”

Know More About Influence at Work Depends On Team’s Dynamics

Extroverts are often assumed to have an advantage in teams because of their enthusiasm and people skills. But new research finds that extroverts’ unique energy can either lift a team up or drag it down, depending on the team’s dynamics.

According to a study that was recently published in the Journal of Organizational Behavior, extroverts tend to energize the group when team members are getting along and generally agreeing on things. However, when there is a lot of disagreement, their contributions tend to cause more conflict, because when they voice their opinions, they are often viewed as doing so in a domineering, assertive and aggressive way.

Alexandra Gerbasi, one of the study’s authors and director of the Centre for Leadership and Decision Making at the Surrey Business School in the United Kingdom, said that, based on the research, extroverts’ ability to energize their teammates has a lot to do with how much agreement there is within the team.

“In situations where there is a high level of conflict, extroverts can be seen as ‘shouting the loudest,’ showing a less desirable and productive side of being extroverted,” Gerbasi said in a statement.

For the study, researchers examined 27 project-based teams at their formation, peak performance and after they were disbanded. Each team was asked to develop a formal, human resources-style presentation within three and a half months, and measure conflicts, frequency of communication and relationships formed between teammates at each stage.

The study’s authors found that when team members agrees on the team’s goals and how to achieve them, extroverted employees are able to develop more energizing relationships with their teammates. This results in extroverts being perceived as proactively contributing to their team by, for example, suggesting new ideas or options for improvements.

However, the researchers also found that when there is a lot of conflict within the team, extroverts aren’t seen as bringing as much value to the table. In these situations, extroverts aren’t able to develop the same positive relationships with as many of their co-workers as they do when everyone is on the same page, because they are often perceived as trying to force their opinions on other team members. This can potentially prolong the conflict among the people in the group.

The study was co-authored by researchers at Cornell University, the Center for Creative Leadership in North Carolina, Erasmus University in the Netherlands and Grenoble Ecole de Management in France.