Elect to do better: Experts stress business fundamentals
We asked five Grand Valley professionals to take a long-term view in suggesting what business owners and managers can do to improve their operations over the next four years regardless of who’s elected.
Here’s what they had to say:
Chris Reddin: Craft a picture of the future you want to create for the business. Make it bold and compelling — something you and your staff will be motivated to make happen. Consider what future customer needs you want to satisfy. Be specific with what new things you intend to pursue. Make it concrete by setting clear goals for where you want the company to be in four years.
There’s no better way to figure out how to grow a business than by testing the waters with new ideas, products or services. Experiment. In times of change, you don’t know what you don’t know. You have to keep testing, observing, researching and asking questions to see what’s changing in your environment and with your customers. The best way to use this to move the businesses forward is to constantly cultivate ideas for new customers, products or services; run actual tests in the market and measure their success; adjust accordingly and try again. This process can only help you improve the way you serve your customers.
Chris West: Budgeting has always been and will continue to be an important business tool over the next four years. Yet, most small business owners overlook the simple, time-honored process of budgeting. Budgeting offers a dynamic way to monitor the performance of the business and compare performance against reasonable goals. Budgets enable small business owners to make educated decisions about how to steer their operations during an ever-changing and uncertain economy.
Some business owners might find it helpful to have several different budgets. In addition to the normal budget, a “worse-case scenario” budget and “pie-in-the-sky” budget also could be prepared and compared against current performance. Of course, it’s critical for all businesses to have accurate bookkeeping records that allow for the production of timely monthly financial statements. Without accurate bookkeeping and timely financial statements, budgeting can be rendered useless.
Monitoring cash flow will be critical over the next four years. The old adage “cash is king” has never been more true. Small businesses should work with their accounting personnel to develop a process for projecting cash balances one month, two months and even six months out.
A successful cash projection process requires an intimate understanding of accounts receivable, accounts payable and inventory purchasing cycles.
Tax planning will be very important over the next four years. No matter who wins the election, it appears highly likely individual income tax rates will have to rise to help offset the effects of rising national deficits and national debt. Most small businesses are organized as Subchapter S corporations or limited liability companies (LLCs), which means the taxable income generated from the business is reporting on the individual business owner’s tax return and taxed at the owner’s individual income tax rate. Consequently, income tax planning with an experienced tax professional will prove valuable in allowing the business owner to find every tax credit and deduction allowed under the Internal Revenue Service code. Overlooked credits often include those available for research and development, hiring certain types of employees and offering health insurance to employees. There are many moving parts when it comes to tax planning. The important point is to understand and know how much the tax liability will be to avoid a surprise on April 15.
Health insurance is one of the most significant expense line items on the income statements of small businesses offering health insurance to their employees. Health costs and, therefore, health insurance premiums continue to rise. An environment of rising health insurance premiums combined with the full implementation of federal health care reform legislation in coming years will require that business owners stay on top of their health care plans. Some small businesses are finding it more cost efficient to switch to a “self-funded” model for their group health insurance plan versus the “fully-insured” model. Of course, this decision should be based on many factors, including the size and average age of the employee base.
Marc Terrien: The most important thing business owners and managers can do in preparing for the next four years is to “Washington-proof” their business models so that no matter which way the political winds blow, their businesses, staff and family are fairly well insulated from potential negative effects.
This might be easier said than done. But if you can focus on providing a quality product and experience for your clients; maximizing the value proposition; and creating great relationships with your vendors, clients and staff, you will have a solid foundation upon which to build your businesses.
We all know the effects the incredibly fast pace of technological change have on our business systems. Creating leverage with technology will keep you nimble in times of uncertainty and allow your staff to be more productive before committing to new hires. You can automate some of your business systems, decreasing errors and increasing throughput. You can create new functions for your website, both for the public side and administrative side, adding value to your client relationships.
Mobile devices now accounts for more than 20 percent of web traffic. Smartphone activations exceed 1 million per day! If your business has a website, you need to make sure you’re moving in a mobile friendly direction. If your Internet business is transactional or informational, you need to get serious fast. And if your website is already three or more years old, it’s definitely time for a refresh.
Find a reliable technology partner, one with a track record of success with past clients, and check their references. Then get ready to rock the future.
Marcus Straub: No matter which candidate and political party ascends to lead this great country, business will continue. For the leadership of any company, the basic principles that allow all companies to thrive remains the same.
Over the next four years, the importance of producing high quality products and services, delivering exceptional customer service and building empowered teams in a progressive and supportive work environment will remain at the heart of business success. Business owners and their management teams that choose to pay closer attention to these fundamentals will experience even more success in our recovering economy.
Business leaders should control what they can — the smooth, efficient and effective operations of their businesses. Business leaders who don’t allow themselves to become distracted by political comings and goings will position their companies, teams, communities and, ultimately, this country for increased happiness and success.
In the end, businesses have the potential to contribute in profound ways to the continued greatness and prosperity of this country. When business leaders put their people, customers and quality of what they offer first, they always create a situation in which everyone wins.
William Kain: Business owners can better protect themselves from liability and potential lawsuits by forming an appropriate entity. Co-ownership of a rental property or a general partnership for running other types of business constitute the most dangerous form of entity. This is because all owners will be personally liable for any suits or claims brought against the businesses. Formation of a limited liability company or corporation adds a layer of protection for the owners.
An appropriate buy-sell agreement funded by life insurance will protect the business in the event of the death of one of the owners. When properly drafted, such an agreement assures there will be sufficient cash to buy out the deceased owner’s share of the business from his or her estate. In addition, the loss of revenue due to the death of a co-owner who was instrumental in the work of the business and generating revenue should be considered. To make up for lost revenue, a portion of life insurance proceeds could be designated to go back into the business to carry the operation through the hard times that might follow a death. The other portion could go to the family of the deceased owner.
When multiple people own the same business, those owners also should consider what will happen when one of the owners retires. An agreement should define the rights and obligations of the retiring owner as well as the rights and obligations of remaining owners. Will there be an obligation to buy out the retiring owner? If so, how is that payout calculated and over what period of time will it be paid? Another consideration is to establish a retirement plan for owners and employees early on. For example, a 401(k) plan can be funded both by the business with tax deductible dollars and also by the employees, including the owners. Saving for retirement on a deferred tax basis makes sense for both owners and employees.
All businesses face the possibility intentional or negligent acts of owners or employees could cost the operation a tremendous amount of money in terms of liability and lawsuits. The doctrine of respondeat superior says that if an employee is acting within the course and scope of his or her employment, negligent acts make the employer liable to an injured party. Businesses should take all steps possible to make the workplace safe for the benefit of both employees and customers. It helps to have safety regulations in place and contained in an employee handbook. Liability insurance is a must for a business. An employee running an errand for the business who runs a stop sign and severely injures someone can cause great financial loss to a small business.
Most small businesses fail to have written contracts with customers. At a minimum, a simple contract should specify what services or products are being provided and how the price or charges are calculated. If a customer fails to pay what’s legitimately owed the business, the contract should provide for recovery of attorney’s fees and interest. Without such a clause, it might cost the business more in legal fees than the amount of the claim.
It’s extremely important to set up a business to collect sales tax, properly withhold taxes from employee paychecks and pay unemployment and worker’s compensation insurance. Many otherwise successful businesses have been destroyed when an employer is caught failing to send in the required payments to the appropriate governmental entity when they’re due.