Blackstocks.com: In the Know

Home Businesses Need Extra Insurance

A thief steals your computer. Water floods the basement where important business files are stored. A carrier delivering a package from a vendor is injured after slipping on your driveway.

Such are the perils a home-based business may encounter — unfortunate incidents, which at the very least, can cause financial strain on owners, and at worst, can drive them out of business, unless there's adequate insurance coverage.

Trouble is, many of the estimated 11 million owners of home-based businesses nationwide don't bother to obtain additional coverage, insurance experts say.

``They think their homeowners or renters policy will cover them, that's usually not the case,'' said Jeanne Salvatore, spokeswoman for the Insurance Information Institute in New York.

A typical homeowners policy provides only $2,500 worth of coverage for business equipment, which is barely enough to handle the cost of most high-end personal computers and printers. The typical policy also doesn't cover liability should someone become injured on your property during business hours, for example, and it certainly won't include reimbursement for interrupted business.

To adequately insure a home business, owners have three basic choices: obtain endorsements, or added coverage, to their existing homeowners policy; buy a policy that specializes in in-home business; or buy a policy for small businesses.

The first option is often only recommended for the smallest of home businesses — that is, businesses generating $250,000 or less in annual receipts. Those who might fall into that category: freelancers or consultants working largely out of a home office.

Depending on the type of business being operated, you may be able to double your standard homeowners policy limits for business equipment from $2,500 to $5,000 for as little as $14 a year. Additional liability coverage of $1 million or more may be purchased for around $200. 

Keep in mind, however, that homeowners policies exclude flood coverage, so if your business is located in a flood zone, you'll likely need to buy a flood insurance policy from the National Flood Insurance Program.

``Talk to your agent first to find out what coverage you already have and what you will need,'' Salvatore said.

Business Phone Etiquette

Good telephone skills are a business essential these days. Yet strangely, as we rely on the phone more and more, the communication skills of many people in the workforce seem to be getting worse and worse.

     We all have recent memories of rude operators or ill-informed sales reps providing nothing but frustration when all we wanted were simple answers to uncomplicated questions. Likely, that memory includes taking your business elsewhere.

     Don't let this happen to your own company. Here's a retrospective on some of the basics of good telephone technique and etiquette:

     Answer the phone (by the second or third ring!) with a warm, clear, articulate greeting that includes your company name and your own name.

     Know what you're talking about. You and your employees should be knowledgeable enough to converse about your products over the phone without having to speculate or follow a canned script. If you don't know what you're talking about, pleasantly and promptly refer them to someone who does.

     Smile, you're on the phone! People can hear the extra warmth in your voice, even when they can't see you. By physically smiling, you will automatically appear friendlier to the ear. Sounds silly, but it works.

     Speak slowly and clearly. There's no substitute for clarity.

     If you must put people on hold, ask their permission first. And let them know if they're in for a long wait. And don't play that annoying canned "hold music" -- hardly anybody likes it, and many people won't put up with such torture. Find something more interesting for them to listen to.

     Customer service counts. Make sure you and your staff are trained to express politeness, friendliness, and helpfulness over the phone. Just because your customers can't see you, doesn't mean they're not forming a clear impression of you.

     Make good phone service a company policy. Come up with a good phone strategy and lead your employees by example. More customers and profits will follow.

The Digital Generation - the Most Entreprenurial Generation Ever

According to a study by Intuit on the Future of Small Business Series, Belmont University entrepreneurship professor Jeff Cornwall calls the currently rising Generation Y (ages 5 to 25) “the most entrepreneurial generation ever.” Generation Y is also often called the Digital Generation, the Net Generation, or Digital Natives, since they are the first generation to grow up with digital technologies rather than having to adapt to them. Because of this, they have a unique approach to information, society, and the workplace.

Social Attributes
The Digital Generation consists of good critical thinkers who cherish autonomy and lean toward libertarian ideals. Above all, they want to be treated fairly and with respect. These youth have tremendous self-confidence, but their confidence in the adult world is weak. They are distrustful of governments, large organizations, and the elite. Their lives are extremely networked, both technologically and personally. Socially, they depend on relationships
with a select but changeable group of peers. When it comes to ethical and work issues, they tend to be informal and situational in their approach.

Information Outlook
The world of the Digital Generation is Web-based and information rich, more so than any generation in the past. Multi-tasking—listening to an iPod, surfing the net, and text-messaging at the same time—is the norm. Having grown up on both scenario-based video games and the interactive world of the Web, this group believes that all outcomes are possible. They are not afraid to take risks and try new things and are willing to make mistakes and learn from them. These traits are important seeds for entrepreneurship: Gen Yers are strong conceptually, build on ideas, and adapt or re-invent as needed.

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Postal-rate increase may save businesses money

According to Inc.com,while many businesses are bracing for the postal-rate increase scheduled to take effect May 14, those that make smart use of the new pricing system could actually see their costs reduced.

The new postal rates contain hidden surprises -- and therein lies the opportunity for business owners. While the cost of mailing a first-class letter weighing one ounce will increase by two cents, to 41 cents total, rates for other categories actually will be reduced, according to the U.S. Postal Service.

Letters weighing up to two ounces will drop to 58 cents -- five cents less than the 63 cents they currently cost. Businesses that reduce the frequency of their mailers by combining them stand to gain. A small business mailing 5,000 such letters would save $250 more than what it would have saved before the rate drop.

Businesses often send letters in unwieldy shapes and sizes in an effort to get noticed in a pile of junk mail. However, it is more expensive for the USPS to process these pieces of mail. A two-ounce large envelope will now cost 97 cents to send, which is a 53 percent increase from the earlier 63 cents. A possible solution for businesses? Reconfigure the mailing to a standard envelope size and pay just 58 cents to post it.

Salaries creep up amid inflation concerns

According to Inc.com amid growing concerns over inflation, salaries at the nation's small businesses have been creeping up month by month for more than a year and a half, according to a national payroll survey released this week.

The average annual salary paid by small employers in March was $31,791, a 1.6 percent increase over the past 12 months and the 19th consecutive month of gains, according to data from 18,000 small businesses compiled by SurePayroll, a Chicago-based payroll firm.

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"That's the highest average salary we've seen since we started tracking the small-business economy," SurePayroll President Michael Alter said in a statement. "These strong gains in personal income don't seem to be losing steam."

Labor costs represent up to 70 percent of total small business expenses.

While higher salaries can help the economy by fueling consumer spending, it can also spark inflation as employers pass on higher labor costs by raising prices, Alter said.

So far this year, that doesn't appear to be happening, according to the National Federation of Independent Business, a Washington-based lobby group.

In a survey of more than 700 small employers nationwide, only a net 13 percent reported higher selling prices in February, the third-lowest reading since January 2004, the group reported last month.

Another positive sign was that more small firms also said they were planning to boost employment in the months ahead -- despite the tighter labor market, the group reported.

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According to SurePayroll, hiring is on track to increase by 4.5 percent this year, following a 0.2 percent decline in 2006.

Eighteen of the 21 benchmark states tracked by the firm increased in size last month, including big gains in New Jersey, Utah, and North Carolina.

Of 113.4 million non-farm private sector employees in the United States, 57.4 million work for business with fewer than 500 employees, while 41 million work for business with fewer than 100 employees, according to the Small Business Administration.

401(k) Substitutes for Small Business Owners… part 3

Complicated Keogh Plans

A less popular retirement plan available to small businesses and self-employed workers is the Keogh or HR-10 plan. The reason it's less popular, according to financial planners interviewed for this article, is that a Keogh requires more complicated paperwork than SEP or SIMPLE plans because it is a qualified plan.

With a Keogh plan, the small business owner or self-employed person needs to set up a trust account where all employer and employee contributions are deposited. The plan document stipulates how the contributions may be invested.

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In addition to needing a trust and a plan document, the business owner needs to file an annual report (Form 5500) to the IRS. Further, a small business owner offering a qualified plan must make contributions each year regardless of the health of the business.

A Keogh plan can be set up as a profit-sharing plan, a money-purchase plan or a combination of the two.

While employees may make after-tax contributions to an employer-sponsored Keogh plan, the primary contribution comes from the employer. The IRS requires employers to contribute the same amount for each employee as for themselves.

Fortunately, the IRS has made a paperwork concession for a one-participant plan. In this case, if the plan covers only you and your spouse, and/or one or more partners and their spouses in a business arrangement, you can file a short (two-to-three page) Form 5500EZ.

The biggest advantage of a Keogh plan is the amount you can save in it — up to 25 percent of pay, not to exceed $35,000 a year. "The Keogh is for top-end individuals. The more money you have (to save), the better the Keogh is for you," commented Lee.

Another advantage is that participants can take a loan from their Keogh plan.

Because a Keogh is considered a qualified plan, withdrawal and distribution rules for 401(k) plans also apply to Keogh plans.

For more details on how to set up a Keogh plan, read IRS Publication 560.

IRAs: Roth and Traditional

If you're just beginning a business and have little extra money to set aside for retirement, can't afford to offer any retirement benefits to employees, or are a freelancer and the options above don't interest you, you might want to consider opening a Roth IRA or traditional IRA.

The drawback to these tools is their low annual contribution limits of only $2,000.

With a traditional IRA, your contributions are made before taxes. At retirement, you may withdraw money from the plan, but at that point you must pay taxes on the original contribution and any profits earned.

With a Roth IRA, your contributions are made after taxes. When you withdraw money at retirement, you won't have to pay any tax on the profits the account earned providing you follow the rules.

Where to Find a Provider

If you're a small business owner, you likely won't be able to interest the large 401(k) plan providers in servicing your small account. Yet, most of the other plans discussed in this article can be set up through your local bank, a certified financial planner or an accountant.

401(k) Substitutes for Small Business Owners… part 2

Simple SEP Plans 

The Simplified Employee Pension (SEP) is similar to profit-sharing and pension plans in that all contributions come from the employer. An advantage of this plan is that contribution limits are much higher than for SIMPLE plans.

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Ed Slott, a CPA and editor of Ed Slott's IRA Advisor newsletter, chose to offer a SEP to his staff of two. "It's the best plan for employees," he said. "I have great employees. I want to retain them and motivate them. The plan is a great ... incentive to keep a great crew."

SEP contribution rules, however, are a little tricky. As the employer, if you contribute a percentage of your salary to a SEP, you must also contribute the same percentage of your employees' salaries into the SEP for them. For this reason, SEPs tend to be favored by small businesses with only a handful of employees, Slott said.

The contribution limit formula for a SEP plan is as follows: The contributions can't be more than 15 percent of an employee's compensation or $30,000, whichever is less. That said, employers can't include salary above $170,000 in a year in calculating an employee's contribution limit. Fifteen percent of $170,000 is $25,500.

If you did your math in the last paragraph and wondered, "how is this possible?" then you need to know that in order to save a total of $30,000, your employer must have some kind of additional plan. One way an employer could boost the deferral to $30,000 would be to combine the SEP with a money-purchase plan, Slott said. A money-purchase plan is a little like a traditional pension plan in that the employer contributes to an employee's account based on that person's income and years of service.

A SEP plan may be set up anytime during the calendar year. Business owners can even wait to open a SEP for a tax year until they file their tax return on April 15 of the following calendar year.

Employees aren't permitted to contribute to SEP plans unless they are the sole employee (in other words, the business owner). Employee salary reductions are permitted, however, in special SEP plans called SARSEP plans, which aren't covered in this article.

One reason many small business owners choose SEP and SIMPLE plans is that contributions don't have to be made every year. If your business has a bad year, you can choose to discontinue the contributions temporarily.

Withdrawal rules for SEPs are similar to those for IRAs.

Read a breakdown of small employer retirement plan features.

401(k) Substitutes for Small Business Owners… part 1

Despite all the hype surrounding 401(k)s, their cost and administrative requirements often make them a no-go for small business owners. What's more, they're not even available to self-employed individuals.

But, that shouldn't stop small business folks from benefiting from the tax advantages of tax-deferred plans. Over the past few years, Congress has created a new batch of simple (literally and figuratively) plans ideally suited for small businesses.

Now, small businesses can offer employees benefits comparable to big businesses.

In fact Blackstocks/ShareBuilder has a great 401K plan for small businesses.

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Finding the most effective and least burdensome tax-deferred retirement saving plan requires some research because there is no one-size-fits-all option.

It's worth the effort, though, and here's why: A small business owner or self-employed individual can save more tax-deferred money in these plans than in almost any other savings vehicle. While that's a big advantage, retirement plans do have some tradeoffs. The most significant is that in exchange for lower paperwork requirements, the employer is required to make contributions to the plan on behalf of the employee.

The first step in choosing a retirement savings vehicle is to define your status. Are you self-employed or a small business owner?

The distinction is not always obvious. A self-employed individual may or may not have employees, while small business owners may or may not be incorporated and may have no employees or only up to 100. This panoply of variations often leaves these folks scratching their heads and wondering what's the best tool to use.

A gen Xer launching a new dot-com may have different needs than a lawyer hanging out her own shingle. You must consider:

The amount of time and money you have to spend on a retirement plan;
Whether you have employees;
How much you value your employees; and
"Where you are in your business cycle," said Dee Lee, author of the book Let's Talk Money.

I Bet You Didn't Know that Business Credit Matters!

Most people know about personal credit and the impact on personal credit in our lives ranging any where from buying a home to getting insurance for your car. But most people have not heard of or focused on Business Credit. This is where many of us are really missing the boat. During the next 5 days, we're going to talk about business credit and how it can impact our lives - especially if you are a small business!

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What is business credit?

Your business credit record is the primary way that companies evaluate whether to do business with you—and on what terms. Companies rely on your business creditworthiness to make critical decisions, including whether:

• to sell to you
• to lend you money
• you are viable as a partner
• to lease the equipment you need to grow your business
• to increase your line of credit
• to help you carry more inventory at competitive prices
• to give you favorable financing rates and terms
• you stack up favorably against other companies competing in your market space

Business credit includes a variety of data points about your business, such as the date it started, the skills and experience of your top leaders, number of employees and annual sales. This type of information is listed in your business credit profile, along with scores and ratings that are derived from your business’s past behavior to predict its future behavior. For example, your ability and willingness to pay your bills on time in the past is factored into your ability and likelihood of paying your bills in the future.

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Here is a good example why business cerdit is important:

Example

You have an average personal credit history (FICO of 650) without a business credit profile and the business is approved for a loan of $100,000 on terms of 13% interest over 10 years. If there had been a favorable business credit profile the terms on the same loan might have been 7% interest over 10 years resulting in the savings of tens of thousands of dollars.

Here is what you could save by having a Favorable Business Credit

Profile:

Loan Amount                $100,000                          $100,000

Interest Rate                        13%                                   7%

Term of Loan                10 years                           10 years

Monthly Payment           $1,493.11                       $1,161.08

Total Payments           $179,173.20                   $139,329.60

 

Total Savings:                                                    $39,843.60