Category Archives: Finance

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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 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.”

Should You Know About Tax Checkups You Can Do Any Time of Year

The first quarter of the year may be the height of tax prep activities for many business owners, but you shouldn’t only be thinking about your taxes right before the April 15 deadline. Day-to-day decisions can have a significant impact on your overall tax obligations, so you should be planning throughout the year to make sure you’re ready.

“When a small business owner plans for tax season strategically and consistently throughout the year, they can create a much better financial outcome for their company,” Jamal Ayyad, vice president of service delivery for SurePayroll, said in a statement.

Whether you’re preparing to file your 2016 tax return or you just want to plan smart for the current year, here are six “checkups” you can do to make sure you’re always on top of your taxes.

1. Ensure that ownership records and hiring/employment practices are up-to-date
In order to guarantee that your business is complying with guidelines that are constantly changing, plan regular reviews of documents and applicable rules, said Scott Augustine, a shareholder with Chamberlain Hrdlicka law firm.

2. Calculate your projected payroll taxes
Small businesses that are having trouble paying their payroll taxes may be able to take advantage of an IRS installment plan, Ayyad said. If you owe less than $25,000 in combined tax, penalties and interest, and filed all required returns, you may be eligible. Visit the IRS website for more details.

3. Do a compliance checkup
The Affordable Care Act, the IRS and the U.S. Department of Labor have rules regarding independent contractors or 1099 employees. Make sure your firm or organization operations are in compliance to avoid costly penalties and fees, Augustine said.

4. Keep up with your home state’s tax issues
Some states take loans from the federal government to meet unemployment benefits liabilities. Ayyad noted that if your state has taken, but not repaid those loans, there will be a reduction in the credit against the Federal Unemployment Tax Act tax rate. This means employers in those states will have to pay more. A number of states may be affected, including Arizona, Arkansas, California, Connecticut, Delaware, Indiana, Kentucky, New York, North Carolina, Ohio, Rhode Island and South Carolina, as well as the U.S. Virgin Islands.

5. Review non-competes and confidentiality agreements
This is especially important for those that have been written by attorneys outside your state of operation to avoid possible theft of important assets, Augustine said. As part of this, he also advised reassessing document-retention policies to make sure they balance exposure with business needs. This will help you avoid issues in tax matter and litigation, he said.

6. Think about succession planning
What would happen to your business if you had an unexpected health crisis or accident? Augustine said business owners should be discussing and determining what actions may need to be taken to ensure the firm continues on. There are also tax benefits to succession planning, so discuss with both your attorney and your accountant, he added.

Organizing tax records now can make filing taxes much easier and faster later on, Ayyad said.

“When small business owners get their information together well ahead of time, they greatly improve the odds of filing a complete and accurate return,” he said. “Being compliant is the law, but instead of merely checking taxes off of a list of things to do at the end of the year, a savvy small business owner knows that preparation and planning ahead are key components of success.”

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.

Tips for Student Debt Imperils Retirement Savings

You can add retirees and retirement savers to the growing list of Americans who must tackle the rising amount of student debt as they try to save for retirement. There is now more student loan debt than credit card debt, and this trend doesn’t seem to show any signs of slowing. Even more disturbing is the growing number of retirees who still carry student loan debt. Those who face this dilemma are at an increased risk of not only outliving their assets, but also facing a shortfall in their retirement savings as they are forced to put more money towards debt payments.

Retirees Have More Student Loans Than Ever
A 2017 report from the Consumer Financial Protection Bureau (CFPB) showed that borrowers over age 60 carry about $66.7 billion in student loan debt. Back in 2005 over 700,000 senior households were responsible for student loan debt, but that figure quadrupled by 2017 to 2.8 million people. And according to the CFPB, this age cohort is growing the fastest when it comes to segments of the population with student loans to pay off. Student debt among retirees may be left over from efforts to finance their own education, but many people are also taking on debt to provide an education for their children or grandchildren.

Also worrying is the fact that senior borrowers are much more likely to default on their loans than younger households. Just over 10% of borrowers ages 25 to 49 default on their loans. The default rate for seniors is 27% and over 50% for borrowers age 75 and above. And those in this category who default on their loans may find themselves facing a difficult dilemma.

The federal government has the authority to collect unpaid loan payments after 425 days from the due date by seizing tax refunds or garnishing wages or other income. Social Security benefits can also be garnished with short notice to the debtor. And this type of offset has grown by an astonishing 500% since 2002, with the number of garnishments rising from about 6,000 to 36,000 in 2013. The amount that can be garnished equals the lesser of the excess above $750 or 15% of the monthly benefit, but that can be enough to substantially disrupt the budgets of many senior households. This can also severely impact their credit scores, which can prevent them from saving money by refinancing their homes or consolidating their debt.

Starting out With Student Loans
College graduates who start with large student loan balances can also handicap themselves financially. Although this is often unavoidable, large loan payments can deprive young borrowers of the ability to begin saving for retirement and buying a house. And, of course, this is the best time for them to do this because their plans and accounts will have decades to grow. Although student loans may be a student’s only alternative when it comes to paying for college, they come with a high opportunity cost that can stretch out over their lives.

The Center for Retirement Research at Boston College has created a mathematical measure that quantifies how well Americans are prepared for retirement called the National Retirement Risk Index (NRRI). This index uses information culled from the Federal Reserve’s survey of consumer finance. The information reveals that the average household carried about $31,000 of student loan debt in 2013, and just over half (about 56%) of all Americans have a substantial chance of running low on funds during retirement. While this finding does not create a definitive lineal relationship between student loan debt and retirement security, the financial effect of making student loan payments for 20 years after graduating from college can be easily seen.

For example, a college graduate who owes $60,000 in student loans at 3% interest will have to pay $332.76 per month for 20 years to get that paid off. If that amount was instead diverted into a Roth IRA that grows at 6% for that same time period (with no further contributions after 20 years), then the student would have almost $600,000 of tax-free money by age 65. No poll or study is necessary to see the enormous impact that student loan debt can have on a borrower’s retirement preparedness.