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Tips to Find a Financial Advisor or Planner

Do I need a financial advisor or financial planner?’

If it’s ever occurred to you how complex and vital ‘getting it right’ is when it comes to saving, investing, maximizing the value of your wealth and planning for a safe, comfortable retirement, you’ve probably asked yourself that question.

Similarly, if you’ve felt the pressure of deciding on a big investment, such as a home or education, or felt overwhelmed with the financial details after a wedding, the birth of a child, divorce, death of a spouse or major illness, you’ve probably wondered about finding someone to advise you.

But according to at least one survey, over a third of Americans don’t have a good understanding of what a financial advisor actually does. That figure balloons to 46% for Milennials.

So what kind of services do financial advisors and planners provide? Broadly, they can help you manage your financial life using a variety of strategies and products to both manage your wealth and improve your financial habits. That’s the short, easy answer; you’ll have to read on for more detail.

Not all financial advisors are the same; some specialize in certain practice areas, types of clients, strategies and products. Some work with clients all over the country; others just focus on clients their own town. Some can help you with your taxes or estate planning; others will simply focus on retirement planning. Some focus on younger client; some just on retirees. Some even focus only on widows. As you can see, there’s probably an advisor out there that fits your needs perfectly.

You may need an advisor for many reasons. For example, perhaps you just received a considerable sum of money from a relative who died. Perhaps you just had a baby, and want to ensure its future in case the worst happened. Perhaps your company is offering a too-good-to-resist early-retirement package, and you want to make sure the money lasts. Any of these events (and many others) could naturally trigger the desire for some professional help in managing your financial affairs.

How to Find a Good Financial Advisor
How should you go about finding the right advisor? The first step is to figure out what sort of professional help you need. Like many people, some of your deepest financial thinking comes at tax time. So if you just want someone to dole out tax advice and preparation, a good old certified public accountant (CPA) will probably suffice. That CPA may or may not also be a financial advisor.

But say you’re looking for help in creating a savings plan, devise investment strategies for your investment portfolio, help you get out of debt and start saving for a house – in short, if you want someone to look at your entire situation, you should seek the help of a comprehensive financial planning firm or an individual financial planner. Firms typically have a staff of professionals that includes an insurance agent, tax professional, estate planner and financial advisor. Solo-practitioner financial advisors or planners may not be able to provide you with a full range of services that a firm can, but many leverage technology, such as automated investment platforms or robo-advisors, to help with financial planning, asset allocation, risk management, saving and more.

Next, starting for referrals from colleagues, friends or family members who seem to be managing their finances successfully. Another avenue is professional recommendations. A Certified Public Accountant (CPA) or a lawyer might make a referral. Professional associations can sometimes provide help. These include the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA).

Evaluating an Advisors Credentials and Certifications
Unfortunately for the general public, the education standards for financial advisors are very minimal. Anyone can call him or herself a financial analyst, financial advisor, financial planner, financial consultant, investment consultant or wealth manager, warns the Financial Industry Regulatory Authority (FINRA). In fact, an individual could drop out of high school, rent some office space, pass a FINRA general securities exam and be selling stocks all within a couple of weeks. While exams such as the Series 6, 7 and 63 satisfy the industry regulatory requirements, they do not offer the advisor experience when it comes to real-life situations.

The financial industry is also rife with professional designations, many of which can be obtained with little or no effort. However, it does have three leading certifications that have educational and ethical requirements:

A Chartered Financial Analyst (CFA) has a wide range of expertise in securities, financial analysis, investing, portfolio management and banking. The testing regimen for this certification is long and rigorous.
A Certified Financial Planner (CFP) must hold a bachelor’s degree and must have completed “a college-level program of study in personal financial planning, or an accepted equivalent”; in addition, a CFP has booked at least three years of industry experience and passed a series of comprehensive tests, and abides by a code of ethics and meets continuing education requirements. You can check the CFP Board’s website to verify that your advisor or financial planner belongs to this group.
A Chartered Financial Consultant (ChFC) holds a certificate, which uses the same core curriculum of the CFP, but does not require a comprehensive board exam and does not require that he or she abide by a code of ethics.
The latter two are often considered best for creating a general financial plan. If you are looking for someone with more of a retirement focus you may want to seek out a Chartered Retirement Planning Counselor (CRPC), who has completed intensive training in retirement planning through the College for Financial Planning. If your concerns dominated by taxes, try a Personal Financial Specialist (PFS) who is a CPA but has also undergone additional education and testing, thereby offering more expert financial planning qualifications. For insurance and estate-planning matters, you might want an advisor who has attained mastery as a Chartered Life Underwriter (CLU).

Choosing a Financial Advisor You Can Trust
Although most of the big retail brokerages offer financial planning services, be cautious with their personnel. While many are highly trained and can be trusted, others may just be glorified stockbrokers hired by large wire houses to sell proprietary mutual funds and stocks. They are incentivized, sometimes even required, to push these products, which are owned by their firm – and for which they receive top commissions. And with some wire houses, it’s all about quantity, not quality: The more buying and selling that a broker does in an investor’s account, the higher his commission payouts.

If you’re looking for someone a little different than the everyday stock jockey, it may be wise to hire a registered investment advisor (RIA) or Investment Advisor Representative (IAR). They are held to a higher degree of accountability than most brokers, and you’ll typically find them the most knowledgeable. They are also required to provide to all potential investors upon request a Form ADV Part II, a uniform submission used by advisors to register with state regulators and the Securities and Exchange Commission (SEC). This is your opportunity to learn about your advisor, so make sure you use it. Among other things, this will allow you to determine whether your advisor has ever applied for personal bankruptcy (“Do as I say, not as I do” is not exactly the sort of philosophy you want in a financial manager).

You can check on any regulatory blemishes on the advisor’s record at FINRA’s broker check site. One thing to keep in mind, however, is that an isolated complaint or infraction does not necessarily mean that the planner is dishonest or incompetent. Any charge brought against a broker or planner will go on the person’s record, regardless of whether the planner is in the right. But if the record shows a long-term pattern of violations, customer complaints or charges of a serious nature, then you should probably find someone else.

Whatever sort of services you need, make sure that advisor is held to fiduciary standards, which charges him or her with the responsibility of acting in the best interests of an investor. In the investment world, RIAs are required to abide by a fiduciary standard; stockbrokers generally just have to abide by a less-rigorous suitability standard (though the Department of Labor’s new Fiduciary Rule, scheduled to be phased in starting in April 2017, greatly expands the types of professionals who are expected to comply with fiduciary standards; see DOL Fiduciary Rule: Everything You Need to Know). Registered investment advisors are either registered with their state of residence or the SEC; they are regulated under the Investment Advisors Act of 1940. If you can find an independent RIA, you also won’t have to worry about paying high commissions on proprietary products.

Questions to Ask a Financial Advisor
Once you’ve identified a firm or individual to work with, make sure you understand all of the services that are available. At a minimum, consider the following:

Will it track your investment cost basis for you?
Can it file your tax return and help you with other tax related questions?
Does it look at insurance products? (i.e. life insurance, long-term care, annuities, etc…)
Can it help you plan your estate?
Will it refer you to another professional if the firm cannot provide the service itself?
Is there a succession plan, in case something happens to your advisor?
Working With a Financial Advisor
It’s also good to ascertain if your situation is typical of the advisor’s client base. For example, if you are a corporate employee looking for help planning for the exercise of your stock options, you should ask the advisor about their knowledge and experience in dealing with clients like you. A financial advisor who deals primarily with clients at or nearing retirement might not be a good choice for you if you are a 30-year-old professional looking for a financial plan.

It’s also important for clients and perspective clients to understand how their financial advisor communicates with clients and the frequency of those communications. How often will you meet to review your portfolio and your overall situation? Quarterly, semiannually, annually or as needed? Will these meetings be done in person or perhaps over the phone or via a service like Skype? It’s becoming more and more common for clients to work with their financial advisor remotely.

Additionally, does the advisor typically communicate by phone, email, or perhaps text message? Any or all are fine and both your preferences and the advisor’s may be based on your age and digital comfort level.

Fees or Commissions?
There is one more key question to ask an advisor: How are you getting paid?

Compensation generally falls one of two categories: fee-based and commission based.

A fee-based structure can be hourly, project, retainer or a flat ongoing amount that is derived from the percentage of assets being managed; usually, the greater the assets, the lower the percentage. Commission-based means the advisor charges a straight commission every time a transaction occurs or a financial product is purchased.

Fee advisors claim that their advice is superior because it has no conflict of interest. Commission-based compensation, they argue, can compromise an advisor’s integrity, affecting the selection or recommendation of products (some companies might compensate the advisor better than others). In return, commission advisors respond that those who get paid based on their assets under management (AUM) are more likely to recommend financial strategies that increase their AUM, even if they aren’t in your best interest, and that commissions keep their services affordable (though the costs of these commissions are born by you the investor and serve to reduce your returns).

Each year, more investors are shifting from the traditional commission setup and moving towards the modern fee-only approach. Because set fees are new to many investors, some common questions have risen, such as: “What is a fair fee?” and, “How will I be billed?” With the average mutual fund still charging an expense fee of approximately 1.4%, it’s safe to say that a total fee of 1.8% to 2% is fair. If you can find an advisor that can package an investment program that includes the cost of the investments, trading, custody and the advisor’s professional services for 1.8% or less, you’re getting a sweet deal. Most fees are now billed quarterly, so you’ll need to know whether they will be pulled in advance or in arrears.

A combination of payment methods may also occur. Before you sign on to work with an advisor, you should make sure that the rates, fee structure and commission schedule are clearly laid out (preferably in writing, as RIAs are required to do by law) so there are no surprises later.

Should You KNow About Six Things Bad Financial Advisors Do

A good financial advisor can add tons of value to your financial well-being and can enhance your quality of life. “Good” can be a subjective term, in this case good denotes someone who is qualified to help you and whose personality gives you the confidence to follow their advice.

In evaluating the latter, here is a list of six things financial advisors do that might mean that they’re not the right advisor for you.

They Ignore Your Spouse
While this can occur with both male and female advisers and the ignored spouse can be either the husband or the wife, most accounts of this type of behavior tend to be with male advisers all but ignoring the wife. There have been several accounts of widows leaving the adviser who served them while married for just this reason. If you are working with an advisor who ignores you, insist to your spouse that you switch advisors, any advisor worth their salt should be upfront that he or she serves the interests of both spouses equally.

They Talk Down to You
Not all clients are financially sophisticated, or for that matter, even take an interest in their financial affairs. Still, it’s the duty of the advisor to explain to you why he suggests a certain course of action or a particular financial product in a fashion that makes sense to you. If this isn’t the case be assertive or switch advisors and never let anyone you are paying talk down to you or make you feel stupid.

They Put Their Interests Before Yours
This is perhaps most common in dealing with financial advisors who are compensated all or in part via commissions from the sale of financial products. Are they recommending mutual funds, annuities, or insurance products that pad their bottom line but might not be the best product for you? You need to ask questions and understand how your advisor is compensated and if this results in conflicts of interest for them in advising you.
They Won’t Return Your Calls or Emails
A good financial advisor is probably busy, but if you are not important enough to them to rate a response in a reasonable amount of time this isn’t right. While most advisors can tell a story about a client who calls every day my experience is that most clients make reasonable requests and deserve a prompt reply to their questions. If someone who you are paying to provide you with financial advice won’t reply to your calls why keep paying them?

They Suggest That You Don’t Need a Third-Party Custodian
Can you say Madoff? If you ever find yourself in a meeting with a financial adviser who suggests that you shouldn’t have your account with a third-party custodian such as Fidelity Investments, Charles Schwab Corp. (SCHW), a bank, a brokerage firm, or some similar entity your best move is to end the meeting, get up, and run (don’t walk) away. Madoff had his own custodian and this was a centerpiece of his fraud against his clients. A third-party custodian will send statements to you independent of the advisor and usually offer online access to your account as well. Ponzi schemes and similar frauds thrive on situations where the client lacks ready access to their account information.

They Don’t Speak Their Mind
An important aspect of a healthy client-financial advisor relationship is honest and open communication. This goes both ways. Clients might express a desire to make a particular financial move or to invest in a particular stock or mutual fund to the advisor. A good advisor will tell the client if he disagrees with this suggestion if that is the case and the reasons why they disagree. To not do this is doing the client a huge disservice. At the end of the day it’s the client’s money and they can do with it what they wish. But a good financial advisor will never tell a client what they want to hear just to keep earning fees or commissions from them.

Tips For Retirement Saving

Regardless of whether you’re 25 or 55, saving for retirement is a wise financial strategy. Everyone will face retirement at some point, either by choice or necessity. Whether you are on track for retirement savings or need to play catch up, or you’re a financial advisor who wants to give clients a leg up on preparing for their later years, these eight essential tips for retirement savings will put more money in your account.

1. Grab the 401(k) or 403(b) company match.
If your workplace offers a retirement plan and a company match, you should contribute up to the amount that the company kicks in. Let’s say that José’s company contributes up to 5% of his salary and matches every dollar he puts into his workplace retirement account. If José doesn’t add his 5% to the pool he misses out on free money. José earns $50,000 per year. By investing at least $2,500 into his 401(k), he automatically gets a $2,500 bonus from his employer, along with important tax benefits.

For the greatest retirement benefit, contribute up to the maximum amount allowed by law to your retirement savings plans. Start now for the greatest financial benefit.

2. Claim double retirement plan contributions.
A little known retirement savings opportunity allows some teachers, healthcare workers, public sector and nonprofit employees the opportunity to contribute twice as much to retirement plans. These workers can add $18,000, the maximum amount (in 2016) to a 403(b) and up to $18,000 to a 457 retirement plan. That’s a total tax advantaged savings amount of $36,000 in one year.

3. File for Uncle Sam’s retirement savings credit.
If you are a middle- or lower-income taxpayer, you may claim a tax credit for up to 50% of your retirement plan contribution. If you are married and filing jointly with adjusted gross income of $61,500 or less (in 2016), and you contribute to a qualified retirement plan, you may be eligible for a tax credit.

The maximum credit amount per couple is $4,000 and $2,000 for an individual, depending upon your contribution amount and income.

4. Use the back door Roth IRA as a way to increase retirement savings.
If your current income is too high and makes you ineligible (for 2016: married filing jointly – $194,000; single – $132,000) to contribute to a Roth IRA, there’s another way in. First, contribute to a traditional IRA. There is no income ceiling for contributions to a non-deductible traditional IRA. After the funds clear, convert the traditional IRA to a Roth IRA. That way the funds can compound for the future and be withdrawn tax free, as long as you meet the withdrawal guidelines.

“I have high-income clients who open traditional IRAs and make non-deductible contributions on an automatic monthly basis to the maximum allowable amount ($5,500, or $6,500 for those age 50-plus). At the end of each quarter, we submit a full conversion request so that the entire IRA balance gets converted to their Roth account. By converting on a quarterly basis, there is not a lot of time for taxable gains to accrue in the traditional IRA. So the tax implication of the conversion is minimal for the client. And, they’re saving additional retirement dollars to compound and withdraw tax-free later on,” says Alyssa Marks, lead advisor, CMFS Group, Inc., Morton, Ill.

5. Retire in the right state.
Florida, Tennessee, South Dakota, Wyoming, Texas, Nevada and Washington: These states boast “no state income taxes.” Be aware that New Hampshire and Tennessee do tax dividends and interest. Fortunately for retirees, most states don’t tax Social Security. Before packing up and moving, evaluate all of the taxes in your proposed new home state.

6. Self-employed? Take advantage of available retirement savings vehicles.
Even if it’s just a side job, self-employment income allows you to contribute to a solo 401(k) and a Simplified Employee Pension (SEP) plan. You can contribute up to 25% of your net self-employment income, up to $53,000 (the 2016 limit; in 2017, it’s $54,000) with a SEP. If you’re under age 50, you can invest up to $18,000 (2016) in a Solo 401(k) in the role of employee. There’s also an opportunity to contribute more to the solo 401(k) in the role of the employer.

7. Don’t overlook the health savings account.
With healthcare costs growing and the proliferation of high deductible health plans, the health savings account (HSA) is a golden retirement planning opportunity. This tool can not only be used to pay for health care expenses, but also to squirrel away additional funds for retirement. The individual or employer contributes up to $6,750 for a family or $3,350 for an individual. The contributions are 100% tax deductible, and funds unused for medical expenses may continue to be invested and grow over time. Those over age 55 can sock away an additional $1,000 per year.

“Health savings accounts are the only savings vehicle that is tax deductible on the way in and potentially tax-free on the withdrawal if used for qualified medical expenses. These accounts should absolutely be funded to the maximum since participants are almost certain to have some out-of-pocket medical expenses currently or in the future,” says Robert M. Troyano, CPA, CFP®, founder and managing partner at RMT Wealth Management in Saddle Brook, N.J.

What’s more, “once you reach age 65, any assets inside the HSA account may potentially be used for anything, not just healthcare-related expenses,” says Mark Hebner, founder and president of Index Fund Advisors, Inc., in Irvine, Calif., and author of “Index Funds: The 12-Step Recovery Program for Active Investors.”

8. Benefit from getting older.
If you’re over age 50, the tax system is your friend. Retirement plan contribution limits are raised, giving the older investor a chance to accelerate their retirement savings. You’re allowed to increase contributions to both traditional and Roth IRAs by $1,000 for a total 2016 amount of $6,500.

Merchant Cash Advance Benefits for Your Business

A Merchant Cash Advance (MCA) has become one of the most popular forms of financing for small business owners. Many choose a merchant cash advance over traditional business funding these days. You may think a merchant cash advance is a short-term loan or a high-interest advance, but, in fact, it’s simply a sale. The merchant cash advance provider you’ve chosen to turn to is purchasing your future sales at a discount. Both parties agree to the amount of sales being purchased and for what discounted cost.

Merchant Cash Advances

Merchant Cash Advances, as alternative funding opportunities, have become popular as a result of a tough economy, and strict stipulations and loan parameters set by traditional lenders. If you’re interested in merchant cash advances, consider applying to First American Merchant. FAM is an award-winning business loan provider and payment processor that specializes in the high risk industry. First American Merchant boasts an A+ rating with the BBB and offers exceptional business funding opportunities to merchants of all types. Let’s compare small business funding and merchant cash advances offered by FAM:

Small Business Funding

  • Strict credit requirements

  • Long wait times for funding

  • Complicated contracts

  • Extensive documentation

  • Lower approval rates

Merchant Cash Advance

  • Credit scores below 500 approved

  • Receive your funds within 72 hours

  • Simple, flexible programs

  • No tax returns or financials required

  • Fast application process

Merchant Cash Advance Benefits

Are you trying to find out if a merchant cash advance is right for you? Below you can read the benefits of using an MCA for your business and see whether you should apply for it or not.

  1. An MCA Can Help You During Times of Growth

Alternative funding in the form of a merchant cash advance can help you turn your great ideas into a reality. Working capital that is available in time can help you reach noticeable growth.

  1. Thanks to an MCA, You Won’t Miss the Available Opportunities

A merchant cash advance can help you prepare for a busy season. So, you’ll be able to pay for the extra salaries of staff, thus increasing customer satisfaction. Also, you can use an MCA to obtain inventory or purchase equipment.

  1. An MCA is Easier to Get

Unlike traditional funding, which can require a long and more difficult process to get approved for, a merchant cash advance is easier to get. An MCA doesn’t require to put up any collateral. You won’t have any problem even if you don’t have excellent credit. Also, a merchant cash advance is easy to repay since the repayment is based on the flow of your business: a percentage of your daily/weekly/monthly credit card sales will be required to pay off the loan amount.

As you see a merchant cash advance has a number of benefits that you can take advantage of so to grow your business and take it to new heights. Turn to a reputable merchant cash advance provider and start growing.

Ambitious and objective-oriented students can get education loans immediately

Students those who are highly ambitious and planning to touch the skies will long for education or mortgage loans that comes with fantastic repayment period and simple interest. These types of objective-oriented young students can approach this company immediately and borrow mortgage loan immediately. This famous and reputed money lending firm offers different types of mortgage loans like commercial, private first and second, home equity line of credit, first time buyer credit and refinance loan.

Creditors those who are planning to consolidate the loans can apply for consolidation loan through this company and repay the entire loan at one stretch. Rich and affluent people will use several credit and debit cards and expend the money lavishly and at one point of time will face financial crises and look out for best consolidation loan. These types of influential people can apply for loan consolidation or other personal loans through this company and get it sanctioned immediately.  Individuals those who are facing financial crunch or problems can apply for personal loan through this company and get it sanctioned on the same day. The personal loan or other loan disbursing officers working in this famous company will try their level best to disburse the loan check on the same day.

Borrowers will have to fill only simple questionnaire form

Branded and reputed financial institutions and banks will ask hundreds of question when the applicant applies for different types of mortgage and if they are not satisfied even with one question then they will decide to reject the proposal instantly. But this financial institution which has managed to disburse hundreds of loans in the past will ask only very few important questions that are related to loan. If the loan processing happier is happy and satisfied with the answers then he will try to disburse the loan check on the same day.

People those who are in need of urgent finance will get lots of important info about this company and their loan structures when they explore lendmorefinancial.com. Customers those who are in urgent need of second mortgage, equity loan and other types of commercial mortgage loan can place their requests on this site and one of the chat support executives will contact the visitors shortly. First time borrowers will be delighted with the services offered by this mind blowing company and become their regular customers. Visitors will showcase interest to apply when they explore testimonials and blogs.


5 Steps to Improve Your Credit Score | Small Business Advice

Are you struggling with bad credit? While it will take some time to repair your credit score, it is possible to “fix” your credit. The following five steps will help you get started:

Review Your Credit Reports

The first step is to review your credit report in detail from all three credit reporting agencies (Experian, Equifax and TransUnion). If you find any information you feel is incorrect, make sure you write it down. Since your credit score is calculated using the data from these credit reporting agencies, you need to make sure all the data is accurate.

Check for Errors

If you do find information that isn’t correct, you’ll need to reach out to the financial institution that reported that information. Some mistakes can be fixed quickly. For example, if you recognize the credit card listed but not the late payment, you can speak with the credit card company and have the issue fixed and updated. The best thing you can do is keep a thorough paper trail of your correspondence with each financial institution you speak with.

Rule Out Identity Theft

As you go over your reports, you might notice a balance you don’t recognize on a card you never use. You could be the victim of identity theft. To start managing the situation, you can use the government website IdentityTheft.gov. You can quickly report the identity theft and obtain a recovery plan. You’ll likely be asked to freeze your credit and file disputes with the credit bureaus.

Use the CFPB

If trying to right the situation with your financial institution doesn’t work, you can file a complaint with the Consumer Financial Protection Bureau. Once you submit a complain online, a case worker will be assigned to look into the situation further. This is where your detailed paper trail will prove to be useful.

Turn to Alternative Provider

Unfortunately, improving a bad credit score takes time – time an entrepreneur doesn’t have. If your trying to launch a startup but have bad personal credit, traditional processors won’t want to work with you. Without a merchant account, your business will be unable to process ecommerce transactions. An alternative provider, on the other hand, specializes in working with merchants considered “high risk”; this includes those with bad credit. A bad credit merchant account provides you with the card processing services you need to operate safely and efficiently, while also helping you rebuild your credit score.


Know More About Private Healthcare Exchanges Help Your Business

When it comes to benefits packages, both employees and employers know that one size does not fit all. What is right for a younger, entry-level worker might not make sense for an empty nester with seniority. A flexible benefits package based on employees’ unique situations and income levels is essential to retaining top talent.

As open enrollment approaches, employees will be hitting the exchanges once more to select their health care packages and other benefits for the coming year. Here’s a look at how some employers are using private exchanges to give employees more options, as well as to better manage benefits-related expenses.

What is a private benefits exchange?

Private exchanges are essentially marketplaces where employees can shop online for health insurance and other benefits, including dental, vision and life insurance. Employers first access the private exchange and choose from a variety of carriers the benefits they want to offer, as well as set their specified contribution levels for each offered product. Employees then access the exchange to peruse the products offered by their employer and select the ones that suit their lifestyles and financial needs.

“Think of these exchanges as a store, and each of the types of benefits are aisles,” Steven A. Nyce, director of the Willis Towers Watson Research and Innovation Center, told Business News Daily. “As an employer, you ‘own’ the store and have the ability to decide what products you want to include. So, say, one aisle is medical, [an employee] would have a number of products to choose from in that aisle.”

Depending on what products the employer has selected to offer, employees have their pick of the entire “store.” Those employees who need pet insurance can select it, while those who desire supplemental medical coverage, such as hospital indemnity, are able to as well. The aim is to give customizable control to the individual who is selecting the plan while also stabilizing costs to the employer.

“By facilitating a shift to a defined contribution … private exchanges offer the potential for cost stability to employers, while giving greater choice to employees, albeit with greater financial risk as well,” a 2014 report issued by The Kaiser Foundation reads. “Because the employer defines up front the amount paid to the employee, employers have greater control over how much they spend on health benefits.”

Health benefit costs are a huge consideration for employers. According to a 2015 report by the Centers for Medicare and Medicaid Services, health care spending grew by $102 billion between 2012 and 2013. The rapidly increasing costs of health care in the U.S., coupled with employer obligations under the Affordable Care Act (ACA), means keeping health benefits expenses stable is a growing challenge.

How are employees using private benefits exchanges?
To better understand the emerging private exchange marketplace, the Private Exchange Research Council (PERC) partnered with private exchange Liazon to see how consumers were operating within that exchange, and found that employers are offering more products over time and employees are purchasing more as well.

The PERC report found that, on average, employers offer 14 products on their customized exchanges. Medical, dental and vision plans are the most commonly offered by employers: The average company’s benefits package on Liazon includes six medical plans, three dental products and four vision packages from which to choose. Many companies also offer life insurance, legal plans, identity protection, disability benefits and pet insurance.

From 2013 through 2015, employees on average increased the number of products they purchased for their individualized plan from 3.6 to 4.4. A number of factors could be responsible, Nyce said, from the growth of the exchanges to more comfortability among those who have participated in the exchanges for several years.

“We’re seeing an expansion of benefits and a blurring of the lines traditionally seen between retirement and health care, life insurance and disability,” Nyce said. “Those were traditionally in their own silos, but we’re seeing them come together now in a more holistic approach. It provides employees with a unique experience, and they can use [these benefits options] as a platform to grow to a broader set of benefits in the future.”

Know How Long Could Your Business Survive on Cash Reserves

If your business had a slow month, would you be able to survive?

New research from the JP Morgan Chase Institute finds that many small businesses are living month to month, and the median small business has only enough cash in the bank to last 27 days without additional funds.

“It is well known that small businesses are a critical driver of economic growth, but the consistency of their growth is in question if they’re living month to month,” Diana Farrell, president and CEO of the JPMorgan Chase Institute, said in a statement.

The number of days businesses can survive without bringing in any money varied widely among industries:

Restaurants: 16 days
Repair and maintenance: 18 days
Retail: 19 days
Construction: 20 days
Personal services: 21 days
Wholesalers: 23 days
Metal and machinery: 28 days
Health care services: 30 days
High-tech manufacturing: 32 days
Other professional services: 33 days
High-tech services: 33 days
Real estate: 47 days
Cash reserves are critical in order for small businesses to meet liquidity needs, the study’s authors said.

“Cash reserves provide a readily available means to pay employees and suppliers in normal times and are an important buffer to draw upon during adverse times,” the study’s authors wrote. “In other words, cash reserves are a key measure of the vitality and security of a small business.”

The research found that the median small business holds an average daily cash balance of $12,100. At the high end of the spectrum, small businesses in the high-tech industry have $34,200 in reserves, on average, compared with just $5,300 for small businesses in the personal services industry. [See Related Story: Best Alternative Small Business Loans 2016]

When small businesses don’t bring in much more money than they spend each day, it contributes to low cash reserves, the research showed. Overall, the median small business spends an average of $374 each day and brings in an average of only $381 daily.

The study’s authors said this small profit margin leaves small businesses with very little wiggle room.

“Without strong and continuous cash-flow management, even small changes in cash inflows or outflows — especially if unexpected — can have large impacts on the financial health of these businesses,” the study’s authors wrote.

The results show that small business policymakers, advocates and private-sector partners need to do more to help small business owners improve their financial resilience, the researchers said. They proposed two main courses of action for small businesses.

“First, increasing access to credit can provide a lifeline to small businesses in the face of economic and/or idiosyncratic shocks,” the study’s authors wrote. “Second, [stakeholders need to be] helping small business owners better manage their cash flows and build up their cash buffer days to weather challenging times without relying on (often expensive) sources of credit.”

The study’s authors think there has to be a better set of available credit offerings to match the needs of the smallest and most financially fragile small businesses and more educational programs that illustrate to small business owners the consequences of poor cash-flow management.

“By helping small business owners understand typical levels of cash buffer days for their industry and region, providing information about typical causes of unexpected cash shortfalls, and providing concrete information about the timing and cost of credit options, these programs could help small business owners make better-informed decisions about the levels of cash balances they should seek to hold,” the researchers wrote.

The study was based on data from more than 470 million anonymized and aggregated transactions conducted by 597,000 U.S. small businesses between February and October 2015.

Grow Your Business With Using Revenue Based Financing

Securing financing for your startup or growth-stage business isn’t always easy. Sometimes, banks can be hesitant to lend or will demand a personal guarantee for any loans. Venture capitalists (VCs) or angel investors, when you can even find them, are always looking for big returns and a hefty slice of equity. For the entrepreneur, this creates a difficult situation. How can you continue to invest in your business without finding sufficient capital?

For businesses searching for a happy-medium between the world of conventional bank loans and the high stakes game of private equity investments, revenue-based financing might fill the void. But what is revenue-based financing? In short, it’s a loan that a business agrees to pay back over time by promising a chunk of their future revenues to the financier until a fixed dollar amount is reached.

What is revenue-based financing?
A loan with a fixed repayment target that is reached over a period of several years.
Generally comes with a repayment amount of 1.5 to 2.5 times the principal loan.
Repayment periods are flexible; pay back the agreed-upon amount sooner if you can, or later if you must.
Business owners do not sell equity or relinquish control when using revenue-based financing.
Revenue-based financing firms work more closely with you than bank lenders, but take a more hands-off approach than private equity investors.
“Everyone does it a little bit differently, but the way we use revenue-based financing is to provide a sum of money … which the company agrees to pay a percentage of their revenue until they’ve paid a set sum,” BJ Lackland, CEO of Lighter Capital, told Business News Daily. “The key to the whole thing is if a company grows faster than expected, they pay us in a shorter period of time, which means our ROI goes up. Or it may take longer than we expect, meaning ROI goes down.”

Generally, revenue-based financing comes with a repayment amount of about 1.5 times to 2.5 times the principal loan. The fixed dollar target can be helpful when a small business is planning out operations, but it’s important to recognize the payments will be coming out of your business’s revenue stream and to plan accordingly. That means maintaining best practices (which you should be following anyway) like keeping adequate financial reserves on hand and budgeting conservatively.

When do companies usually seek revenue-based financing options?
Growth stage companies looking to hire additional salespeople
When a company is in the midst of launching a new product
Companies on the cusp of a large-scale marketing campaign
A company with an established market, but not one large enough for VCs
Owners who don’t want to personally guarantee a loan OR sell equity
While debt financing allows owners to keep complete control, sometimes they must put up their personal assets as collateral, and even then it’s usually for a comparatively paltry sum. When it comes to private equity, on the other hand, founders often balk at the loss of total control of their company, but in exchange obtain the resources, network and experience of their financing partner. Revenue-based financing, again, is the middle ground; while companies like Lighter Capital are unlikely to sit on the board or really intervene in operations, they do maintain a stake in the success and growth of the company in a way banks do not.

“Banks are mostly concerned about getting their money back and making a small return,” Lackland said. “VCs and angels are just looking for huge upsides. They make their money on 10x returns; they’re constantly hunting for a home run hit. We’re in the middle; we like to call ourselves VC lite. We’re there to help and talk, but we don’t look over your shoulder.”

Is revenue-based financing right for you?
Revenue-based financing isn’t the best choice for every company. Before you pursue it, consider the following:

Your company should have an established revenue stream from which to draw debt service payments.
Your company should have an established market that is relatively stable.
Your financials should be in order. Make sure you have a summary of your debt, revenues, operating expenses, and future projections, and be sure it’s all generally accurate.
Before committing your business to any form of financing, it’s important to consider the long-term obligations you’ll be signing up for. A loan is a loan, and that means repayment is a must. When it comes to revenue-based financing, it might seem like there are fewer strings attached to the money, but treating it flippantly is a recipe for disaster.

“It’s incredibly flexible, but it’s still a loan,” Lackland said. “You need to be ready to handle those obligations. We try to make it really light on entrepreneurs, but we’re a capital provider and we have an obligation to our investors.”

Still, revenue-based financing is another tool in the entrepreneur’s toolbox and it can help growth stage companies hit their stride and reach the next level; all without risking personal assets or selling off part of the business.

Tips to Improving Your Small Business Profits

Every business needs to earn money to keep itself going. In a standard, for-profit company, your profit margin — the difference between your sales revenue and business expenses — often dictates your ability to grow and expand. But as a small company, how can you gain the momentum you need to increase that margin?

Whether you want to get your startup on the path to profitability or simply increase your overall profit margin, here are five ways you may not have thought of.

Focus on your customer experience
The people who purchase your products or services are the reason you have profits at all. It makes sense, then, that increasing those profits begins with honing in on the customer experience, said Yossi Caspi, general manager of North America for Nanorep, a provider of customer self-service solutions.

“Customer service can have a big impact on revenue, with data showing that more than half (52 percent) of consumers have switched providers due to poor customer service,” Caspi said. “A better customer experience will lead to lower purchase abandonment and higher loyalty, ultimately resulting in increased customer retention, brand recognition and profitability.”

Kestrel Linder, CEO of GiveCampus, a crowdfunding platform for schools, agreed, adding that customer sentiment, particularly about your product, can have a greater impact on your profit margin than your business model does. [See Related Story: Want to Boost Sales? Hire a Diverse Team]

“You must prioritize your product and your user,” Linder said. “If you build a great product that people badly want, you create time and space to refine the business model to go with it. By contrast, if you don’t make something people want, no business model can save you.”

Carefully track and justify your expenses
Starting a business comes with a lot of risk and variables, but one thing that’s entirely in your control is how much you spend. Linder noted that keeping a close eye on your finances — and making tough decisions about spending when necessary — can help keep your budget in check.

“You should know where every penny goes and what you get for it,” Linder said. “At GiveCampus, we routinely review all of our expenditures and force ourselves to justify each one in terms of the value that comes from it. We discuss how the expenditure is helping us grow [and] how it is helping us build a better product. If we can’t answer these questions in specific and precise terms, we cut the expenditure.”

“Identify where you’re spending your money … and then ruthlessly strip expenses that aren’t necessary,” added Harj Taggar, CEO of Triplebyte and a former Y Combinator partner. “Start by looking at every recurring charge you have to see if you need every subscription, or if you can renegotiate rates on existing services you’re subscribed to.”

Omar Aguilar, Americas strategy and operations leader and global strategic cost transformation leader at Deloitte Consulting LLP, added that cost-efficient practices can make things easier. These can include demand-based spending on travel and energy usage, and evaluating fixed expenses like your commercial lease, he said.

“Making more costs variable, rather than fixed, will also help address these challenges,” Aguilar said.

Look for partnership opportunities
A startup’s smaller scale can often make becoming cost-efficient a challenge, said Aguilar.

“Generally, they don’t have … [the] developed practices to spur growth like larger companies, so it can be more difficult for them to be cost-efficient,” Aguilar said. “For example, when a company buys more products, it receives more savings, but small companies have [smaller-scale] buying power than larger ones.”

One solution, Aguilar said, is to reduce the complexity of your operations. You may be able to consolidate suppliers, negotiate with vendors and suppliers, or participate in a shopping co-op to pool resources with others and buy things at lower cost.

Let data drive your decisions
Businesses generate mountains of data about their customers, sales, marketing campaigns and other key operational areas, just over the course of a regular day. Guy Amisano, CEO of Salient Management Company, a provider of retail-focused analytics tools, said the answer to increasing profits can be found in all this data. The key, he said, is to use the data to effectively drive the action.

Businesses need to “get specific and timely intelligence to the hands of decision makers,” Amisano told Business News Daily. “A better understanding of the history of investment and return can drive better, more effective decisions, and thus better results, over time.”

He added that granting data access to all levels of management “dramatically shortens the time-eating circuitry of communication and consensus by instantly exposing outlier behaviors and the root causes of variation.”

Understand (and increase) your value
Last, but certainly not least, your company needs to understand what makes it unique and different from other companies, and leverage that difference to justify a higher price than some of your larger competitors.

“The healthiest way to improve profits is by charging your customers more money and not see any drop-off [in sales], because they’re getting so much value from the product,” Taggar said. “This means you can boost profits without sacrificing your growth rate at all.”

Aguilar noted that innovative business models can help smaller businesses provide more value to customers.

“Small companies can consider alternative concepts and explore digital tools to help differentiate themselves,” he said. “Given their scale, small companies can go into digital models faster and focus more on innovation, enabling them to be more disruptive. Companies that have made it, and made a big impact in the marketplace, have been successful with different models.”

Let’s Learn About Tax Audit

With the beginning of tax season just a few weeks away, many business owners will soon be turning their attention to their tax returns. One concern that inevitably creeps into many taxpayers’ minds is the possibility of being audited by the IRS.

A tax audit is an examination of an organization’s or individual’s tax return to verify that financial information is being reported correctly. While the chances of being singled out for closer scrutiny are statistically low, there are factors that could increase your odds of receiving an audit notice. Fortunately, there are measures you can take now to minimize future problems.

What triggers an audit?
A variety of potential “triggers” in tax returns tend to raise questions and attract unwanted attention from the IRS. The IRS uses a computer scoring system, called the Discriminant Information Function (DIF) system, which analyzes tax deductions, compares taxpayer data, and is often the basis for initiating an audit.

According to TurboTax, issues can crop up when income is not fully reported or business operating losses are considered out of the ordinary. Other audit triggers may include errors or inconsistencies in the return, omissions, lavish business-expense deductions for meals and entertainment, and a sharp drop in reported income from one year to the next. Exceptionally large charitable deductions can sometimes trigger an IRS audit, but they’re usually allowed when a taxpayer has receipts and documentation to back them up.

Another item likely to prompt the IRS to dig deeper is having money in a foreign bank account. Examiners also pay closer attention to cash-intensive businesses such as restaurants and convenience stores, which generate a lot of cash receipts from smaller transactions.

Although most business owners and other taxpayers cringe at the idea of having to defend their tax return in an IRS audit, there’s usually little reason to worry. In its 2015 Data Book, the IRS reported that most audits (72.6 percent) were resolved via correspondence, rather than face-to-face meetings. The remaining 27.4 percent were conducted in the field (at the taxpayer’s place of business or CPA’s office) or at an IRS facility. While nearly 1.4 million tax returns were examined, that number represents a relatively small percentage (less than 1 percent) of the more than 150 million individual returns received and processed every year.

Scott Berger, a CPA and principal at the Boca Raton, Florida, office of Kaufman Rossin, said the IRS is moving more toward correspondence audits, which can impact individual taxpayers, small businesses and sole proprietorships. With this type of audit, the taxpayer receives a notice from the IRS saying that the agency is examining a tax return and has questions about specific line items. The purpose of the notification is usually to request supporting documentation for the line items being questioned.

How to minimize risk
Berger said one of the best ways to reduce your chances of being audited is to keep detailed records. This also helps ensure that if you are questioned by the IRS, you’ll be able to substantiate deductions, income and other information. He recommended organizing bookkeeping systems to create a clear and accurate record of all transactions, as well as maintaining and preserving the source documents used for accounting and tax preparation.

“The other thing I would recommend that somebody do is hire a bookkeeper,” Berger said. “Look at what it’s going to save you, not what it’s going to cost you.”

With the assistance of a knowledgeable bookkeeper or tax preparer, “issues will be vetted before [they’re] presented on a tax return,” Berger said. Accounting and bookkeeping professionals can also help substantiate and validate information reported to the IRS, he added.

What to do if you get an audit notice
Berger and other tax professionals said they generally advise against communicating directly with the IRS if you do receive an audit letter. Berger said his clients often tell him that because they have nothing to hide, they want to call the IRS and let them know that. Based on his nearly 30 years as a CPA, Berger thinks that’s a bad idea.

“Generally speaking, nothing good ever comes out of that,” he said. “Yes, they have nothing to hide; the return is all on the up and up, but this person on the other side of the phone has a job to do, and their job is to make sure the government collects all the taxes that it [legitimately] can.”

Berger also cautioned that IRS audit letters are always sent by postal mail, so phone calls or notifications sent via email are invariably scams.

Martin Press, a tax attorney with Gunster law firm, agrees that clients should not represent themselves in tax audits. As soon as a small business owner receives an audit notice in the mail, they should immediately contact their CPA and provide him or her with a signed power-of-attorney form (#2848), he said. This authorizes either a CPA, tax attorney or enrolled agent to contact the IRS and handle the audit, without the taxpayer needing to be present. He also said the audit examination should be held at the CPA’s office and not the taxpayer’s place of business.

Press said clients are always relieved when he informs them that they do not have to appear before the IRS — either initially or at any time down the road.

“The IRS, many times, claims that they have to start out with an interview of the taxpayer,” Press said. “There is no obligation for a taxpayer to do an interview at the beginning of a tax examination. Under what we call a Taxpayer Bill of Rights, they may never have to give an interview with the Internal Revenue Service.”

Although taxpayers are not required to meet directly with the IRS, an examination of a small business taxpayer is usually not over quickly; it often takes a minimum of six months to a year to resolve, Press said. If no resolution is reached, however, or if taxpayers wish to dispute the outcome of the initial audit, they do have a right to appeal it. Statistics released in the IRS’ 2015 Data Book show that a relatively small percentage of audited taxpayers decide to pursue further action. “Of the almost 1.4 million examinations of tax returns, nearly 28,000 taxpayers did not agree with the IRS examiner’s determination,” the report said.

How to Handle Audited It Like a Pro

For many businesses, the end of the calendar year means the beginning of tax season. As you prepare your receipts, invoices and other financial documents from the past 12 months, you may be concerned about the possibility of a dreaded tax audit.

As stressful and overwhelming as an audit may seem, there’s no need to panic. It does need to be taken seriously, but audits often deal with simple data or reporting errors that the IRS suspects may have occurred, said Frank Pohl, an attorney at Gunster law firm. He reminded business owners that not all tax audits end adversely for taxpayers.

If you do receive an audit notice, here’s what to do to make the process go as smoothly as possible, and to minimize any negative impact on your business.

1. Review the audit letter carefully.
Open the letter promptly, and understand what information the IRS needs from you, Pohl said. If you don’t have a designated financial adviser, hire an accountant or tax attorney to help you go through the audit letter and identify the issues the IRS has flagged. Pohl also warned not to delay action or ignore the letter.

“The IRS will not go away, and not acting promptly may only make the auditor suspicious or antagonistic,” he said.

For security purposes, if you are being audited, you will receive a mailed letter, Pohl said. Scammers will often masquerade as the IRS by sending emails or leaving phone messages in an attempt to get your personal data, but the real IRS does not communicate with taxpayers in these ways, Pohl said.

2. Get your records organized.
Before you and your tax professional respond to the IRS and/or meet with an auditor, take the time to dig up and organize all of your business records from the past tax year, said Kimberly Foss, a certified financial planner (CFP) and author of “Wealthy by Design” (Greenleaf Book Group Press, 2013). This includes receipts and invoices for income and expenses, bank statements and canceled checks, accounting books and ledgers, hard copies of tax-prep data, and leases or titles for business property, she said. If the IRS has requested specific documents to review, be sure you have those readily accessible as well.

3. Answer the auditor’s questions (and that’s it).
When you sit down with the auditor, you’ll be asked numerous questions about the information reported on your tax return. Our expert sources agreed that you should not volunteer any information you are not required to give.

“Just respond with the information [that is] requested,” Pohl told Business News Daily. “Providing unneeded or unasked-for information may lead to more questions … and additional issues.”

“Be straightforward in responding to questions, but don’t manufacture excuses,” Foss added.

Similarly, an article on NOLO.com advises not to bring or discuss any documents from previous tax years unless asked: “Don’t give copies of other years’ tax returns to the auditor. In fact, don’t bring … any documents that do not pertain to the year under audit or were not specifically requested by the audit notice,” said the article.

Keeping your tax professional involved
Dealing with the IRS can be stressful, and if you’re concerned about what you might say, it’s wise to let your tax professional do the talking for you. Sandy Gohlke, a CPA, chartered global management accountant and principal at Rehmann financial services company, advised giving the IRS a signed power-of-attorney agreement that will allow the IRS to deal directly with your tax professional. That takes you out of the loop and puts them in, she said.

Pohl agreed, and said that even if your tax professional doesn’t have power of attorney, you should still have him or her present when you meet with an IRS auditor. He also advised business owners not to get defensive or hostile during the interview.

“The auditor … cannot and will not forgive and tax debt or mistakes, and any admissions you make can be used against you,” Pohl said. “Adopting an antagonistic attitude risks alienating the auditor, [which] will not be in your best interest.”

Avoiding future audits
Gohlke reminded business owners that audits are generally random, and you can’t prevent them entirely. However, some companies are selected because of certain “red flag” expenses — either amounts or types — that are out of the ordinary and would cause a second look, she said.

Foss noted that bank transfers and other financial records beyond your receipts should be tracked, and anything that can’t be explained on the standard IRS form should be explained on paper. She also advised double-checking all of your math before filing.

“Keep proper documentation, and only deduct ordinary and necessary business expenses that are allowed by the IRS,” Gohlke added. “Even if you are selected for an audit, you will know you have nothing to worry about.”