New Overtime Rule Increases the Salary Exemption Thresholds

New Overtime Rule Increases the Salary Exemption Thresholds

by | Grow a Business | No Q&A Yet

UPDATED on November 19, 2024

On November 15, 2024, the U.S. District Court for the Eastern District of Texas ruled in favor of plaintiffs challenging a recent Department of Labor (DOL) rule. This rule raised the minimum weekly salary level for “exempt” status under the Fair Labor Standards Act (FLSA). The court issued a summary judgment blocking scheduled nationwide pay rate increases for exempt employees set to take effect on July 1, 2024, and January 1, 2025. As a result, the required salary threshold for classifying “white-collar” jobs as exempt will remain at $35,568 per year or $684 per week.

The District Court found that the DOL had overstepped its authority by establishing the new standards. Under the FLSA, employees who fulfill specific duties and earn a salary at least equal to the federal threshold are exempt from receiving overtime pay for hours worked beyond 40 hours a week. With the DOL Rule’s increases blocked, employers may need to reassess any recent adjustments to meet the previously expected July 2024 threshold. Additionally, employers may want to review the job duties of employees classified as exempt to ensure compliance, as errors in classification could expose employers to individual liability and even class-action lawsuits.

*************

Business owners face a new federal law that may negatively impact their profitability and increase administrative costs. 

In 2024, the U.S. Department of Labor (DOL) recently issued a final rule that significantly increases the salary threshold for employees to be classified as exempt from the Fair Labor Standards Act (FLSA) overtime pay requirements. 

This change will result in more employees being classified as non-exempt, which means they will be eligible for overtime pay and subject to the FLSA’s requirements for accurate timekeeping records.  According to the DOL published FAQ #17 regarding the new overtime rule, nearly 4.3 million workers have or will become eligible for overtime compensation unless their employers intervene. 

The new overtime rule aims to extend overtime protections to millions of previously exempt workers. While this may offer more financial security to employees, it presents challenges for employers in terms of increased labor costs and potential disruption to business operations. 

In this article, we will explore the impact of the new overtime rule on businesses. We’ll delve into the details of the rule, its purpose, and how it may affect your workforce and bottom line. 

The New Overtime Rule Under the Fair Labor Standards Act (FLSA)

In 2024, the U.S. Department of Labor (DOL) introduced significant changes to the FLSA’s overtime regulations, substantially impacting all U.S. businesses.  The Fair Labor Standards Act (FLSA) is a federal law applicable to employers that establishes standards for minimum wage, overtime pay, recordkeeping, and child labor.

All employees are covered by the FLSA and will benefit from the new overtime rule unless the business or enterprise has less than $500,000 in annual revenue. If the business or enterprise is a hospital or establishment providing medical or nursing care for residents, schools, or public agencies, or if engaged in interstate business, the $500,000 minimum annual revenue exception does not apply.  

These new overtime rules intend to expand the number of eligible workers for overtime pay. Specifically, the DOL has increased the salary threshold for “white-collar” exemptions, which are employees who are exempt from receiving overtime pay. In 2024, the new rule raises the minimum salary level for these exemptions established on January 1, 2020, from $35,568 to $43,888 annually. On January 1, 2025, the minimum salary will increase to $58,656, making more employees eligible for overtime compensation.

According to the DOL, the next update to the salary thresholds will be effective July 1, 2027, and will subsequently be updated every three years.  

Who is Exempt from FLSA Overtime?

Under the FLSA, employees below the salary threshold are generally entitled to receive overtime pay at 1.5 times their regular hourly rate for all hours worked beyond 40 hours in a workweek unless they qualify for specific exemptions. 

To classify an employee as exempt from overtime pay, a business owner as the employer must satisfy three criteria:

The Salary Basis Test – The employee must be paid on a salary basis, not hourly.

The Salary Level Test – The employee’s salary must meet or exceed a specified threshold.

The Duties Test – The employee’s primary job duties must align with those outlined in one of the FLSA’s exemptions, such as the executive, administrative, or professional exemptions. If the duties do not meet these requirements, the employee may still be considered non-exempt even if the salary threshold is met.

What Exactly are the FLSA’s Executive, Administrative, Professional, and Outside Sales  Exemptions?

Executive Exemption: An employee qualifies for the executive exemption if they primarily manage the enterprise or a recognized department, regularly direct the work of at least two full-time employees, and have authority or influence over hiring and firing decisions.

Administrative Exemption: This applies to employees who perform office or non-manual work directly related to management or general business operations and exercise discretion and independent judgment on significant matters.

Professional Exemption: The professional exemption covers employees whose job requires advanced knowledge in a field of science or learning, typically obtained through prolonged specialized education (e.g., doctors, accountants, lawyers, engineers, teachers, etc). Employees who fall into the professional category are not subject to the salary basis or salary level tests.  

Outside Sales Exemption: This applies to employees whose primary duty is making sales and who regularly work away from the employer’s place of business.  Similar to professional employees, outside sales employees are not subject to either the salary basis or salary level tests.

There is also a Highly Compensated Employee (HCE) Exemption, which applies to employees who perform non-manual work and earn a significantly higher total annual compensation than the standard threshold. As of July 1, 2024, the HCE salary threshold is $132,964, which will increase to $151,164 on January 1, 2025.

Highly compensated employees who meet the minimal HCE duties test are those whose primary duty includes performing office or non-manual work and customarily and regularly performing at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee.

The Department of Labor updated the Computer Employee Exemption in August 2024. This exemption applies to certain employees who work as computer systems analysts, computer programmers, and software engineers and earn at least $27.63 per hour. Employees in certain computer-related positions must be paid more than $27.63 per hour to be considered exempt employees for FLSA overtime pay rules.

Evaluate the Impact of the New FLSA Rules and Salary Thresholds

One critical step in achieving compliance is conducting a thorough workforce audit. A workforce audit involves reviewing all employees’ job duties, responsibilities, and compensation levels to determine their eligibility for overtime pay. 

As the employer, you have three options when you find an employee does not meet the new salary threshold and does not meet the duties test:

  1. Pay one and one-half times their hourly wage for work time above 40 hours per week.
  2. Increase their salary to meet the new salary threshold.
  3. Limit overtime hours.

It’s important to note that even if you raise an employee’s salary to the new threshold, they must still meet the duties test to be considered exempt from overtime pay!

As the employer, you should be particularly diligent in reviewing the status of employees previously classified as exempt under the old salary threshold.

In addition to the workforce audit, businesses will need to update their payroll and timekeeping systems to track and record overtime hours worked by non-exempt employees accurately.

Employers should also review and update their employee handbooks, policies, and procedures to reflect the changes the new overtime rule brings.

Employers may face higher payroll and benefits expenses with more employees eligible for overtime pay. The consequences could necessitate budget adjustments, pricing, or staffing levels to maintain profitability. Based on updated wage data, the salary thresholds will automatically adjust every three years. For many employers, the increasing labor costs will affect their annual budget this year and in the following years. 

Although the rule is subject to ongoing litigation, employers should assume the employment costs will continue to rise due to the new FSLA rule.

Employers should also stay mindful of state and local wage and hour laws, as they may impose additional or stricter requirements than the FLSA. If a state or local government establishes more protective overtime rules, they should be followed.

Employers can take these steps to ensure compliance with these important changes, minimizing the risk of FLSA violations and potential penalties.

How to Manage and Minimize the New Overtime Rules

In response to these increased costs, some businesses may restructure their workforce by reducing the hours worked by specific employees or hiring additional part-time or temporary workers to avoid triggering overtime pay. Others may explore alternative scheduling options, such as flexible work arrangements or compressed workweeks, to better manage overtime expenses.

Additionally, businesses may need to reevaluate their hiring and promotion practices to align with the new overtime regulations. This process may involve adjusting job descriptions, compensation packages, and career advancement opportunities to attract and retain talent within the new parameters of the FLSA.

Effective communication and training will be critical as businesses navigate these operational changes. Employers should proactively engage with their employees to explain the new overtime rules, address any concerns, and ensure that managers and supervisors understand their responsibilities in implementing the latest policies and procedures.

New Overtime Rules Impact on Businesses

Implementing the new overtime rule has the potential to impact businesses across various industries significantly. While the primary goal of the rule is to provide greater financial protections for workers, the implications for employers can be far-reaching and complex.

One of the most significant impacts will be the increased labor costs associated with the expanded eligibility for overtime pay. Employers will need to carefully evaluate their workforce and compensation structures to ensure compliance, which may result in higher payroll expenses, particularly for those businesses with a significant number of employees earning below the new $58,656 salary threshold, effective January 1, 2025.

In addition to the financial implications, the new overtime rule may also disrupt business operations and introduce challenges related to workforce management. Employers may need to adjust schedules, reassign tasks, or hire additional staff to ensure critical functions are performed within the new overtime guidelines. Doing so could disrupt productivity, customer service, and business continuity.

Furthermore, implementing the new rule may disproportionately impact specific industries, such as retail, healthcare, and hospitality, where lower-wage and middle-income jobs are more prevalent. Accounting, consulting, and legal services firms often rely on salaried, knowledge-based workers who may now be eligible for overtime pay. Adapting to the new rule could require these businesses to reevaluate their compensation structures and talent management strategies. These industries may face more significant challenges in adapting to the new regulations, potentially leading to increased costs, reduced profitability, and even changes in business models.

Regardless of the industry, employers will need to carefully analyze the potential impact of the new overtime rule on their specific business model, workforce, and operational needs. By proactively addressing these challenges, businesses can position themselves for success despite the evolving regulatory landscape.

Legal Considerations and Challenges under the New FSLA Overtime Rules

Navigating the legal landscape surrounding the new overtime rule is critical to ensuring compliance and mitigating potential business risks. Employers should be aware of the various legal considerations and potential challenges they may face in implementing the new regulations.

One of the primary legal concerns is the risk of misclassification of employees. Employers must carefully review their workforce’s duties, responsibilities, and compensation levels to ensure all eligible employees are classified as non-exempt and receive the appropriate overtime pay. Misclassification can lead to costly lawsuits, fines, and back-pay obligations.

Additionally, businesses may need help interpreting and applying the new overtime rule. As with any new regulation, ambiguities or gray areas may require legal expertise. Employers should consult legal counsel to ensure their policies and practices align with the DOL’s guidance and interpretations.

Another potential legal risk is the possibility of employee lawsuits or claims related to implementing the new overtime rule. Employees who feel their rights have been violated or unfairly treated may seek legal recourse. Employers should proactively address employee concerns and maintain clear and consistent communication to mitigate the risk of such claims.

Furthermore, businesses should be aware of state-level overtime regulations that may be more stringent than the federal FLSA. In such cases, employers must comply with the more favorable overtime provisions for their employees, which may require additional adjustments to their policies and practices.

Always consult your attorney regarding these important legal matters before making any changes or decisions regarding employment matters.

Key Takeaways

The 2024 changes to the Fair Labor Standards Act’s overtime regulations represent a significant shift in the business landscape, with far-reaching implications for employers across various industries. As a business owner, it is crucial to understand the critical aspects of the new overtime rule and develop a comprehensive strategy to ensure compliance and mitigate the potential risks.

  • The new overtime rule raises the salary threshold for “white-collar” exemptions from $35,568 to $58,656 annually, making more employees eligible for overtime pay.
  • Employers must consider more than the employee’s salary – their job duties matter!
  • Compliance with the new rule requires thoroughly reviewing your workforce, updating payroll and timekeeping systems, and revising policies and procedures.
  • Businesses must adjust their operations, such as workforce optimization, technology adoption, and alternative compensation structures, to manage the increased labor costs.
  • Effective communications with employees regarding overtime policies, time-keeping procedures, and reporting will be necessary.
  • Specific industries, such as retail, healthcare, professional services, and nonprofits, will likely be more significantly affected by the new overtime rule and will require tailored strategies for adaptation.
  • Legal considerations, such as employee misclassification and state-level regulations, must be carefully addressed to avoid potential challenges and liabilities.

By staying informed, proactively planning, and implementing strategic measures, business owners can navigate the changes brought about by the new overtime rule and position themselves for success in the evolving regulatory environment.

How To Find A Business On Sale

How To Find A Business On Sale

by | Grow a Business | No Q&A Yet

business sale

Do you have a Question?

 Ask below. One of our Investors or Advisors will Answer!

Finding a business for sale involves research, networking, a serious commitment of time and resources for due diligence, and above all careful consideration. Whether you are thinking about buying an existing business as an alternative to creating your own startup from scratch, there are many important factors to consider.  

Follow our a step-by-step guide to help you find a business to buy:

1. Determine Your Business Acquisition Criteria:

  • Industry – Identify a few industries that interest you and align with your skills and experience. Business owners like to sell their businesses to people who have demonstrated success in their industry or related business.  Doing so helps business owners feel more comfortable with the buyer and their ability to succeed post-sale.
  •  Location – Decide whether you want to buy a business in your local area or are open to relocating yourself and your family elsewhere.  If you’re willing to move to a new geographical area, you may have many more options and greater opportunities to explore.
  • Size and Scale – Consider the size of the business you’re interested in, whether it’s a small local business or a larger enterprise.  The size of the business you choose to pursue will determine how much money you will need to succeed, the type of business broker you will work with, as well as the costs you will pay for the professional services you’ll need to close the deal.  
  • Financial Requirements – Determine your personal investable capital budget and financial capability for borrowing in order to  purchase the business you desire.  If you intend to solely pursue the business acquisition, your existing capital and personal financial credit records may limit the size of the business you may buy.  Alternatively, if you are open to having other equity partners, your personal capital and credit records will be less important, assuming the business you acquire is profitable enough to substantiate outside investors and other forms of financing.  

By clearly determining the criteria for your business acquisition, you will be in a much better position to take the next steps.

2. Conduct Industry and Market Research:

  • Research market trends, competition, and the overall health of the industry you’re interested in.  Michigan State University has gathered a great list of free resources you may use to learn more about your targeted industry and its market.  Determine whether the business you are considering is in a growing industry.  Is the industry saturated with competition or suffering from ongoing supply chain issues.

3. Search for Businesses on Sale and Network:

  • The size of the business you intend to purchase will determine where you should search for businesses on sale:
  • For businesses valued under $5 Million, you’ll most likely be working with a Business Broker who represents small, local businesses.  These businesses for sale are referred to as ‘Main Street Listings’.   You will find these listed businesses for sale on websites such as BizBuySell.com or BusinessMart.com.  If you’re interested in an online, web-based business, WebsiteProperties.com is a great source.  Or alternatively if you are looking for businesses with an international footprint, BusinessesForSale.com specializes in such listings.
  • Main Street listings are typically represented by Business Brokers.  We always recommend working with a trained, licensed and/or credentialed Business Broker when buying a business.  
  • If you’re interested in buying a business with a value between $5-to$50 Million, you’ll be working with a Business Intermediary in the Lower-Middle-Market.  In certain cases, you will be able to find the businesses they have been hired to sell on certain businesses for sale platforms.  In other cases, you will need to find such businesses through networking.  And that’s because not all Lower-Middle-Market Business Intermediaries utilize online listings as a marketing tool.
  • Regardless of the targeted type or size of the business you’re seeking to acquire, it’s wise to attend business networking events, industry conferences, and seminars to connect with potential sellers, brokers, intermediaries and professional advisors.  It will be very important to network with others who help business owners sell their business.
  • Let your personal and professional networks know that you’re looking to buy a business and the industry and business size that fits your circumstances.

4. Engage with Business Brokers:

  • Business brokers have access to a range of businesses for sale and can assist with the buying process.  Business brokers and intermediaries alike can help match you with businesses that fit your criteria and guide you through the business acquisition process.  They will also be a vital member of the team of professionals you work with as you make an offer by submitting your Letter of Intent (LOI), conduct your due diligence, finalize your financing and close the deal.  Business brokers and intermediaries are also very accustomed to working with M&A attorneys, CPAs, accountants and other professional business advisors to ensure you’re making a sound investment.   

Your team of professional business advisors should help you negotiate not only the final price you pay for the business, but also the stock or asset purchase terms, lease assumption terms, financing terms, etc.

If you take the time to thoroughly consider the criteria for your business acquisition, undertake industry and market research, search for businesses online, network with others and engage with a professional business broker or intermediary, your chances of success in finding a good business to acquire will increase tremendously.​

Disadvantages of Using A PEO

Disadvantages of Using A PEO

by | Grow a Business | 6 Questions

Do you have a Question?

 Ask below. One of our Investors or Advisors will Answer!
Disadvantages of Using a PEO

In a previous post, we discussed how a Professional Employer Organization (PEO) company works, its many benefits, and the tax implications you may face if you hire one. 

As a recap, a PEO is a service that small or medium-sized businesses may use to outsource some of their human resource, payroll, benefits, taxes, recruiting, and other management tasks. As you might imagine, there are both pros and cons in hiring a PEO. 

Here, we’ll discuss the disadvantages of using a PEO, along with the associated costs of a PEO. 

Disadvantages of Using A PEO

Loss of Control

As we discussed in our previous post, because PEO companies assume the responsibility and liability for the human resource activities in their client’s businesses, they require that business owners adopt the PEO company’s policies and guidelines. 

This co-employment relationship can result in a loss of control – not just of benefit plans, carriers, and risks – but possibly the company’s culture as well.  It’s imperative for the business owner(s) to be mindful of this and to take care and allow for the proper attention during the PEO transition to ensure their company’s culture is not negatively impacted.

Decentralized Human Resource Activities and Inflexibility

Much of a startup’s success is dependent on its ability to be flexible and make spur-of-the-moment changes and decisions. Unfortunately, when a business hires a PEO, management loses much of their authority over workers compensation, health care benefits, etc., although management retains its authority over hiring and firing decisions.

In addition, all available insurance plans come from one or two carries, selected by the PEO. This means that companies and their employees don’t have a say in their benefits carrier, and are limited in the plans they may select. The PEO has complete control of the carrier (and has the freedom to change the carrier at any time).

PEO Pricing

PEO pricing can be subjective and negotiable, making it difficult to know what is a fair price. 

Typically, a business is charged a percentage of their payroll. Invoices can be difficult to understand with payroll, taxes, workers’ comp, ELPI, and their administrative fee often lumped together as a “package.” 

When shopping for a PEO, be sure you understand what they charge, including miscellaneous fees – and ask if these charges will be clearly itemized on your invoice. In fact, it’s best to ask the prospective PEO service provider to unbundle the quote before you agree to work with them.

Customer Service

PEOs support a large number of employees, which is what gives them the ability to offer affordable insurance plans and benefits that a small business might otherwise be unable to offer their employees – but it’s also what makes it more difficult to get immediate attention when it’s needed.

As a result, customer service can feel slow or impersonal, and often a business doesn’t have a dedicated support person, but rather must communicate with whichever representative is available.

Ask your prospective PEO if you will have a dedicated HR service representative for admin and another for your employees.  

Resistance from Employees 

Some employees may be difficult to sell on the idea, especially if they will have to change their current insurance policy. They may also dislike the idea of dealing with an outsourced company when it comes to HR needs, as they are currently accustomed to speaking with someone within the business with whom they have a personal relationship.

Questions to Ask Before Hiring A PEO Company

We want to be clear – we’re not advocating that you skip a PEO company altogether. We simply want to make sure you’re aware of the disadvantages associated with a PEO, and properly equip you to navigate those possibilities. Here are some questions to ask when deciding if a PEO company is right for you.

  • Does the PEO make a commitment as to how many hours per week they will offer support to your business?
  • Do they provide a dedicated contact for your business? Can they guarantee that you’ll always have access to your contact?
  • Do they come on-site for an emergency?
  • Do they itemize their invoice? What miscellaneous charges should you expect to see?
  • Under what circumstances will they change their providers? How often does this happen? Will your business have any input in such a scenario?
  • How large is the PEO company? How many other businesses do they serve?
  • What services are included? Are there different level packages?

PEO companies can certainly be a cost-efficient option for a growing business. A PEO takes the guess-work out of all HR operations, and allows the business owner to focus on more important tasks, like expanding business operations. But understanding the potential PEO downsides and knowing the right questions to ask to mitigate these disadvantages will ensure you’re prepared to find the right fit for your business.

Can A Non Profit Use A PEO?

Can A Non Profit Use A PEO?

by | Grow a Business | 6 Questions

PEO for nonprofits

Do you have a Question?

 Ask below. One of our Investors or Advisors will Answer!

In our PEO series, we’ve talked about what a PEO company is and who is the employer in a PEO relationship. Here, we’ll discuss PEO for nonprofits, and whether or not using a PEO for your nonprofit might make sense.

 

PEO for Nonprofits

 

As it turns out, nonprofits have unique employment issues that PEOs can address well. By definition, a nonprofit doesn’t typically have extra funds to serve as a cushion in tough times. All profit is used to maintain operations, and very few nonprofits have the profit margin to employ a Human Resources professional, let alone a well-staffed department.

 

Enter the Professional Employer Organization (PEO). PEOs are designed to eliminate many of the challenges that businesses face when it comes to the management of personnel issues – and can be especially beneficial to a nonprofit who is already strapped for cash and resources.

 

Nonprofit Human Resource Challenges

 

Nonprofits face several challenges when it comes to managing their human resources tasks. These challenges include:

 

  • staying compliant with ever-changing laws, regulations, and statutes at local, state and federal levels; and
  • competition for attracting and keeping good talent; and
  • resources for negotiating with, selecting, and maintaining relationships with vendors and partners.

 

Because nonprofits are already strapped for resources, an oversight on any aspect of HR could mean diverting even more time and energy away from the mission to resolve errors and pay fines for noncompliance. In addition, nonprofits without an HR department may struggle to obtain competitive and affordable benefits packages for its employees.

 

PEO Solutions for Nonprofits

 

Because a PEO eliminates the need for a Human Resource department, the nonprofit can focus valuable resources on their mission. The PEO also relieves leadership – including the executive leadership and the Board of Directors – of the burdens and responsibilities associated with managing legal and compliance issues related to personnel.

 

Additionally, the PEO handles all payroll, recordkeeping, and tax-related tasks, which allows nonprofit employees and volunteers to dedicate themselves to the mission of the nonprofit.

 

The Co-Employment Relationship

 

As the PEO takes on all tasks related to payroll, compliance, tax payments, risk management, unemployment claims, worker’s compensation, and employee insurance and benefits, the non-profit will be required to accept the PEO’s guidelines for policies and procedures. Though this sometimes can result in a loss of control over some aspects of the nonprofit’s culture, the benefits typically outweigh the cost.

 

PEOs can also offer additional benefits such as assistance with recruiting, background screening, and training. Other perks include deals on group insurance premiums, 401(K) plan participation, and employee assistance programs – benefits that help to attract and keep good talent.

 

Other Considerations

 

Nonprofits are required to comply with certain state and federal laws – including taxation withholding, reporting obligations, and payment of wages. As such, it is important to address those nuances as you search for the right PEO for your organization. To ensure compliance, we recommend involving a CPA in the transition of accounting and tax records.

 

For many nonprofits, hiring a PEO can prove to be a mutually beneficial relationship. PEOs offer nonprofits’ executives, managers and their employees more than a few benefits, and free up valuable resources so they may accomplish the mission at hand.

Who is the Employer in a PEO?

Who is the Employer in a PEO?

by | Grow a Business | 2 Questions

Who is the employer in a PEO

Our PEO series is aimed at addressing the common questions about PEOs, and uncovering some of the lesser-known facts about working with a PEO so that you may make the best choices for your business. 

 

So far, we’ve learned about what a PEO company does. Here, we’ll dive into some muddy waters and decipher who is really the employer in a PEO relationship.

 

The “Co-Employment” Relationship

 

What does it really mean to enter into a “co-employment” relationship? 

 

When you hire a PEO company, you create a unique partnership. The PEO assumes the liabilities associated with handling your personnel administrative tasks, while offering your employees all the benefits of a large HR department. This can mean reduced liability and improved efficiency for small- and medium-sized businesses. In return, your business will be required to adopt some of the policies of the PEO company.

 

Employer of Record

 

When a business signs a “co-employment” agreement with a PEO, the two companies become co-employers of the business’ employees. In this relationship, the business owner is often referred to as the “Executive” and the PEO is known as the “Employer of Record.”

 

But Who is the Employer in a PEO?

 

Technically, both the business and the PEO company have “employer” roles. Although this may seem strange, this type of co-employment relationship allows the PEO to provide critical services to the business’ employees. To better understand who is the employer in different situations, we’ve broken down the responsibilities of each entity here:

 

PEO is Responsible:

  • Payment of wages
  • Management of workers compensation
  • Various administrative tasks related to the employees
  • Regulatory paperwork and compliance issues
  • Guidance to managers on disciplinary measures and termination procedures
  • Workers compensation insurance
  • Unemployment insurance
  • Employment practices liability insurance
  • 401(K) plans
  • Health insurance
  • Section 125 Plan
  • Employee benefits programs

 

Your Business is Responsible:

  • Direction and control of operational activities assigned to employees
  • Providing a safe work environment
  • Payroll funds to be paid to the PEO
  • Keeping track of employee hours worked and reporting those to the PEO

 

PEO vs. PPO

 

As we’ve discussed in detail, a PEO (Professional Employment Organization) becomes your business’ Employer of Record, shouldering the administrative tasks associated with personnel, while offering your employees numerous benefits that you would otherwise be unable to provide.

 

While sometimes confused with a PEO, a PPO (Preferred Provider Organization) is unrelated. A PPO is more closely related to an HMO (Health Maintenance Program), which is a network of healthcare providers that individuals can use for medical care. The providers in these networks have agreed to provide care to members at a certain rate.

 

Entering Into A Co-Employment Relationship with A PEO

 

Because your PEO will become your Employer of Record and will be responsible for a number of personnel management tasks, it’s critical that you find a PEO whose culture fits well into your business model. Before signing any Co-Employment Agreement, make sure you understand what you’re giving up (and what you’re getting in return).

What is a PEO Company?

What is a PEO Company?

by | Grow a Business | 2 Questions

What is a PEO

Do you have a Question?

 Ask below. One of our Investors or Advisors will Answer!

If you are wondering what a PEO is and whether or not this type of outsourcing may be a good option for your small or medium-sized business, this first article in our series of four posts will help you decide if it’s the right move for you.

In this post, we cover everything you need to know about a PEO company including:

• What’s the meaning of PEO?
• PEO payroll
• PEO benefits
• PEO tax implications, and more.

What Is A PEO Company?

PEO is the acronym for Professional Employer Organization company.

It is an outsourcing arrangement where another company provides human resource (HR) services to small and medium-size businesses by setting up a “co-employment” relationship between your business and the PEO company.

The PEO handles your business’ activities, including payroll, tax administration, benefits, workers comp, and regulatory compliance.

Choosing to hire a PEO company is an ideal solution for a business in need of an HR person (or even department) but is not quite ready for or in a place where it can afford to build its own. Likewise, a PEO company may be a good fit for a business and its owners who do not want to shoulder the many risks associated with personnel issues.

How Does A PEO Work?

If you’re ready to expand your business by hiring new employees and preparing for bigger opportunities and challenges, A PEO company may be a logical next step.

Business owners who don’t have the capacity to manage their ever-growing HR needs can hire a PEO company that specializes in doing exactly that. The PEO company manages all the “back office Human Resources” needs so that the business owner can focus on growing and managing their business.

When you hire a PEO Company, you will enter into a contractual co-employment agreement. This means that your PEO will become your employer of record and will take on the full responsibility and liabilities associated with your company’s HR needs.

Because the PEO company takes on many of the risks associated with being an employer, they will require you to adopt some of their policies. If an employee issue arises, the PEO company will stand behind you if you and your managers have followed their policies and guidance.

PEO Payroll

A PEO company will take over the cumbersome task of payroll administration. PEOs can facilitate automated deposits and one-time payments, along with initiating payment to full-time and part-time employees – both salaried and hourly. Often PEOs will also handle payments to certain vendors and contractors typically recorded on federal form 1099s.

The PEO replaces the need for an in-house payroll specialist or for an outsourced payroll processor. All payroll matters are handled by the PEO as well as all federal, state and local payroll reporting and payroll tax payments.

PEO Benefits

The benefits associated with using a PEO company are numerous. First and foremost, the responsibility of managing human resources is fully transferred to the PEO company, allowing business owners to focus on business operations.

Another benefit of hiring a PEO company is that a PEO is the expert on employment-related compliance, ensuring that your business is always up-to-date regarding the most recent regulations. It is a PEO’s responsibility to stay current on ever-changing federal and your state’s rules and regulations, and to provide guidance on what actions your business needs to take to stay compliant.

Many business owners choose to engage with a Professional Employer Organization because by doing so they may greatly reduce their employees’ group health insurance costs.

PEOs typically have access to more competitive benefits, including health insurance, because it pool of hundreds, if not thousands, of businesses which allows it to negotiate more affordable group health benefits than any single business is able to access and offer to its employees.

A PEO also offers liability assurance, giving you access to valuable HR resources, should you need them. This includes attorneys and licensed HR professionals who can help mitigate employee-related issues if (or when) they arise.

If you’re planning on expanding your business to include global operations, global PEO companies can streamline the process of hiring international employees. The PEO can cost-effectively guide a business through the challenges associated with hiring international employees while adhering to federal, state and local laws and regulations.

Other often overlooked benefits may include perks like commuter benefits (allowing commuters to use pre-tax dollars for transportation costs) or wellness benefits (like discounted gym memberships).

PEO Tax Implications

Because a PEO becomes the employer of record, there are PEO tax implications.

You will be required to run your payroll under the PEO’s tax ID numbers. The implications of doing so can present some risks such as being held liable for late or missed tax payments, losing out on some tax credits, and the possibility of having to pay double wage taxes in the event the business hires the PEO after January 1st.

To mitigate these risks, the Small Business Efficiency Act of 2014 allows PEOs to participate in an IRS certification program on a voluntary basis. This rigorous certification process allows a PEO to become IRS certified, shifting the liability for any unpaid taxes from the business to the PEO. Using an IRS certified PEO means you will not lose any employment-related tax credits or need to pay unnecessary, duplicated payroll taxes should you join a PEO mid-year.

Not all PEOs are currently IRS certified, but we recommend seeking one out that is. Otherwise, the HR risks’ mitigation and efficiencies achieved by working with an PEO company may be outweighed by associating with the wrong PEO.

Additionally, before hiring an IRS Certified PEO (CPEO), verify their certification has not been either suspended or revoked.  The IRS published this information here.

Our next post in this series will cover the disadvantages of using a PEO company. And we follow that post up with a post about Non-Profit Organizations using a PEO and another post about how the PEO becomes the employer when you hire a PEO.

When to Hire a Business Advisor

When to Hire a Business Advisor

by | Grow a Business | 3 Questions

Do you have a Question?

 Ask below. One of our Investors or Advisors will Answer!

Doing deals can be expensive.  A lot of business owners want to save money by not hiring an advisor.  In many cases, they simply don’t know when they should make the investment in an advisor.

It’s important to understand the roles of the broker and other advisors, especially legal counsel, and to know when to bring in a professional.  Here are some milestones in a deal, and how to know when to hire a business advisor.

When Doing Due Diligence

When a buyer shows interest in a business for sale and gets an offer accepted, he or she will get a chance to “look under the hood.”  

It’s time for the buyer to do their due diligence; to confirm that the business performs as the broker and seller have represented.  It’s important to understand each stakeholder’s positioning when doing a deal. Because the business broker normally represents the seller, he or she can’t and shouldn’t be giving a buyer a list of things to look for in the business.  

This may be a time to hire a business advisor.  

Accountants can confirm that the financials are valid, and business attorneys can validate that the seller has complete and legal ownership of the business.  Advisors like these can also look for other issues that could cause a problem after the sale. Another business broker can also provide assistance in due diligence as well, as long as he or she is on the other side of the deal.

When Starting a Business or Partnership

When people start a business together, it’s important to have valid articles of incorporation and operating agreements.  Start the partnership with a clear plan of how it could be dissolved. Proactive planning and documentation is the only way to avoid protracted drama when it’s time to move on, as all great things must come to an end.

In these agreements the details are important, so it’s worth investing in advisors as opposed to choosing the discounted online, templated options.  Owners who take this approach may save money on the front end, but often end up paying more when vague or ill defined documents fail to protect them on the back end.

Before Signing an Agreement

Successful owners get purchase agreement contracts for the acquisition of their businesses.  

But unlike a lot of real estate contracts, purchase agreements are often bespoke to the deal at hand.  Every business is different, and every purchase agreement can have caveats and contingencies that can have significant effects on when and if an owner receives full consideration for the business, as well as his or her future involvement in the business.  From the details of the transition periods to a family name that may or may not come with the transaction, the specifics of the purchase agreement are the instructions for how the deal will transpire and how success is defined when the deal is done. Other agreements in addition to purchase agreements may include items such as franchise agreements, vendor agreements, partnership agreements, and more…

Contract review and negotiation is an important time to hire an advisor. 

Remember that a business broker can share experiences that they’ve learned from previous deals involving attorney advice, but only an attorney can give legal advice when it comes to contracts.

When Money Is Involved

Just about any time that a significant amount of money is involved in a transaction, it’s probably worth hiring in an advisor.  

It may sound obvious, but if it says the money is non-refundable, for example, it’s quicker, easier, and cheaper to have it reviewed and potentially negotiated by an attorney than to try to fight to get the money back later.   Major issues like refundability are not always in bold or “above the fold,” but attorneys are trained to look for the important details like these.

When Making It Official

Nobody wants to waste resources by hiring an advisor, investing money and time, and ultimately not completing a transaction.  To mitigate this possibility there are less official documents and communications that can “test the waters” before the professionals are brought in.  It’s not a bad idea to float an offer verbally or by a simple email to make sure that a buyer and seller are in the same ballpark on price and terms, but more formal communications such as term sheets, letters/indications of intent, and ultimately purchase agreements show commitment.  

Advisors including business brokers can help in underscoring the validity of an offer by putting it on paper and delivering it in an official manner.  

The same offer that may have been dismissed if shared in a text could be accepted if it’s drafted and presented properly by an advisor…

In summary, despite the cost involved, it’s wise to hire an advisor. There are many milestones in a deal when business advisors are vital to success.  Such milestones may include after a buyer and seller have reached a meeting of the minds,  when money is about to be spent, or when new partnerships or agreements are being formed. Furthermore, there is a spectrum of “officialness” in documentation as communications move from an idea to an official transaction.  From term sheets to purchase agreements, business advisors can add value in preparing, reviewing, and presenting official documents. When hiring an advisor, instead of focusing on how much you will have to pay for quality advice, consider how much it may cost when making an uninformed decision.

How to Successfully Acquire A Business In A Seller’s Market

How to Successfully Acquire A Business In A Seller’s Market

by | Grow a Business | No Q&A Yet

Do you have a Question?

 Ask below. One of our Investors or Advisors will Answer!

Acquire a Business in a Seller’s Market

As a business broker in North Carolina, I’m focused on seller representation. But I need great buyers to match with my great seller’s opportunities.

In our office, we receive a lot of buyer inquiries, but few are great business buyers. We’re currently enjoying a seller’s market, and we receive dozens of inquiries and multiple offers for businesses that can make a future business owner greater than $100K/year.  

Here are a few things that help get a buyer to the front of the line when a great seller opportunity hits the market:

Quick response to an NDA (Non-Disclosure Agreement)

By now buyers know that if they are going to submit an inquiry, they will receive an NDA, or Non-Disclosure Agreement as a first step.  It basically says “I may share confidential information with you, but I need you to promise not to disrupt this operational business…”  We send dozens of these out weekly, but many of them don’t come back.

We’ve made a promise to our sellers to protect their confidential information, and this is our first priority.  It also screens buyer suspects from serious buyer prospects.

Returning NDA’s quickly allows us to move to the next stage of buyer screening.

Candid Disclosure on Approximate Financial Situation When Buying a Business

Along with the NDA, one of our first lines of communication is asking a buyer to share a net worth and a down payment.  We’re just asking; we’re not even asking for proof in this first pass (it comes later of course). But often buyers disclose zero or $1.  

It’s understandable if buyers do not want to disclose details about their financial situation early in the process, but at the same time they are indicating a desire to buy a business, so it makes sense that we need to know their financial fitness for the task.  

Sharing accurate details about a buyer’s financial situation makes for a great buyer, especially if they have great resources!

Pre-Approval from a Lender to Buy a Business

The “professional” buyer has taken the time to talk to an SBA banker or broker and received a letter stating that they’re financially capable of offering a down payment, and could be great candidate for an SBA loan, up to a specific dollar amount.

This is a great solution for people who don’t want to disclose a net worth/down payment, and it shows that a buyer is serious and has taken the first step in buying a business.

Resume

The serious buyer has also put together a resume for a seller.   Sure, entrepreneurs are cowboys who blaze their own path, but they also know that they must sell themselves to get what they need.  Putting together a resume that shows buyer experience is a great way to show a broker and a seller that a buyer is serious about purchasing a business.

Doing so can help the buyer become excited about a possible “fit,” and it’s required by many lending institutions.

Buyers who submit a resume that aligns with a business of interest are taken more seriously.

Bonus!  Letter To The Seller

Much like the housing market, it’s not uncommon for a business buyer to write a personal letter to a seller stating their sincere and earnest intentions for their business. This often comes in the later stages after a buyer/seller meeting, especially at the offer stage.

Business buying can be a clinical and “quantitative” process, but adding a letter that shares what the business would mean to a buyer and where they would like to take the business adds a “qualitative” factor that, by definition, simply can’t be measured.

Don’t be afraid to make it personal if you are sincere and really want to buy the business.

At the end of the day, it comes down to the money.  The buyer closest to the full asking price and with the best terms will ultimately win the deal.  

Few sellers will argue with a full-price offer, all cash, or a quick close, but the points discussed above will enhance a buyer’s chances of getting to closing table.  My firm is always on the hunt for great buyers like these!

Contribution Margin Formula

Contribution Margin Formula

by | Grow a Business | No Q&A Yet

Contribution margin is an important method of not only understanding how profitable a business is, but also how its products and services contribute to the bottom line. It’s important to understand that contribution margin is different from profit margin, since profit margin measures the total amount of sales revenue minus costs. Instead, contribution margin measures the profitability of each individual product or service after subtracting variable costs.

Contribution Margin Definition

Although contribution margin can be interpreted and used in a number of ways, the basic definition of contribution margin is the revenue remaining from a particular product or service sale once total variable costs are subtracted.

Contribution Margin Formula

Contribution Margin = Unit Sales Price – Variable Costs

Contribution Margin Analysis

The contribution margin allows a business to evaluate which products and/or services are most valuable and profitable. This common financial analysis tool helps business owners and managers determine which product lines and services should be emphasized and which ones should receive fewer resources or be eliminated.

Business owners also find an analysis of the contribution margin useful in making pricing decisions such as deciding when to lower or increase prices in special situations, and in determining which products should receive more resources such as marketing budget. The contribution margin also helps determine the profits that may be expected at different sales levels.

Negative or very low contribution margins generally indicate that a product or service is not profitable, and presents an opportunity to re-evaluate that specific product or service. Often, this tool is useful in helping business owners decide when to discontinue a product line, or invest in research and development in an effort to increase its price or decrease the cost of production.

In the event the business is experiencing a bottleneck or other limitations in production capabilities, the contribution margin analysis allows business owners to determine which of its products and services have the highest profit margin, and therefore should benefit from the available resources.

Contribution Margin Ratio

The contribution margin ratio shows what percentage of each dollar of revenue goes towards covering fixed costs. This percentage can be calculated either on a per-unit or aggregate basis. The per unit basis divides the contribution margin per unit by the unit sales price, while the aggregate divides the total contribution margin by the total revenue.

Total Contribution Margin

The total contribution margin is the total earnings available to to pay for fixed expenses and generate profit across all products and services. This is different than the unit contribution margin, which specifically measures the contribution of an individual product or service, and the resulting incremental profit earned for each unit sold.

 

5 Steps to Deal with your Difficult Employees

5 Steps to Deal with your Difficult Employees

by | Grow a Business | No Q&A Yet

Entrepreneurship offers the most even-tempered humans many challenges.  One suchDifficult Employees challenge is managing difficult employees who are forever causing havoc.  You know who they are.  And so does your spouse!

One of my favorite clients refers to her difficult employees as her “high-maintenance employees.”

The high-maintenance employee knows you are going out of town for an important business trip and chooses to drop a bomb on you as you are heading out the door to the airport.  They invite themselves into your office and announce they “want to talk”.

They tell you about their dissatisfaction regarding how recent promotions were handled or want to share the gossip about your most recent hired employee.  Your calendar means nothing to them.  It’s all been bottled up and whether you want to or not, today you’re going to listen.

This employee gives you a hard time every time you try to change something in the office—especially if it is an attempt on your part to improve the business culture.  They like things the way they are… especially if the culture is dysfunctional.   Sound familiar?

Or maybe this employee is your best sales guy.  He beats the bogey every month and is single-handedly able to drive a wedge between every department in your business.  He’s rude, loud, and incredibly effective at selling whatever you sell.  Every time you speak to him, your blood pressure goes up.

If this rings true for you, it’s important to understand that you are not alone.  The high maintenance employee works everywhere.  Only a few business owners have been lucky enough to avoid them.  In fact, I typically find multiple high-maintenance employees working in the same business.

Another client had so many high-maintenance employees in his business that, in private, he referred to it as his “Adult Day Care Center”.  Okay, you have to admit that is really funny.  Maybe not.

How to deal with high-maintenance, difficult employees?

  • Recognize the truth and commit to resolving the matter.
  • Don’t put up with rude behavior.  Draw the line every time an employee misbehaves.  And if that employee happens to be your child or other relative, do so in private ONCE.  After the warning is given, they should be reprimanded in public.
  • The needy, insecure employee who is forever cdifficult employee quotereating problems for everyone in the office is not worth keeping.  Find a way to let them go.  These employees often produce an inordinate amount of work so they milk it.  They make you believe you can’t live without them.  Trust me, you can.
  • If you have to keep the superstar sales rep to keep the doors open, delegate their management to someone on your staff.
  • And lastly, if you’re operating a business with more than one half dozen employees and virtually all employee issues are landing in your lap, you need to re-prioritize.  The one, two, or more high-maintenance employees are going to eat you alive.  Hire the best manager you can afford to manage all of your employees and focus on the future of your business.

If you do not take the steps to resolve the issues a high maintenance employee presents, they may actually succeed in distracting you enough, and ultimately destroy your business.

You know what you’ve got to do.

Business Bad Debt

Business Bad Debt

by | Grow a Business | 7 Questions

Business Bad DebtBusiness bad debt refers to any debt created or acquired in a trade or business (or closely related to a trade or business) that becomes partially or completely worthless and can not be collected.

Business bad debt is the result of a customer, another business, or an individual who cannot or refuses to pay their debt obligation to your business for goods and services received or rents owed.

Debt may be considered closely related to a business if it was incurred for legitimate business purposes such as lending money to a business owner so the business can pay a supplier or  meet payroll cash requirements.

Business Bad Debt as A Result of Credit Sales

More often than not, business bad debts are the result of sales on credit extended to customers that are never fully paid.

When using the accrual basis of accounting, goods that are delivered (and likewise services that are performed) are recorded on the company’s books at the time of sale as either accounts receivable or as a note receivable.

If the goods, services, or rental income is not received from the company’s customers or tenants and the income was recorded previously on the Profit and Loss Statement under the accrual basis of accounting, then the ability to write off the debt as an expense for business bad debt may be present.

On the other hand, if the company records its revenue and expenses on the cash basis of accounting and the customer does not pay for the goods, services, or rents, then a deduction for business bad debt is not permitted. It is not permitted because the income from the sale transaction did not occur in the first place.  

Nevertheless, any expenses related to the sale associated with the business bad debt are deductible under both the accrual basis and cash basis of accounting. Such expenses would include raw materials, inventory, utilities, rent, wages, salaries, payroll taxes, among others.

Debt Worthlessness

A debt becomes worthless when you are unable to collect the debt after a reasonable amount of time has passed.  

To write off a business bad debt as an expense on your accrual basis accounting records and/or tax returns, you will need to demonstrate that you took reasonable steps to collect the debt and were unsuccessful. If the debtor claims bankruptcy, this process is easier as written evidence of the uncollectible status of the debt will be available.

Financial Statement Consequences of Business Bad Debt Write Off

Despite the fact that the presence and need to write off a bad debt for a given business may be an extraordinary occurrence, bad debt expense is considered part of normal operating expenses for any business. Hence, when bad debts are written off as uncollectible by a business, it’s recorded as an ordinary operating expense on the Profit and Loss Statement.

Tax Consequences of Business Bad Debt Write Off

Business bad debt is completely deductible, even if the debt has some remaining value. However, the accounts receivable and notes receivable are deductible only for their fair market value at the time they were received. In the event you purchased an account or note receivable for less than its face value, you may only deduct the amount that you paid for it.

Lastly, a business bad debt is written off against ordinary income on an individual’s personal income tax return which differs from a non-business bad debt which is written off as a short-term capital loss.

2017 Business Tax Filing Deadlines Have Changed {Infographic}

2017 Business Tax Filing Deadlines Have Changed {Infographic}

by | Grow a Business | No Q&A Yet

Busy entrepreneurs need to be aware of several important changes in federal 2017 Business Tax Filing Deadlines for the calendar year ending 12/31/2016.

Most notably is now employers have one month less to file Forms W-2 and 1099 MISC with the Federal Government. In the past, this information was due on February 28th. Now both the recipient and the IRS must receive these documents by January 31st.

Similarly, Partnership Form 1065 is now due a month earlier on March 15th . On the other hand, C Corporations have an additional month to file Form 1120. Its due date is now April 18th.

Here’s where you can find the Federal Extension Form to print and complete:  Federal Form 7004

And here’s where you will need to mail it:  Mailing Addresses for Federal Form 7004

These changes as well as other important 2017 Federal Tax Filing Dates are summarized below.

updated 2017 federal tax filing dates

–

Exclusivity Agreement Definition

Exclusivity Agreement Definition

by | Grow a Business | No Q&A Yet

Exclusivity Agreement Definition

In business, the term exclusivity refers to a party’s sole rights with regard to a certain business activity. This may include business relationships, pricing, products, or sales.

Another application of this term in the business world involves relationships between parties, most notably in the form of exclusivity agreements.

This post addresses how two forms of exclusivity agreements or clauses may be useful in:

  • business acquisitions and mergers; and
  • strategic business relationships between two or more parties

Exclusivity Agreements in a Business Acquisitions and Mergers

If you are preparing to buy or sell a company, it’s important to understand how an exclusivity agreement, or more typically an exclusivity clause, may impact the process.

When there is active bidding among several companies for the purchase of another company, an exclusivity agreement may be agreed upon when a potential buyer makes significant progress in the negotiations and is prepared to sign a letter of intent (LOI).

In the context of a business acquisition, this specific type of agreement usually stipulates that once a potential buyer signs the letter of intent (LOI), the seller cannot pursue another offer from a different potential buyer for a specified amount of time.

An exclusivity clause may not always be included in a letter of intent to buy a business. But from the perspective of the buyer, it is a good idea to include one.  From the seller’s perspective, the opposite is the case.  

The exclusivity agreement in the context of a business sale is often referred to as a ‘no-shop clause’ and will normally include a term or expiration date.

Exclusivity Agreements in Strategic Business Relationships

For business owners seeking opportunities to strengthen or grow their companies, an exclusivity agreement with another powerful player inside or outside of their market may have a big impact on both company’s capabilities. These kinds of strategic business partnerships are common and sometimes officially documented in the form of an exclusivity agreement.

This type of agreement requires both parties to agree to work exclusively with one another with respect to a certain aspect of their businesses. One famous example was AT&T’s exclusivity agreement with Apple to be the sole phone company to distribute the iPhone in its early years.

Exclusivity agreements are often created between a company and an important vendor or other crucial supply chain partner, or with a leader in another market. Both parties seek to accomplish a certain strategic objective by combining the most successful pieces of the respective businesses.

How an Exclusivity Agreement Works

Exclusivity agreements are designed to create a stable business relationship and beat out the competition, resulting in improved predictability and profitability. Generally it requires one or both parties to restrict some business activity with outside parties for a specified amount of time.

Other Things to Consider

Keep in mind that there are some drawbacks to exclusivity agreements.

First, whenever two businesses work this closely together, there is some amount of information each company will learn about the other, which competitors may find very valuable.

In these cases, confidentiality agreements may be necessary as well. Additionally, both parties may be obliged to pay a penalty in the event the relationship is terminated prematurely.

Intangible Assets

Intangible Assets

by | Grow a Business | No Q&A Yet

Intangible AssetsIntangible assets are those assets in a business which are not physical in nature. Some examples include: intellectual property, (like patents, trademarks, and copyrights), brand recognition, special knowledge, and business methods. Such non-physical assets add value to a company over time and cannot be destroyed in a flood, fire, or other disaster. Rather they can help build up a company should a calamity strike.

Such assets are generally classified into two categories: limited-life intangible assets, and unlimited-life intangible assets.

Limited-life (definite) Intangible Assets

Limited-life intangible assets (sometimes referred to as definite intangible assets), are assets that may expire at some point in time. Patents, copyrights, and goodwill are examples of limited-life intangible assets. These assets are amortized over the course of their useful life, using either a straight-line method or units of activity method.

Unlimited-life (indefinite) Intangible Assets

Conversely, an unlimited-life intangible asset (or indefinite) intangible asset is a non-physical asset that will stay with the business as long as it exists. A company’s brand name and trademarks can be just as valuable as its tangible assets (or in some cases – like the Coca-Cola Company – may be more valuable than its tangible assets). Coca-Cola’s branding has been driving its sales for decades.

Unlimited-life intangible assets are not amortized, since they will continue to provide value to the company over their lifetime.

Accounting Methods when an Intangible Asset is on the Books and Records of a Company

Accounting for this type of asset on a company’s financial statements can be complicated since its value is often difficult to determine. While tangible assets add to a company’s current market value, intangible assets generally add to future worth. One way to approximate the value of a firm’s intangible assets is to to deduct the net value of the company’s tangible assets from the market value of the company. The remaining amount is a good estimate of the value of the company’s intangible assets.

If an intangible asset’s value ever falls below its carrying amount (or its actual historical cost), the difference is recognized as an impairment expense for the current period, not to be spread out over several periods.

Other Examples of Intangible Assets

  • Internet domain names
  • Proprietary methodologies and processes
  • Customer lists
  • Order backlog
  • Customer relationship
  • Service contracts
  • Lease agreements
  • Employment agreements
  • Computer software
  • Trade secrets
  • Non-competition agreements
  • Events
  • Performances
  • Recipes

 

Pro Forma Definition

Pro Forma Definition

by | Grow a Business | No Q&A Yet

pro forma definitionMeaning ‘for the sake of form’, the term pro forma refers to a document that is often provided as a courtesy and satisfies predetermined minimum requirements in an effort to best predict the future outcome of a transaction within a business. One of the most common examples of this is a pro forma financial or accounting statement, although pro forma invoices are also common. In the investing world, pro forma describes a method of reporting financial results to emphasize certain current figures or projected outcomes.

Pro Forma Financial Statements

Pro forma financial statements are often created to summarize the projected financial status of a company, based on current financial statements. Pro forma financial statements are most commonly created in advance of an acquisition, a merger, a change in capital structure (like an issuance of stock or the incurrence of new debt), or a new capital investment, with the purpose of indicating hypothetical financial figures.

The pro forma statements describe the expected outcome of a proposed transaction, when all the underlying assumptions hold true.  Generally a part of a business plan,   pro forma statements are often reviewed by management and stakeholders.

Additionally, pro forma statements may be used to emphasize certain numbers when an earnings announcement is issued to the public.

When analyzing pro forma financial statements, it is important to keep in mind  there is no requirement for the figures to comply with GAAP (generally accepted accounting principles). Pro forma financial statements may   vary greatly from financial statements obtained by adherence to GAAP.

Using Pro Formas Statements When Starting a Business

Pro forma financial statements are a standard piece of information generally required by lenders and investors for start-up companies. The founders will prepare the pro forma financial statements to describe the company’s projected financial status through the start-up phase. Additionally, banks will request pro forma financial statements in lieu of tax returns to verify cash flow before issuing a loan or line of credit to a new business.

Pro Forma Invoices

A pro forma invoice is a document that states that a seller commits to selling goods at a predetermined price to a buyer in trade transactions. Simply put, a pro forma invoice is much like a ‘confirmed purchase order’, or an agreement between buyer and seller detailing the terms of the agreement. Conversely, a true invoice records Accounts Receivable for the seller and Accounts Payable for the buyer.

A pro forma invoice is simply a sales quote, which is used to facilitate the sale process, and precedes the actual commercial invoice. Although a pro forma invoice is usually considered to be a binding agreement between buyer and seller, it is important to note that the price of the goods can fluctuate in advance of the final sale.

–

Affordable Care Act 2015 Employer Reporting Requirements

by | Grow a Business | No Q&A Yet

Under the Affordable Care Act, employers must follow specific reporting requirements concerning health insurance coverage offered to employees during calendar year 2015.

Although the ACA has been impacting nearly all employers over the past couple of years, now employers must comply with new reporting requirements or face significant fines.

The ACA reporting requirements depend on the size of the business:

  • small employers generally have fewer than 50 full-time employees or 50 full-time equivalents;  and
  • large employers which have more than 50 full-time employees.

Applicable Large Employers, or ALEs, must file information returns with the Internal Revenue Service or face fines and penalties. In addition to ALEs, small businesses that are members of a Controlled or Affiliated Service Group who have a total of 50+ employees (or 50+ FTEs) and employers that sponsor self-insured group health plans must also file reports with the IRS.

2015 ACA Employer Reporting Requirements Infographic

Our Infographic below summarizes which businesses need to file during the first few months of 2016, their filing deadlines, possible fines and penalties, and otherwise what employers can do to prepare for ACA reporting.

Click here to view the ACA Employer Reporting Requirements infographic as a PDF.

–

Google Analytics Reports: What Are Visitors Doing on Your Website?

Google Analytics Reports: What Are Visitors Doing on Your Website?

by | Grow a Business | No Q&A Yet

google analytics reportsYou’ve invested in Search Optimizing your website with better content, meta-code, and Social Media links. Traffic to your site has increased, and you’ve even started to receive more calls and orders. What’s next?

The first thing to realize is that SEO is an open-ended process that is never really complete. It comes with victories and setbacks, and you need to be vigilant about the ways in which your web visitors interact with your site.

That’s a fancy way of saying “watch what your web visitors do.” It can be fascinating.

Google Analytics

Many hosting services provide statistics about visits and “hits,” but what you really want is in-depth knowledge about how visitors to your site behave once they get there.

Google Analytics is a tool provided free-of-charge by Google to help you understand that behavior. Of course “free” is a relative term. True, there is no financial charge other than the time needed by your webmaster to install Google’s code. But then Google knows everything down to the last detail about what’s happening on your website. For most web owners, it’s a fair trade.

You can learn more about Google Analytics and how to set it up by following this link: http://www.google.com/analytics/learn/setupchecklist.html

Our purpose in this article is to pick out a few key metrics in Google Analytics reports to watch for and explain why they are important.

Time on Site

When people come to your site, they spend a certain amount of time there, and it’s often shorter than you think. A recent article in Time indicated that 55% of visitors spend less than 15 seconds actively on a page.

In Google Analytics, you want to look at your Average Session Duration. If your site is interesting to its audience and engages its attention, that number might be in the 1 to 2 minute range. If it’s far less, then you might have more visitors, but few may be interested in what they are seeing.

Bounce Rate

A “bounce” is simply a visitor who leaves the site after viewing only one page. Bounces go hand-in-hand with time on site, as a high bounce rate likely means your audience is glancing at the home page and then going away.

An average bounce rate is in the 50% to 60% range. Lower than that and you’re doing great; higher and you may have a problem.

If you have a high bounce rate, don’t panic, just take a closer look. You may be attracting segments of the wrong audience, like an industrial “guard rail” manufacturer we’ve worked with who started picking up searches for children’s crib railing.

Or, your site could be having its statistics skewed by visits from some annoying bots. One called SEMALT has been causing trouble recently, and you can read how to remove it from Google Analytics here: https://www.hallaminternet.com/2014/remove-semalt-google-analytics/

Geography

Where are the majority of your web visitors coming from? If you have a brick and mortar store on 5th Street, USA, and you have increasing web traffic from Angola, those new visitors can’t possibly do you any good.

Of course, be reasonable with your expectations. Foreign visitors are sure to come; it’s only a problem if a substantial portion of your web traffic is well outside your company’s service area.

User Flow

User flow is the path followed by your web visitor as they move through the site. You can see what page they came in on (not always the home page), and where they went from there. Did they make it to your contact page? Did they show an interest in something you didn’t realize was a big draw?

Conversions

Conversions are simply goals that you yourself set for your website. In a simple e-commerce model a conversion would be a sale. For an informational website, a conversion might be when a visitor reaches the “Thank you for Contacting Us” page or the “download completed” page.

Conversions are a way of measuring whether visitors are doing what you want them to do. If you encourage your visitors to read the latest sales flyer and they do not, then something is amiss. Either the action you want them to take is not clear, or they do not see how taking that action can benefit them.

Technology/Mobile

What Browsers and Operating Systems are your visitors using to access your website? The appearance and functionality of a website can change depending on whether it is being viewed in Internet Explorer, Chrome, FireFox, or MAC’s Safari browser.

Recently we worked with a customer whose website was not doing well at all in Safari, but because his business serviced a higher-end clientele, it was likely that more of his customers than average would be viewing his site on MacBooks, iPads, and iPhones. This made solving the Safari glitches a priority.

Speaking of iPads, how many people are visiting your website on their tablets and smart phones? If it’s a lot, and your website is hard to use on smaller screens, then you may be losing potential customers.

In the summer of 2014, more websites were accessed on mobile devices than on traditional laptops and PCs.

Summation

Google Analytics offers a treasure trove of behavioral and technical data that is almost second-to-none.

Today, it’s not enough to know that your site got more “hits,” but it can be invaluable to know where your visitors came from, what pages they visited, how long they stayed, and what types of devices they viewed your website on.

Once you have access to the knowledge available in Analytics, you can begin making modifications to your website that will help it do even better tomorrow.

You could add videos, slide shows, or info-graphics to increase time on site and better engage your audience. You could make critical or popular pages easier to reach in the navigation. You could take into account the equipment on which your website is viewed and take steps to assure that the most popular devices and browsers present what you have to offer as clearly and smartly as possible.

With Google Analytics, you open up a whole new world of understanding your online audience, and best of all, when you make those new changes to your website, you will have a direct measure of whether or not they worked!

Keeping Track of Your Competitors’ Intellectual Property

Keeping Track of Your Competitors’ Intellectual Property

by | Grow a Business | 2 Questions

As businesses grow and develop, so does its intellectual property (IP) assets. And if these businesses are engaging in proper IP management, they are filing trademark and patent applications to protect their IP. However, because of the public nature of both trademark and patent prosecutions, one may get an inkling of their competitors’ business plans if they monitor these application filings. Though not a perfect way to predict the exact nature of your competitors’ future offerings, keeping track of your competitor’s intellectual property filings can be a guide to where your competitors are moving.

Trademarks

A trademark is a word, phrase, symbol, or design that identifies and distinguishes a source of goods and services. The United States Patent and Trademark Office (USPTO) allows entities to file trademark applications before the marks are in use under the Bona Fide Intent To Use basis. That way, businesses can secure their branding before their product or service offering is fully commercialized. Pending trademark applications are available online for public viewing  approximately a week or two after their submission. Using the online database, trademark applications can be searched using the owner name. For example, if you do a search using Microsoft as the owner, you will find numerous pending trademark applications, many of these filed under the Bona Fide Intent To Use basis.   Some of these Bona Fide Intent To Use marks, such as Battle Toads, Eden Falls, and Screamride are being applied for as marks to cover video/computer games. This may indicate that Microsoft wants to expand its footprint in the video/computer game market, with the word marks potentially indicating the nature of these games.

Patent Applications

Another way to track competitors is to monitor their patent application filings. Entities apply for patents to protect inventions that they intend to become commercialized products. Before the America Invents Act (AIA), inventors were the applicants for patents and assignments were not always recorded with the USPTO, since it was not required to do so. However, as of September 16, 2012, the AIA allows assignees to be applicants, bringing the US in line with the rest of the world. And because of this, potentially more businesses have their names on patent applications. The USPTO and other databases allow you to search patent applications by assignee (or applicant) name. The caveat, however, is that patent applications are not published until 18 months from their priority date. So there is a blackout period where applications are confidential and not able to be found on the patent databases. But as it takes approximately three years in the US before an application becomes an issued patent (or becomes abandoned), it is still possible to track your competitors’ developing products, especially because it may take several years before a commercialized version of the invention is finalized and put up for sale.

Monitoring Intellectual Property

Businesses should either set up internal procedures to track their competitors’ Intellectual Property filings, or if they can afford it, outsource the tracking to companies who specialize in tracking IP. Tracking your competitors’ IP not only lets you know what your competitors are up to, but may also be a guide to direct your business’ product development. You can assess the quality of your competitors’ potential products and can compare it to your current and potential products. Similarly you can assess whether the market will become too crowded for a certain type of product (too many patent applications filed on similar inventions), or discover whether one of your developing products could potentially be infringing the claims in a competitor’s application which may ultimately issue as a patent, affording you the opportunity to “design around” your competitor’s invention.

When Does Your Website Become Your Greatest Risk?

When Does Your Website Become Your Greatest Risk?

by | Grow a Business | No Q&A Yet

copyright infringement lawsDo you have a website? Do you have images on your website? Do you know where those images came from? Truly, do you?

If you didn’t create the images yourself or you didn’t license the images from their owner, you are probably violating copyright infringement laws. It doesn’t matter if you didn’t know; innocent infringement is still infringement!

Large stock photo companies are aggressively searching websites for unlicensed use of their copyrighted images. After finding an unlicensed use, these companies send belligerent demand letters asking for outrageous sums to settle the case or they threaten to take you to court. And if you choose to ignore them…well let’s just say, if you think a hungry dog going after his bone is persistent, he ain’t got nothing on these Copyright Trolls. Their plan is to essentially “paper” you into submission to pay their settlement fee. These matters can become long term headaches for unsuspecting business owners.

Prevent Copyright Infringement on Your Website

Is there anything a business owner can do to prevent this from happening? Review all the images on materials that you present to the public including, but not limited to, websites, YouTube videos, brochures, and newsletters. Even review the images that are part of archived materials online. If you do not know the ownership of any of these images, you could be at risk and should remove all such images. Even if you downloaded or copied the images from a source that claimed that the images were free, you cannot be sure who the true copyright owner is. It is also possible that the “free” images have very limited terms of use, and that use of the images outside of those terms (such as use perpetually on a website) requires a licensing fee.

Now I know many business owners will want to argue that they were not the ones who put together their website, their newsletters, their brochures, and that the third party developer was responsible. It doesn’t matter. YOU are the business that is using the unlicensed image on YOUR materials, and YOU are ultimately responsible for the infringement. And trust me; YOU will be the one receiving the demand letter.

Maybe now is good time to do an “image checkup” and revise your materials. What a great excuse for updating and invigorating your website! With all the technology available, why not generate your own images? Have fun and get creative! Personalizing your business’s website and other documents with your own copyrighted images may just spark a new marketing campaign, or maybe it will energize a new connection with your customer base.

And if you choose not to examine the ownership of the images you use, let me just warn you: Beware of the copyright trolls!

Pin It on Pinterest