Reimbursing Employees for Healthcare? You Could Be Fined!

Recently, a rather obscure and not so well known IRS rule went into effect out that could have devastating consequences for many small business owners. The new legislation is directed at employers who are helping their employees offset the cost of health insurance with so called health insurance reimbursement accounts or HRAs.

For many employers, reimbursing employees for healthcare-related expenses is an easy way to help their employees without establishing an official group policy. The truth is that these HRAs have traditionally been a valuable tool used by business owners to provide health insurance to their staff without taking on the administrative cost and burden of establishing their own policy. It’s a tried and true practice that has worked for some 50 years.

But all of that is about to change.

The primary purpose of the Affordable Care Act has been the complete reform of the country’s health insurance market, with the goal being to make affordable health care coverage doable for every American. In order for this lofty goal to come about, however, drastic changes need to be made to the way employers compensate their employees and provide heath care benefits to them.

The new HRA penalty directly targets employers who are found to be assisting employees with the cost of health care through supplemental income, and those fines are pretty hefty. These businesses can be fined $100 a day per employee totaling up to $36,500 over the course of the year, or up to $500,000 per year for multiple employees. Ouch! Though this legislation actually went into effect starting January 1, 2014, the Treasury Department had delayed enforcement of penalties of this new rule- that is, until July of this year. That delay expired last week, meaning that businesses can now be charged for failure to comply.

Since drastic changes need to be made to the way small businesses compensate their employees, and since HRAs are pretty widespread among the nation’s smallest businesses, the penalty for offering an HRA is actually more expensive then avoiding healthcare coverage altogether. Under the Affordable Care Act, employers are required to offer coverage, but if they fail to comply with the employer mandate they can only be fined up to $2,000 per year.

While there has been some efforts among law makers to repeal the new legislation, as of yet the penalty is in full effect (retroactive to January 1, 2014). Small business owners really need to keep paying attention to this under-reported IRS rule or consult with a qualified professional to make sure that they are in compliance.

What is Three-Pronged Pricing?

As a new small business owner, pricing your products or services properly can get a little tricky. How do you determine how much to charge? How do you put an appropriate number on the value that you are offering?

When you are just starting out, you may want to consider a three-pronged pricing structure. This pricing model is pretty popular among small businesses, especially those that operate online, and the beauty of it is that it allows you to gather important customer purchasing data. This data in turn can help you tweak and refine your pricing so you can both maximize your profits and customer satisfaction.

Hit or Miss Pricing

The truth is that the majority of entrepreneurs and business owners kind of make things up as they go along when it comes to their pricing strategy. The process often looks something like this:

  1. The business owner does some cursory research and then just slaps a price tag on the product or service
  2. After a while, the owner has second thoughts about the pricing- especially if the business is in an extremely competitive market.
  3. Finally, the owner starts offering discounts or reducing the price outright. Typically, the result of these reductions is that the business’ offerings are now under-priced, cutting into profit margins, and putting the business in a precarious financial situation.

The problem with this strategy is that it can often do irreparable damage to the business and its reputation. When people are struggling to earn enough money to keep their heads above water, then it’s more likely that they will make bad, short-sighted business decisions. Business owners who under-charge are also more likely to burn out and feel anxious, and they will eventually feel resentment towards their low-paying customers.

Of course, none of these things are conducive to healthy business operations and growth, and it’s a compelling reason to get the pricing strategy right from the very beginning.

What is Three-Pronged Pricing and Why it Works

Even if you have a very defined target market, chances are this market will consist of many different people or businesses with varying levels of income. If you are truly offering a valuable product or service and you are clearly communicating that value to your potential and current customers, then you will often have three different groups of customers. Some of your customers may be willing to pay as much as you ask and want to get the most value out of their purchase. Others are looking for a standard offering. They have some money and are willing to spend it, but they aren’t so interested in too many “extras.” Finally, there are those who want what you’re selling but will only pay for the bare minimum.

In order to cater to all three types of customers, you need to come up with three different “packages” or levels for your offering:

  1. The Basic Package– offers a bare minimum of features and comes at a lower-than-normal price.
  2. The Advanced Package- offers a full version of your product or service
  3. The Superior Package– the most expensive offering with all the bells and whistles in addition to the basic features.

Instead of establishing one standard price, this approach allows you to target your products or services to different groups. For this reason, you will likely generate more sales and ultimately more revenue. Moreover, your customers’ purchasing behavior will give you valuable feedback on your overall pricing scheme. If, for example, a disproportionate amount of customers purchase the most expensive offering, then it could be that you are under-charging. On the other hand, too many purchases of the most basic package could be an indication that you are over-charging.

In short, the three-pronged pricing model is a good strategy to follow especially when you haven’t been in business so it. It’s a good place to start because it works and it forces you to truly understand the value that you are offering- at every level.

Why Millenial Entrepreneurs Will Be the Real Drivers of Alternative Finance

Long after the word “recession” stopped populating media headlines, the various forms of alternative, non-bank financing have continued to generate a more mainstream appeal , and this trend is only going to get stronger as the millenial generation continues to mature. This is good news for the alternative business finance industry, since this trend will likely lead to an increase in the number of young entrepreneurs and business owners in need of start up financing or a business loan.

Millennials represent one of the biggest demographic sectors in the U.S. Yet, according to a recent Bankrate survey, this group seems to be less active in traditional credit and financial markets. Among 18 to 29 year olds, 63 percent don’t have a credit card, and 33 percent are considered “under–banked.” This is compared to the 35 percent of adults 30 and over who don’t have credit cards.

Why is this happening? Many industry experts point out that after the recession, most banks severely tightened their lending standards and have yet to go in reverse. On top of this, millennials tend to have inconsistent income as a result of temporary employment, self-employment, career changes, or because they have started their own business. They come off looking financially unstable- to the banks at least. These trends, in addition to new financial regulations, such as the Credit Card Act of 2009, have made it much harder for millenials to obtain a credit card and thus begin to build their credit profile.

So, it’s not that millenials aren’t looking for credit. Many are; they just can’t get approved for it.

This opens the door wide for alternative lenders, particularly those that operate online. Many of these alternative online lenders, which include micro lenders, p2p platforms, and for business owners, and assortment of asset and revenue-based financing arrangements, rely proprietary algorithms to help them quickly determine who is fundable and how much of a financing risk a given borrower presents. Instead of looking primarily at a prospective borrower’s FICO score, these lenders consider other factors, such as financial account activity and in some cases even a borrower’s social media circles.

As the millenial generation of entrepreneurs and small business owners gets ever more comfortable accessing financing online instead of heading to their local bank, and as the banks continue to keep the funding pipeline closed, we should see even more players entering the field. There is little doubt that the alternative financing landscape will look vastly different ten years down the line- so different, that alternative finance may well be the new traditional.

Are You Prepared for the Credit Card Fraud Liability Shift?

On October 1st of this year, Visa, MasterCard, Discover and American Express are changing the way they will respond to certain types of payment fraud. From that point on, if merchants are not accepting EMV chip cards (i.e. they don’t have a terminal capable of processing these payments), then they will be held liable for any card-based fraudulent activity made with EMV chip cards used at their business.

The use of EMV chip cards has been rapidly expanding worldwide. Outside of the U.S., currently 44% of all cards have an EMV chip, and 74% of all credit card terminals are capable of processing EMV chip cards. The goal of October’s credit card fraud liability shift, is to encourage merchants to update their point of sale payment processing systems so that customers can make credit card payments with added security.

In contrast, to the standard magnetic strip cards that do not encrypt payment information, EMV chip cards store payment data on an encrypted computer chip embedded in the card. Instead of swiping a chip card, customers insert the card into a slot and leave it there until the transaction is complete. The encryption makes it much harder for credit card information to be stolen during a transaction and reused by thieves in the future. If a merchant is not yet equipped to accept chip transactions, customers can still use their chip embedded cards by swiping it. But in this case, the customer won’t get any of the new security benefits.

Why Small Business Owners Need to Respond

Many business owners may be tempted to simply ignore the rule change because they think that fraud would never occur at their business. Yet the truth is that many businesses are currently processing fraudulent transactions; they just don’t know it. The majority of the time the fraudulent charges are actually being handled by the banks without the involvement of the merchants themselves. By ignoring the push to upgrade their point of sale payment processing, smaller merchants will be exposing themselves to a potential financial loss. This loss can quickly outweigh any money the merchant was trying to save by not upgrading.

The bottom line is that these changes will come whether or not small business owners are willing to adapt to them right now. But, it definitely pays to respond to them as quickly as possible.


5 Big Myths About Small Business Financing

When it comes to the ins and outs of small business financing, many small business owners are in the dark. According to a recent QuickBooks survey,  more than 40 percent of small business owners consider themselves financially illiterate. With so many small business owners not understanding even the fundamentals of business finance, it is little wonder why there are so many myths floating around about the small business lending process.

Below are five of the biggest myths about business financing that small business owners tend to believe and the mistakes these fallacies typically lead to:

Myth #1: Your bank will lend you the money because you’re a longtime customer. If you need a business loan, you can just head to your local bank, right? After all, you’ve been a loyal customer for years. Why not capitalize on the relationship? The reality is that most banks these days are still tight-fisted when it comes to funding the nation’s smallest businesses. Plus, the smaller and more local your bank is, the less likely it is that they’ll offer you funding.

Myth #2: You can’t get a loan if you have bad credit. This myth is based on an element of truth. If you or your business is struggling with bad credit, then you will have a hard time getting a decent loan from from most traditional lenders. There are some ways around this, however. For example, you could take out a series of short-term microloans in order to get the needed financing and help rebuild your credit. You could also tap into an asset-based financing arrangement, such as a merchant cash advance or accounts receivables financing.

Myth #3: You can just get a loan from the SBA. First of all, the SBA is not in the business of extending loans to small businesses. What they do is work with traditional lenders. The SBA offers a guarantee on any qualifying loans their lender partners extend to small businesses. What this does is significantly minimizes the risk associated with extending the loan in the first place. While this setup allows many more smaller businesses to get cheap, long term financing, the bar is still set relatively high when it comes to the requirements for approval, such as sales volume, time in business, and industry.

Myth #4: Alternative lending is for businesses that can’t get financing elsewhere. While this statement may have been true both during and immediately following the recession, today alternative lending is becoming more and more mainstream. Not only are business owners getting more comfortable with accessing financing from online lenders, but the lenders themselves have created feature-rich, sophisticated platforms that efficiently and effectively help them to finance a wide assortment of businesses. Some industry experts are even calling alternative financing the new traditional business lending.

Myth #5: Alternative lenders will try to scam you. While there are certainly some bad apples out there in the realm of alternative financing, the reality is alternative lending has come a long way over the past few years. Today, there are many more legitimate alternative lenders offering quality products and services. You just need to make the effort to educate yourself about your options and do your due diligence before agreeing to work with any particular lender or platform.

In short, business finance is one area you don’t want to be ignorant about. Take the time to educate yourself on the fundamentals of financing and of the current realities in small business lending. Not only will this help you to steer clear of some prevalent myths, but you’ll also be in the best position to find the optimal financing arrangements to suit your business.

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6 Tips to Bring Your Small Business into Global Markets

The internet and the push for globalization may have made the world a smaller place, but expanding your small business’ operations into new international markets is no small undertaking. If it is not approached in the right way, your efforts to go global could severely disrupt your business activities in your home market and ultimately gut your business. To be successful, you need to go into the process with a good understanding of the targeted markets, including local tastes, trends, competition, and legislation. You also need to be clear about your business needs and goals as well as your available resources, and determine the best organizational setup to bring it all together.

That said, if you are considering taking your small business global make sure you carefully pay attention to the 6 tips below:

1. Learn about the market. The first step in entering a new market in a different country is to conduct adequate market research. Each market has its own nuances influenced by numerous economic, cultural, governmental, and market conditions. Knowing this information is vital since it will significantly affect your local business plan and strategy. Much of the information you need can probably be found online. In some cases it may make sense to hire a business consultant who is familiar with the target country and culture.

2. Create a budget. You don’t want your foreign operations to bankrupt your domestic ones. So, before you make a move you need to determine how much you can afford to invest in your international expansion.  Keep in mind that your international operations may not be a real source of income for the first year or two. Will your business be able to sustain this loss without compromising operations?

3. Carefully plan the product. If you have never entered a foreign market before and you know little about that country, then it usually makes the most sense to start your operations on a small scale at first with the intention of expanding further later on. This may mean picking only one or two products to offer or opening up a small local branch. This will allow you to “test the waters” of the market before dedicating too many resources. You should also find out if any localization of the product is needed. Are there certain tastes or trends that will either enhance or deflate potential sale? Also, find out the translation of the name of your product in the local language. Some product or brand names don’t translate well, occasionally with disasterous results.

4. Learn about country-specific and international business legislation. It is extremely important that you are aware of the legal environment within each new country that you do business. Review governmental and industry-wide regulations to ensure that compliance and certifications are obtained if needed. Some countries are known for being highly litigious, so it is essential that you have solid legal processes in place to minimize unnecessary risks. Also, some government agencies have strict requirements for the legal documentation that must be obtained before being able to operate in the country.

5. Building your international team. Many companies make the mistake of going to extremes when it comes to building their country-specific workforce. Either they import too many employees from their domestic location or they rely too heavily on local talent, but don’t have the systems and training in place to maintain their business culture as well as their product and service quality and productivity. Usually, the most successful operations include some kind of combination of employees from the business’ home country with native workers.

6. Be open to cross-border alliances and partnerships. In some cases it may be best to avoid re-inventing the wheel when you enter a new foreign market. Instead, consider strategically partnering up with another company to offer complimentary products or services. You could also work with another company in a sub-contractor arrangement. Again, this will help you to test the viability of doing business in a given market, while reducing your investment and thus your risk.

In short, expanding into new global markets is a process that must be planned out carefully. If you go in with the right attitude and commit the necessarily resources to make informed decisions, then you stand the best chance of making your business expansion a success.

How Do You Measure Your Customer Service?

Your customer service team is the face of your business. Yet, measuring the effectiveness of your customer service and how it fits into the the overall customer experience can be tricky. This is due to the fact that it is a very subjective variable based on your customers’ expectations and the impressions your business is making in order to meet those expectations.

Though customer service may be a bit abstract, there are still ways to measure it. The following are seven factors that, when taken together, will give you a pretty good idea of how effective your business’ customer service is.

1. Customer Satisfaction. If you want to measure the effectiveness of your business’ customer service, then the first place to start is with your customers themselves. You can do this by conducting customer satisfaction surveys. One thing in particular that you want to pay attention to is your customers’ level of satisfaction over time. Does it trend up or does it tend to trend down? Depending on what you find, you may have vital information on why your customers choose to either stay or leave your business.

2. Customer Retention. And that brings us to the next important factor: customer retention. If your customer service is doing a good job, then chances are your overall customer experience is pretty good as well. Customers who are happy with the service they are getting will be much more likely to stick around and continue to patronize your business.

3. Rate of Referrals. When your customers are happy with their experience, then they will be likely to recommend your business to their family, friends, neighbors, and peers. So, another factor to consider is the rate of people who are actively recommending your business to others.

4. Sales Conversion. When your customer service team communicates with a customer, what happens next? Do they to make a purchase or do they take some other desirable action? If not, then determine when during the communication process are your customers slipping away.

5. Resolution Time. Another variable to consider is the time it takes your customer service team to respond to customer inquiries and resolve any issues. These days, your customers may be expecting extremely fast turn around times- meaning they want to hear from you within a few hours. A good rule of thumb is that no more then 24 hours should go by without the your customers getting some kind of response from your customer service team.

6. Rate of Resolved Issues. How many questions and complaints get satisfactorily resolved? If your customer service team is able to solve them quickly and your customers are walking away from the experience feeling satisfied with the actions that were taken, then this is a good sign that you are providing effective customer service.

7. Number of Complaints. You certainly can’t please everyone, and your business is bound to generate some customer complaints along the way. But if you see that your business is receiving an unusually large number of complaints, or the number of complaints has been increasing without an overall increase in customer growth, then this could be hinting to a fundamental problem.

If your business keeps track of all of these factors, you will get a pretty good sense of how effective your customer service is. This information will also help you to pinpoint those areas that may need improvement and ultimately allow you to provide the best customer experience possible.

7 Ways to Quickly Re-Set a Bad Business Day

It happens to the best of us. You get up in the morning and hit your head, or you kid throws a tantrum, or you don’t feel well, or, perhaps you just woke up on the wrong side of the bed. We all have those “off days.” While there is a certain level of acceptance to that fact that some days will just be harder than others, at the same time you don’t have to let any erstwhile negativity rule the next 24 hours.

how to turn around a bad business dayHere are 7 simple things you can do to quickly turn a bad business day around for the better:

1. Laugh or smile… even if you’re faking it. Various studies have found that the act of laughing can positively influence one’s mood and outlook. The same is true for smiling– even if the smile itself is fake.

2. Listen to upbeat music. Recent research has highlighted the connection between mood and music. Not only that, but some researchers even suggest that the music you listen to can also affect the way you perceive the world. So, turn the volume up, and if you’re feeling inspired, sing along. It may also help to lighten your mood.

3. Clean out the clutter. Want to regain your focus so you can concentrate on running your business and push those negative thoughts aside? Why not start the day cleaning off and organizing your desk? Even if you spend a mere half an hour on the task, the effect can be significant. In a recent study, scientists found a connection between clutter and a person’s ability to focus and process information.

4. Reach out to a friend. A few years ago, researchers studied 34 students at the University of Virginia, taking them to the base of a steep hill and fitting them with a weighted backpack. They were then asked to estimate the steepness of the hill. Some participants stood next to friends, while others made the climb alone. The students who stood with friends gave lower estimates of the steepness of the hill, and the longer the friends had known each other, the less steep the hill appeared.

5. Help someone out. Focusing on a giving to another person releases a hormone called Oxycontin that can soothe and calm even the most frazzled nerves. So, start your day by giving a little money to your favorite charity, answering another person’s question, or hugging someone you love.

6. Go for a walk. Need a fresh perspective on your day? Make time for a 30 minute walk. There is a growing body of research that suggests even moderate exercise, such as walking, can significantly boost your mood and general feelings of well-being.

7. Make a schedule change. Is there some task you have to do today that’s making you feel anxious and blue? Make sure you do that task first and maybe reward yourself with a short workday or a longer than usual break afterward. Not only will you feel relief having completed the unpleasant job, but the time off can also help clear out your mind.

So, there you have it. Seven quick ways to boost your mood and brighten up the gloomiest days. Have you tried any of the above strategies or have some of your own? Let us know in the comment section below.

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How to Cheaply Ship Delicate Items with the 2015 Shipping Price Changes

If your business involves the shipment of delicate items, such as electronics, art work, glass pieces, or fragile antiques, then the new shipping price changes that went into effect this year may result in higher shipping costs. But with a little know how, there are several things that you can do to help keep these costs to a minimum.

2015 Shipping Price ChangesBeginning this year, both UPS and FedEx, the two biggest shipping carriers in the US, officially changed the way they charge customers for lightweight shipments in large boxes. The change involves utilizing dimensional weight to calculate the billable weight of a shipment among ground and freight delivery services in order to promote packaging efficiency.

Why does this matter? The reality is that parcel carriers are increasingly challenged to maximize the space in their cargo planes and delivery vehicles. By focusing on the dimensional weight of the package, they hope to retain profitability, while encouraging shippers to evaluate the way their shipments are packaged and protected.

So what can you do to ensure that you are paying the least amount possible on shipping, yet still adequately protecting your shipped items? Here are some key points to consider:

First, make sure you understand the details of these shipping price changes. The change in dimensional weight pricing targets the biggest culprit of capacity inefficiency: lightweight shipments in comparatively large boxes. Parcel carriers have always applied a dimensional weight calculation to all air shipments and to ground shipments with a cubic capacity over 5,184 inches (3 cubic feet), so the change isn’t a revolutionary one. The dimensional weight formula for domestic Air and Ground shipments is: L x W x H / 166. In order to find out if your shipping costs will go up this year, you need to consider your most frequently used boxes and apply this formula. If the dimensional weight of that box exceeds the actual weight of the box plus packaging material and the weight of the product, then you will be paying more to ship that product.

Re-Evaluate your boxes and packing material. Are your boxes the right size for your product? What kind of packaging material are you using to protect your product, and how much of this material is being used? Ideally, your shipping box should have enough room for additional padding, but not be too big. Parcel carriers suggest that there be about 3 inches of space on each side between the wrapped, padded item and the walls of the box. Knowing how to properly pad the item is also important. FedEx has posted several packing tips with video that demonstrate the proper way to pad delicate items. You can see them here.

Take the time to research shipping options. Once you know the dimensional weight of your item, you can then go online and research various shipping arrangements to see which of the major carriers, FedEx, UPS, and the USPS, has the cheapest option. To get an idea of how much prices can vary depending on your shipping needs, take a look at this post over at My Wife Quit Her Job. Your best bet would be to use the shipping cost calculator provided on each carrier’s site or a shipping cost comparison tool.

Bottom line, if you put in the effort to accommodate these shipping changes, you may ultimately enjoy considerable savings instead of a price increase since you can save money by using the right shipping materials. Just be sure to do your research.

The Pitfalls of Using Personal Asset Loans to Fund Your Business

Even though the worst of the Recession has past us over, and there are signs that at least some parts of the economy have rebounded, the traditional credit markets are still closed to the vast majority of small business borrowers. While many types of alternative lenders have since emerged to help fill in the financing gap, lately the use of personal asset loans has been garnering a lot of attention and popularity. But, do the risks outweigh the benefits of this kind of short-term financing?

What Are Personal Asset Loans?

Should you use personal asset loans to fund your business?While most people have heard about home equity loans or securing a bank loan with a valuable personal asset, the new class of personal asset loans work a bit differently. They are short-term loans that are secured with “luxury assets,” things like boats, classic cars, fine art, antiques, gold, and jewelry. You can think of the lenders that offer these products as a kind of “luxury pawnbroker.”

To get started, borrowers will need to fill out an application in which they describe the asset and the estimated market value. After the item has been appraised, the lender will typically offer borrowers 50-70% of their asset’s resale value. Loans of this type tend to range between $5,000 and $100,000 dollars with a 2-4% monthly interest rate, and the repayment period is generally no more than six to twelve months. If borrowers accept the terms of the contract, then the money is usually wired to them within 24 hours.

Should You Use Personal Asset Loans to Fund Your Business?

The answer to whether or not you should be using this kind of financing for your business really depends on your situation. If you can’t repay your loan, you will lose your valuable assets. So, you would first have to be certain that you can either repay on time or be comfortable with giving up the item(s) used to secure the loan. Plus, since the average interest rate of 2.49 to 3.99 percent is monthly, personal asset loans are more expensive than they seem. A monthly interest of 2.5-4% works out to 30-60% annually. Finally, once your business starts generating income, you will likely have other, less risky financing options to choose from that are based on business assets as opposed to your personal ones. The most prevalent choices include: business cash advances based on future credit card sales or total revenues, invoice factoring, and equipment leasing.

In short, personal asset loans are filling a need in the alternative business financing landscape, but they are definitely not for everyone. Once your business is generating revenues, you may have better options.