Wednesday, December 14, 2005

Free Subscription to Small Business Digest       12/05 Issue Contents Small Business Audits Up For 2006, Careful Record Keeping Needed Now With the IRS reporting a significant jump in small business audits, firms need to review their accounting and reporting programs before the end of the year. For the fiscal year ending September 30th, the IRS reported that the number of audits of small firms more than doubled, according to IRS Commissioner Mark Everson. The jump, Everson said, was a result of the department’s rebuilding of enforcement efforts that had suffered a seven-year decline due to other demands. This change, a greater emphasis on auditing of smaller firms, means that the chance of a small firm getting a call from the IRS is greater in 2006. However, as the agency reported, it audited just .79 percent of small firms last year, compared to 20% of companies with assets over $10 million. At the same time, more than 1.2 million individual returns, particularly of those earning more than $100,000 annually, were reported. Audit Chances Increased What this means, a panel of experts reported, is that the chance of a small business being audited has now increased beyond that of an individual. With just a few weeks left in this calendar year, businesses should review their expenses and documentation in anticipation of being called by the IRS. Some of the more obvious ones are: Travel and entertainment expenses Depreciation and other non-cash items Prepaid expenses and other non-cash accruals Tax credits Charitable contributions and in-kind services Licensing and other fees Shipping expenses Sales and returns However, it is surprising how these expenses are often logged wrong or not even recognized.  A recent survey showed that more than 10% of respondents had difficulty reconciling sales and returns. Online Search Charges Offer Problems Another new area many small firms will need to deal with this year is cost of online search.  With the billions of dollars being collected by Google, Yahoo and other online services, accounting for and recognizing these expenses offer a new dimension to accounting. Experts consulted by this newsletter suggest rolling these expenses into advertising categories.  For smaller companies with limited ad budgets in the past, this category may grow significantly to raise a question with the IRS.  Be prepared to document these costs as another problem is that many of the charges are done via credit cards, often a personal one of the owner or president.  For these reasons, charges for search placement should be carefully charted and copies of all monthly charge bills kept for at least seven years. For smaller firms, the new edition of Barnard B. Kamoroff’s book, “422 Tax Deductions” has just been updated and is available from your local bookstore. Kamoroff is a CPA with significant experience helping smaller companies recognize and apply expenses properly to avoid an IRS audit. 10:00:58 AM    comment []

Free Subscription to Small Business Digest       12/05 Issue Contents With Change Affecting Many Small Businesses, "Ping, The Frog" Offers Hope To the list of animal allegories for business concepts, a noted marketing expert has added the Frog. In Stuart Avery Gold’s case, his emphasis is on how individuals and managers can deal with and grow from change—due to either internal company factors or external factors. His book, “Ping: A Frog In Search Of A New Pond,” offers strategies and insight on how to prosper when change comes unexpectedly and is seemingly overwhelming. His character, a frog name Ping, not only deals with change but also with the need of many managers to seek new opportunities.  In the frog's case, the issues confronted are the drying up of his “home” pond and the decisions he needs to make to regarding it. Small businesses in particular have been buffeted with natural and economic disasters in the past few years. Studies by experts have shown that the most prosperous companies evolve and change with an average “comfort span” of about seven years. Employer, Employee Assessment Likewise, employees need to access opportunities within their company and decide when “the pond is drying up and there is a need to jump to another pond.” The book has value for managers and HR professionals concerned about employee growth and morale. In particular, there are many lessons to learn from the book about dealing with change. Says Gold, “Change—real change—is unsettling.  When change happens, it can create the kind of fear that can take hold of even the most confident of Frogs. He believes that fear of change can grab and seize employees with such strength that it can paralyze them. In recent surveys, small firm managers have indicated a growing unease amongst employees as the pace of change, whether adding new technology, requiring differing healthcare programs, extending the business into new areas or even succession moves, has accelerated. For Gold, the case can be made that change brings out the best in people and enables them and their organizations to thrive. So, to the Parthenon of Lions, Tigers, Gorillas and other corporate symbols, Gold now adds the Frog. For today’s small business world, it appears to be very apt. 10:00:09 AM    comment []

Benefit Packages Need To Be Carefully Prepared To Attract, Hold Staff Putting together a benefit package that is both attractive and reduces costs is always difficult. Benefit packages act as both a tool to attract talent and a channel for keeping needed workers. One benefit that is always attractive to staff is a good healthcare plan. According to surveys by HSAfinder.com and Randstad North America, improved benefits are the number one employee priority.  Almost half of all employees surveyed (48%) ranked this as an important consideration in taking or staying with a position. Interestingly, improved technology, with a 44% approval rating, was second in the decision matrix. This finding was further buttressed by another question indicating that improved training (26%) was also important to staffers. Surfacing a trend first reported in 2003, many employees thought additional incentive programs were also important (34%), particularly in the area of staying with a current position. Higher salaries were less important than other factors, with many employees feeling that additional staff was a more important usage of company resources (32%). Clearly, the most undesirable aspect of benefit management was shifting healthcare costs to employees, with many (51%) ranking this as an important consideration in keeping a current position rather than accepting a new post. In addition, how companies handled displacement—either transfers or dismissals—was important to 55% of the more than 3,000 combined survey respondents.  9:59:09 AM    comment []

Free Subscription to Small Business Digest       12/05 Issue Contents Employees Relations Different In Smaller Companies, Respondents Say With the death of Peter Drucker, small business owners have lost a strong advocate of the nimbleness embedded in smaller enterprises. Drucker successfully argued through a half-century of books and talks that larger corporations needed to emulate some of the best practices of smaller entities. “Only in seeing and adapting flexibility within the giant organization can they grow,” he argued. Happily, for many smaller companies, large corporations tend to ignore Drucker and allow their smaller brethren to steal a market or invent a concept or product which they later pay millions to acquire. For smaller companies, Drucker argued that allowing people to grow and adopt enabled them to grow more quickly. Drucker and others point out that smaller companies take on individuals and ideas that would not be accepted in larger corporations. Often, these individuals require special handling and acceptance of quirks and methods that would not be tolerated elsewhere. More Difficult For HR Practioners For the HR departments of smaller companies, this approach requires greater flexibility than many professionals are accustomed to. In a recent survey by HR Resources, the question was asked of HR Professionals: Do you think HR departments must be more flexible than their counterparts in larger corporations. A whopping 87% responded affirmatively. Many said they needed to adjust not only to the individual worker but also to the departments within company. Many respondents with experience in both large and small companies said they needed make significant changes in the ways they dealt with employees within smaller enterprises. To a vocal minority (41%), the biggest hurtle was building a benefits program that could attract the talent necessary for the company to grow. To take part in the survey click here: http://surveymonkey.com/s.asp?u=418111532172 9:58:27 AM    comment []

Free Subscription to Small Business Digest       12/05 Issue Contents Advertising, PR Getting Budget Boost As Paid Search Impacts Costs In a sharp reversal from prior year plans, many small firms are expecting to increase their sales and marketing budgets for the coming 12 months. According to a survey of more than 2200 respondents by this newsletter, one in three plan to add to their public relations budget while 43% expect to add to committed advertising dollars. In contrast, only 5% expected to reduce PR expenses and just one in ten planned to reduce advertising outlays. Two key variables are the growth in paid Internet search requirements and postal increases. 25% Increase Over 2006 Compared to last year’s survey, these figures represent more than a 25% jump in both these categories. In comments accompanying their replies, many small business owners reported they perceived a more difficult marketing environment in the coming year.  For businesses in the B-to-B space, there was also a growing concern about the flattening of the distribution channels due to growing Internet offerings. For consumer-oriented companies—about 18% of respondents—growing Internet efforts were, they reported, forcing them to spend more in that area. In many cases, the growing presence of paid Internet search programs required them to spend additional advertising dollars.  Many estimated that the cost of Internet search would consume more than 10% of their marketing dollars in 2006. To put this into more context, 46% of those responding said they were increasing their web, online services budgets, while only 4% said they were reducing such commitments. Headquarter Programs Grow At the same time, outbound telemarketing, inbound phone marketing and reduced personal calling were reported by 57% of respondents. One company president, speaking anonymously, indicated he was halving his full-time work force in favor of headquarters centered staffs and programs. Distributors, about 4% of the total respondents also indicated they were concerned that the ability of retailers and others to access sources directly was starting to hurt their overall sales. Respondents attributed the increase in public relations funding to the need by companies to find alternative channels to reach current and potential clients. Another factor reported by respondents was the anticipated increase in postal rates, which many felt unduly impacted their promotional efforts while enabling the big mailers to skirt many of the increases. 9:57:38 AM    comment []

Free Subscription to Small Business Digest       12/05 Issue Contents Survey of 101 Small, Medium Size HR Executives Budget Plans for 2006  Maintaining Increasing Training 29% 14%  Obesity Programs 60% 14% Smoking Cessation Programs   60%  6% Other in-house health tools 60% 4% Employee Relations  50% 5%  Employee Retirement Programs 57% 17% Retirement Programs  59% 14% Safety Programs  67% 9% Absentee Improvmnt. Programs 69% 11% Drug Abuse Programs 50% 31% Employee Retention Programs 67% 5% Recruitment Programs  59% 12% Salary Guides/Structure 61% 13% Employee Evaluation Programs 39% 11% Employee Incentive Programs 52% 13% 9:56:53 AM    comment []

Staff Functions Critical To Small Business Success; Need To Develop Proactive Internal Consulting Increasingly, internal and external factors are affecting small businesses, causing them to be buffeted to an extent unknown a decade ago. In this environment, it is becoming more important each year that the key support functions need to transform themselves into proactive consultative entities. Experts agree that many HR groups have been able to make the transition from a traditional compliance-oriented functional organization into or more consultative and value added component of the business process.  For many others, including MIS, purchasing, accounting, finance and other staff roles there has been less success, according to leading management experts. For many within these departments, this process of being more consultative requires learning new skills and taking risks including redefining relationships with bosses and core business leaders. Managers Wear Multiple Hats Within a small business, the managers responsible for these functions often wear other hats as well.  This multi-prong responsibility sometimes creates conflicts and prevents managers from doing their best. In addition, in handling staff functions as independent providers rather than consultants, the friction generated erects a barrier with other departments that can impact the overall success of the organization. Failure by today's business executives to understand the consultative side of these functions can be fatal according to internal consulting expert Kevin Herring. Claims Herring, those who fail to make the necessary changes often wake up to find themselves outsourced. According to Peter Drucker, the late management guru, understanding the interlocking roles of functional areas is critical to developing an expanding organization. As Drucker often pointed out, “support functions often act as the anchor on new processes or can, if properly motivated, provide the fuel and glue to drive new successes.” With the “flattening” of organizational structures brought about by new technologies and business practices, the need for more communications, team approaches to solving corporate issues and to integrate functions, has grown significantly. Recent Study Highlights Needs A recent study by www.HRsolutionsonline.com indicates that this process of imparting the consultative approach to functional areas is increasingly becoming more important.  Among the key drivers for this approach is the need for organizations to more swiftly react to changes in the marketplace, financial pressures to improve employee productivity and the changing nature of the workforce. This latter point, where employees want to know the “why” of a particular activity as well as the “how” is transforming the business landscape. There is also more active involvement by employees in the overall management of the organization with IT programs that “wire” employees into the company process giving them more knowledge of what is happening as well as a methodology to provide input. New Manual Available Henning's new book, The "Practical Guide for Internal Consultants: Using Your Expertise to Build Business Capacity" is the first book created to provide key concepts, steps and examples to enable readers to function as value-adding internal consultants. Henning's other book, "The Future of Staff Groups" is now in its second printing and provides a foundation for practices outlined in the new volume. Together, the two books describe what it takes to consult to the core business to resolve issues of cost, quality, profitability, cycle time, and customer satisfaction. They are available for purchase at Ascent Management Consulting: http://www.ascentmgt.com. Both staff and operation functions need to realize that an integrated small business can be much more effective in dealing with change and new challenges. 9:56:27 AM    comment []

Employers, Employees Going From FSAs to HSAs Have Some Timing Issues To Resolve With the end of 2006 fast approaching, many companies are thinking of switching their FSA plans to an HSA program. As with any new program, HSAs sometimes come in conflict with other offerings unless regulatory adjustments are made. Employees who have a health FSA this year but have elected to have an HSA may have a problem: they can’t make contributions to their HSA in January if they have not fully expended their 2005 allowances. If they have not done so, they must wait until the end of the new grace period for FSA use-it-or-lose-it spending which has been extended 2.5 months into next year. This option leaves them with a much smaller HSA contribution for the year based on the time they start their new HSA. A new IRS notice fixes it for this year, allowing the new HSA owner to make contributions to their HSA during the 2006 FSA grace period as long as there is no remaining money in their FSA, or if the employer exempts all HDHPs from the requirement. Unless some changes are made in the regulations, next year FSAs and HSAs will be much less compatible—anybody with an FSA going into an HSA must wait out the exemption period unless the employer drops the grace period, which a lot of HSA backers would love to see happen so more people go into HSAs. Another option: just drop health FSAs entirely before the end of next year or, best practice, replace them all with HSAs combined with post deductible FSAs across all workers. The HSA-FSA combo is now mentioned so often as the best approach. 9:55:51 AM    comment []

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