As the new year approaches, most of us turn our efforts to plans for the upcoming twelve months. Those who own businesses not only have to make plans for our families and personal lives, but also for our businesses. There are so many different areas to concentrate on when it comes to beginning of the year business planning, it can often be overwhelming just to think about it. However, by going through your business plan and seeing what needs the most attention this year, you can narrow down your planning and then turn to the experts to help you put these plans in place. Here are just a few different areas that you may need to consider this new year.
Developing a Business Plan
Having a plan that is written out with the help of a professional is the best way to ensure you will be organized in reaching your goals this year, especially if yours is a new business. Chris Hove with NBC Bank comments, “It’s an exciting time to be an entrepreneur in Lincoln. The State of Nebraska is focusing on entrepreneurship growth by dedicating resources to grow Nebraska-based business, which creates opportunities for individuals looking to start a business, keeping talented individuals living and working in Nebraska.
I’m proud to say that our team at Nebraska Bank of Commerce is very entrepreneurial. We work with countless entrepreneurs and have noticed a need for strong business plans, as the business plan is the core of any new business. A well thought out, organized business plan with conservative revenue projections is great for potential investors and helps the bank understand every detail of the new business. Our 2012 Seminar Series will kick off with a lunch and learn about what exactly a banker is looking for in a business plan, with pointers on how to increase chances of being funded. I am really looking forward to being able to assist entrepreneurs in the community, as I believe NBC’s support of the small, local business owner is truly what sets us apart from other banks.”
Working with a Financial Planner
“The business owners I know and work with are typically consumed on a day to day basis with running their business,” comments John Oestreich with Waddell and Reed. “They know their business inside and out, but may not know of other issues and areas they need to focus on. That’s why it’s important they work with a financial planner. Financial planners can help you with many different elements of your business planning from taxes to retirement to integrating your business into your own personal assets. In order to help a business owner out over the course of the year and the future, we need to develop a comprehensive plan that takes the current challenges and aligns them with what they are trying to accomplish in the future.”
“Business owners should see financial planners as a complement to their business, just as they would see an accountant or attorney,” continues John. “Choosing the best planner for your needs is very important. Some professionals focus on certain industries while others take a more comprehensive approach because they know all the financial pieces of your business need to come together. The most important aspect of your financial planner is that he or she is aware of what your future goals are. You must be comfortable having dialogue with him or her about your goals and feel confident that they possess the know-how to move you forward and toward those goals. Recommendations are generally the best way to find a financial planner. Once you have a list of potentials, you should call them and ask them about their philosophy and how they work with other clients. This will help you see if they are a fit before going further down the road with them.”
“Failing to take the necessary time to put a thoughtful, dedicated plan in place for your financial goals is the biggest mistake I see business owners make,” John concludes. “Taking the time to work with a professional and put a plan together will pay huge dividends in regards to time, value and, most importantly, the peace of mind that comes with knowing your financial plans and goals are taken care of by a professional.”
“When working with business owners, I start by helping them gain clarity on what they want to achieve, both personally and professionally,” adds Matt Egge with Northwestern Mutual Financial Network. “Then I come up with creative solutions for filling gaps in their current plans, and help implement those solutions and manage the process. Most importantly, it’s not a one time and forget it process. It is an ongoing process with at least a once a year review. Key Employee retention strategies and Executive Benefit strategies are hot buttons that I find many business owners are worried about and what keeps them up at night.”
Retirement Plans for Small Businesses
Jason Peplinski with JP Financial Services offers the following advice regarding retirement plans for small business:
If you’re self-employed or own a small business and you haven’t established a retirement savings plan, what are you waiting for? A retirement plan can help you and your employees save for the future. And you’ll be in good company–over 1 million small businesses with 100 or fewer employees currently offer workplace retirement savings plans.
Tax advantages A retirement plan can have significant tax advantages:
· Your contributions are deductible when made
· Your contributions aren’t taxed to an employee until distributed from the plan
· Money in the retirement program grows tax deferred (or, in the case of Roth accounts, potentially tax free)
Types of plans
Retirement plans are usually either IRA-based (like SEPs and SIMPLE IRAs) or “qualified” (like 401(k)s, profit-sharing plans, and defined benefit plans). Qualified plans are generally more complicated and expensive to maintain than IRA-based plans because they have to comply with specific Internal Revenue Code and ERISA (the Employee Retirement Income Security Act of 1974) requirements in order to qualify for their tax benefits. Also, qualified plan assets must be held either in trust or by an insurance company. With IRA-based plans, your employees own (i.e., “vest” in) your contributions immediately. With qualified plans, you can generally require that your employees work a certain numbers of years before they vest.
Which plan is right for you?
With a dizzying array of retirement plans to choose from, each with unique advantages and disadvantages, you’ll need to clearly define your goals before attempting to choose a plan. For example, do you want:
· To maximize the amount you can save for your own retirement?
· A plan funded by employer contributions? By employee contributions? Both?
· A plan that allows you and your employees to make pretax and/or Roth contributions?
· The flexibility to skip employer contributions in some years?
· A plan with lowest costs? Easiest administration?
The answers to these questions can help guide you and your retirement professional to the plan (or combination of plans) most appropriate for you.
A SEP allows you to set up an IRA (a “SEP-IRA”) for yourself and each of your eligible employees. You contribute a uniform percentage of pay for each employee, although you don’t have to make contributions every year, offering you some flexibility when business conditions vary. For 2012, your contributions for each employee are limited to the lesser of 25% of pay or $50,000. Most employers, including those who are self-employed, can establish a SEP.
SEPs have low start-up and operating costs and can be established using an easy two-page form. The plan must cover any employee aged 21 or older who has worked for you for three of the last five years and who earns $550 or more.
SIMPLE IRA plan
The SIMPLE IRA plan is available if you have 100 or fewer employees. Employees can elect to make pretax contributions in 2012 of up to $11,500 ($14,000 if age 50 or older). You must either match your employees’ contributions dollar for dollar–up to 3% of each employee’s compensation–or make a fixed contribution of 2% of compensation for each eligible employee. (The 3% match can be reduced to 1% in any two of five years.) Each employee who earned $5,000 or more in any two prior years, and who is expected to earn at least $5,000 in the current year, must be allowed to participate in the plan.
SIMPLE IRA plans are easy to set up. You fill out a short form to establish a plan and ensure that SIMPLE IRAs are set up for each employee. A financial institution can do much of the paperwork. Additionally, administrative costs are low.
Typically, only you, not your employees, contribute to a qualified profit-sharing plan. Your contributions are discretionary–there’s usually no set amount you need to contribute each year, and you have the flexibility to contribute nothing at all in a given year if you so choose (although your contributions must be nondiscriminatory, and “substantial and recurring,” for your plan to remain qualified). The plan must contain a formula for determining how your contributions are allocated among plan participants. A separate account is established for each participant that holds your contributions and any investment gains or losses. Generally, each employee with a year of service is eligible to participate (although you can require two years of service if your contributions are immediately vested). Contributions for any employee in 2012 can’t exceed the lesser of $50,000 or 100% of the employee’s compensation.
The 401(k) plan (technically, a qualified profit-sharing plan with a cash or deferred feature) has become a hugely popular retirement savings vehicle for small businesses. According to the Department of Labor, an estimated 60 million American workers are enrolled in 401(k) plans with total assets of about 3 trillion dollars. With a 401(k) plan, employees can make pretax and/or Roth contributions in 2012 of up to $17,000 of pay ($22,500 if age 50 or older). These deferrals go into a separate account for each employee and aren’t taxed until distributed. Generally, each employee with a year of service must be allowed to contribute to the plan.
You can also make employer contributions to your 401(k) plan–either matching contributions or discretionary profit-sharing contributions. Combined employer and employee contributions for any employee in 2012 can’t exceed the lesser of $50,000 (plus catch-up contributions of up to $5,500 if your employee is age 50 or older) or 100% of the employee’s compensation. In general, each employee with a year of service is eligible to receive employer contributions, but you can require two years of service if your contributions are immediately vested.
401(k) plans are required to perform somewhat complicated testing each year to make sure benefits aren’t disproportionately weighted toward higher paid employees. However, you don’t have to perform discrimination testing if you adopt a “safe harbor” 401(k) plan. With a safe harbor 401(k) plan, you generally have to either match your employees’ contributions (100% of employee deferrals up to 3% of compensation, and 50% of deferrals between 3 and 5% of compensation), or make a fixed contribution of 3% of compensation for all eligible employees, regardless of whether they contribute to the plan. Your contributions must be fully vested.
Another way to avoid discrimination testing is by adopting a SIMPLE 401(k) plan. These plans are similar to SIMPLE IRAs, but can also allow loans and Roth contributions. Because they’re still qualified plans (and therefore more complicated than SIMPLE IRAs), and allow less deferrals than traditional 401(k)s, SIMPLE 401(k)s haven’t become popular.
Defined benefit plan
A defined benefit plan is a qualified retirement plan that guarantees your employees a specified level of benefits at retirement (for example, an annual benefit equal to 30% of final average pay). As the name suggests, it’s the retirement benefit that’s defined, not the level of contributions to the plan. In 2012, a defined benefit plan can provide an annual benefit of up to $200,000 (or 100% of pay if less). The services of an actuary are generally needed to determine the annual contributions that you must make to the plan to fund the promised benefit. Your contributions may vary from year to year, depending on the performance of plan investments and other factors.
In general, defined benefit plans are too costly and too complex for most small businesses. However, because they can provide the largest benefit of any retirement plan, and therefore allow the largest deductible employer contribution, defined benefit plans can be attractive to businesses that have a small group of highly compensated owners who are seeking to contribute as much money as possible on a tax-deferred basis.
As an employer, you have an important role to play in helping America’s workers save. Now is the time to look into retirement plan programs for you and your employees.
Many times, investing can be an important part of your business planning. Whether you are doing it for personal or business reasons, here are five investing rules to live by from Mike Story, Omaha Division Sales Manager at Physicians Mutual.
Investing is a great way to grow your retirement funds. But while investing can be safe, it does carry risks … the bigger the reward, the bigger the risk of losing money. In order to do it safely, follow some investing rules.
1. Do Your Research: Before making any investment decisions, get a good understanding of the product and company – read books, surf the Web, ask financial advisors.
2. Invest Safely: Don’t risk money you can’t afford to lose – like money to pay your mortgage, rent or other bills. Instead, use “extra” money – funds that are left over after you’ve paid all the necessities.
3. Diversify Your Portfolio: Make sure you have a variety of investments that includes different types of stocks, bonds and cash – this spreads out and reduces your risk.
4. Know Your Risk Level: Typically, the younger you are, the riskier you can be. That’s because if you have losses, you have plenty of time to rebuild your savings before retirement. Then, as you get older, you should begin to shift to a more even mix of risky and safe investments. The closer you get to retirement, the safer your investments should be.
5. Re-Evaluate Your Portfolio: Look at your portfolio regularly to make sure you are on-track with your saving goals and make adjustments as needed. However, don’t make panicked decisions – investing will always have many ups and downs, so give yourself at least five years in each investment.
Working with an Accountant
“It’s important to have an accountant to work with in all phases of your business,” explains Russ Cowan with Money Smarts, Inc. “In business, at the end of the day, everything is about the bottom line. In making decisions that will affect the bottom line, it is important that you get sound advice and have a plan in place for the future. Working with an accountant can assist a business owner in budgeting, tax planning and timing of purchases. The more contact you have with your accountant, the more they get to know your business and the better they can serve you.”
Choosing the right accountant is imperative to the success of your business. “Accounting, like many other fields, is plentiful with options,” explains Russ. “Interview your accountant about experience in your area of practice. Ask them what to budget for in regards to actual expense for the year, and ask what value you will be receiving for your budgeted expense. Not all businesses fit into each firm’s normal client profile. Often smaller businesses are struggling to find the right fit. The final thing I think is most important about finding the correct accountant and using them to your advantage is to find an accountant who is passionate about their work. They should care about what is going on with your company and your success.”
Working with a Tax Professional
Tax professionals and accountants can sometimes be one in the same, but some companies use two separate professionals for these needs. If you are working with a tax professional separate from your accountant, consider the following.
“There are a number of times when it is appropriate to consult with a tax professional in regards to your business,” states Lance Nelson with H&R Block. “When you set up the business, consult with your tax professional to ensure you select the most appropriate business entity structure to minimize your tax obligations and to maximize your profit potential. Tax treatment varies significantly between different entity structures. Annually, you should conduct a planning session with your tax professional to ensure you are doing everything possible to minimize your tax obligations throughout the year. Additionally, your tax professional should help you develop a plan for fulfilling all of your tax obligations, whether quarterly or annually. You don’t want to forget to make a quarterly payment if that’s part of your tax plan! Any time you have a tax question or you have a significant change in your business, your tax professional should be just a phone call away. They should assist you with any questions and ensure that you clearly understand the tax obligations associated with any possible change in the business model.”
Lance offers the following suggestions for choosing the best tax professional for your business needs: “Tax planning and preparation is, first and foremost, about relationships. So be sure that you select a tax professional you are comfortable with from a personality perspective. If your personalities don’t mesh, you will never have an appropriate comfort level in your relationship. Obviously, professional credentials are important to determining a tax professional’s competency. Look for a tax professional with advanced credentials such as Enrolled Agent or CPA. Last, but certainly not least, be sure you select a tax professional with specific knowledge of your type of business. For example, if you own a consulting business, it might not be wise to select a tax professional who only has experience preparing taxes for manufacturing companies.
Most importantly, you need to select a tax professional whose ethics are beyond reproach. There is sometimes a very fine line between aggressively selecting tax-minimizing solutions and crossing the line into solutions the IRS will find objectionable and you don’t want to go there! Be sure your tax professional has the ability to stand behind their work and to guarantee the accuracy of their work. If they won’t guarantee their work and they won’t help you should the IRS come calling or charge additional fees to assist you when they do, these are red flags.”
Many of our businesses depend on our computers and most depend on a network that they probably don’t understand enough (or have enough time) to manage themselves. Therefore, working with a network provider/manager that you trust is key to the business plan of most companies.
Phil Lieber with P&L Technology says, “This year, P&L Technology realized that we are more than just a day-to-day partner for our customers and that we must be proactive in meeting the ongoing and future needs of our customers. We hired an upper level executive who has IT experience, but more importantly has business experience. Mr. Ed Bruening owned an IT company in Lincoln for many years. His goal is to meet with our customers on a quarterly basis so we can provide input into the long-term planning of any organization. It is very difficult to provide planning input if we don’t understand our customers’ needs.”
“Most business owners in today’s economic environment need to focus on the execution of their business model and partner with strong companies in all facets of their business and IT is just one of those areas,” Phil continues. “The business needs to control the IT, not the IT controlling the business. Make sure you sit down with your provider and have a plan in place for 2012, whether it is application upgrades, server upgrades, disaster recovery plans or cloud strategy and make sure the IT plan coincides with the business goals. The only constant in the business world is change and you can either embrace it and profit from it or ignore it. Gone are the days of meeting once a year. Business owners today must meet with customers every day and adjust to the needs almost daily and an IT infrastructure must support this, but you have to understand what it is supporting first. Too many business owners get caught up in the technology without understanding how the technology will enhance the customer experience with the organization.”
Equipment/Software to Improve Efficiency
The start of a new year is an excellent time of year to pause and probe your organization’s operational processes regarding document/package distribution. Are documents currently printed that could be electronically distributed? Are mailings currently manually collated that could be electronically collated? Could your direct mail response rates be dramatically improved by utilizing a double window envelope with trans-promotional advertising? Could mailing software reduce your outsourcing costs? Would independent parcel insurance be a savings over carrier provided insurance on your outgoing parcels? Claritus specializes in all types of document/parcel distribution hardware and software. Make a New Year’s resolution to contact Claritus and request a complimentary Executive Summary of your organizations distribution process.
Human resources is essential to any business with employees. Many times, working with a staffing company is the perfect way to take the human resources task off the plates of those who are not trained in it and put it in the hands of the experts. “Partnering with a staffing company can have a positive impact all year long,” explains Sheri Neeman with Advantage Personnel. “A business can remain flexible by using temporary employees, which allows them to be prepared for spikes in business without impacting fixed expenses. By using a staffing company throughout the year, a business can avoid all the administrative processes that come with hiring, allowing them to focus on other priorities.”
“It’s important to work with a staffing company that is familiar with your industry, so speaking to a representative and discussing what type of candidates they work with would be beneficial to your search,” adds Christine Nieman of Advantage. “Building a strong working relationship with the agency and its representatives allows them to be an advocate for your business and find the most qualified individuals to meet your needs. A staffing company should be able to work with you to find solutions and support both your best interests and the employees. All types of companies can benefit from using a staffing company. If a company is in need of temporary help, using a staffing company provides the people resources to complete the job without the commitment of a long term hire. For permanent staffing needs, a staffing agency allows companies to make sure the employee is the right fit before they hire by providing temporary to hire options. For skilled and professional positions, utilizing the resources of a staffing company means candidates can be pre-screened and evaluated based on their qualifications prior to being considered by the company. This cuts down on the volume of non-qualified candidates and provides for better use of the time and resources of the company.”
Although it may be impossible to plan all of your meetings for 2012, planning as many as you can has its advantages, especially when you want to meet outside of the office. Jason Kuhr with JTK cuisine & cocktails states, “Sometimes it’s nice to meet outside of your office, especially if you are bringing in colleagues or clients from out of town and really want impress them.” Having an outside meeting space, especially one that serves meals and has an impressive atmosphere, is great for important meetings and for special occasions (the company’s anniversary, for example, or around a holiday). “Some of our reservations are for six, eight or even twelve months in advance,” Jason points out, “so it’s always a good idea to make your reservations as early as possible, especially if it’s during a high demand time of year.” Try to plan your large meetings or events now and meet with the space you want to reserve so you can make sure you are on their books.
If your business operates a fleet of vehicles, fleet maintenance planning should be considered in your comprehensive business plan. Working with a company experienced in fleet maintenance is key in this part of your plan.
Adam Crist with Inland Truck Parts Company says, “Inland has developed a comprehensive 57 point inspection called Pro Guardian Breakdown Prevention. It covers all the vital components of your vehicle, essentially a bill of health so to speak. Pro Guardian serves as an early warning system for any failing components thus avoiding tow bills or more expensive repairs down the road. It covers all the annual inspection points required by the Nebraska Department of Transportation but much more thorough. In April of 2011, we added a second shift in our shop. This allowed businesses to drop their vehicle off at the end of the workday and having the needed repairs done at night thus avoiding any downtime. In today’s fast paced business environment businesses simply can’t afford unplanned downtime of their fleet.”
“Vehicle maintenance is an often overlooked area of doing business,” continues Adam. “Whether your business has one vehicle or twenty, my advice would be to have them on some sort of maintenance schedule. A properly maintained vehicle will extend the service life tremendously in turn saving the fleet owner from having to replace vehicles as often. Select a reputable repair shop that has the ability to service your entire vehicle and has the most up to date diagnostic equipment available.”
Increasing Business Through Referrals
Of course, no business can succeed without clients. Why not include increasing your revenue this year into your business plan? One way to do that is through referrals. Cheryl Hansen with Referral Institute-Nebraska says, “Did you know that 91% percent of business owners rely on referrals for some part of their business? But…98% of businesses do not have a referral marketing plan in place or any strategy to create a “referral partner” that would make their work more efficient and effective. Prospecting tends to be the area that most business owners spend most of their time and energy but with far fewer results than doing business by referral.
Make it a goal for 2012 to increase your knowledge in referral marketing by choosing several methods: reading a book, attend a class, be mentored, and attend networking groups. The average time per week spent networking is 6.3 hours. Where do you fall?”
The topic of business planning is an enormous one and can include a number of different aspects, some of which are vitally important to your individual business and others that are not so critical. The key is to focus on those areas that are most vital to your business’s success and growth over the next year and partner with the professionals who can help you put the processes in place to move forward.