COVID-19 relief options and additional resources
LEARN MORE Close

Managing

The Pros and Cons of Running a Seasonal Business

Published: June 8, 2016

In business, entrepreneurs experience peaks and valleys but for small business owners who operate seasonal businesses those ups and downs intensify. The majority of their revenue is dependent on a specific time period.

Seasonal businesses are all around – from a bed and breakfast to summer camps and ice cream shops. Many will choose to remain open for business throughout the year, oftentimes adjusting to different seasons or customers while others will close during slower months.

If you are looking to start-up a seasonal business, here are some considerations to keep in mind when weathering the ups and downs:

Pros

Seasonal businesses can offer more flexibility, creativity and additional income for business owners. Other upsides to managing a seasonal business include:

 

  • Advanced Preparation – During the off season, owners have more time to develop budgets, systems, processes and procedures ahead of the busy season; particularly when forecasting your business’ cash flow. Additionally, management and staff have time to rest and recuperate from a hectic schedule. 
  • Direct Marketing – Typically seasonal businesses have a target audience they focus on during their peak seasons, and even during off-season. By narrowing their customer base, a seasonal business can maximize their marketing and outreach by tailoring their products, services and communications. For example, a children’s summer camp can begin marketing during the colder summer months by having pre-registration options available on their website or partnering with local school and recreation centers to build a buzz prior to the summer month.
  • Seasonal Labor – If you are able to build a great team of temporary workers from the previous season or your professional network, hiring will be more streamlined, less time consuming and cost efficient. A positive work environment that encourages good work ethic and incentives can encourage staff to refer friends and colleagues.

Cons

A seasonal business is not a traditional business and is also constrained by the time of the year. There are many factors, known and unknown, that can greatly impact a seasonal business.

  • Weather Conditions – If a storm or natural disaster strikes during peak season, expected revenues or business equipment may be negatively impacted. During the off-season, plan ahead for unfavorable weather.
  • Hiring Staff – Recruiting, hiring and training temporary workers can be taxing on a small business. Moreover, because of the transitional nature of employment, a higher turnover rate is likely. Mitigate these issues by setting standards, procedures and incentives prior to hiring. Click here to learn more about hiring temporary and seasonal workers.
  • Startup Capital – The initial cost and other expenses to launch a seasonal can deter would-be entrepreneur to start. From permits or licenses to securing a location or building, financing a business with a condensed life cycle presents additional up-front financial obligations.

Owning and managing a business takes creativity, diligence and good management. Whether you decide to run a seasonal business, refer to resources through SBA.gov well as connecting with a professional at your local SBA office. 

About the Author:

Ijeoma S. Nwatu
Ijeoma S. Nwatu
Ijeoma S. Nwatu is a digital strategy and communications consultant. She is the Communications Manager for ColorComm, an organization that aims to uplift women of color in the communications field. When not working with clients, Ijeoma can be found speaking about career transitioning and social media marketing. Follow her on Twitter: @ijeomasnwatu.

Understand the Law Before Dropping or Reducing Employee Benefits

Published: May 25, 2016 Updated: June 9, 2016

Small businesses facing poor or uncertain financial circumstances may be forced to consider drastic employment decisions including layoffs and benefit reductions. If your business faces such decisions, it important to understand your legal rights and obligations concerning employment law.

Layoffs, Furloughs, and Reducing Employee Hours

Layoffs
If your business is considering layoffs, review the Worker Adjustment and Retraining Notification Act (WARN), which requires employers with 100 or more employees (generally not counting those who have worked less than six months in the last 12 months and those who work an average of less than 20 hours a week) to provide at least 60 calendar days advance written notice of layoffs at single site of employment. Though the federal law may not apply to your small business, many states have enacted similar legislation to apply to businesses with less than 100 employees.

Furloughs and Hour Reductions

The rules on for reducing employee hours or imposing a furlough depend on whether an employee is considered exempt (salaried) or nonexempt (hourly).

As an employer, you are legally allowed to reduce the work schedule of hourly employees or impose a furlough to temporarily stop work. However, if you reduce your employee hours but not their workload, they may not be able to finish their tasks on time. If they need to work extra hours to accomplish their work, you must compensate them for that time.

Reducing the hours of salaried employees (employees who receive the same amount of pay each week is more complicated. Since salaried employees receive the same pay each week, regardless of how many hours they work, cutting hours but maintaining salaries will not save your business money. If you reduce the hours of salaried employees and as a result pay them less, their exempt status could be reconsidered as hourly. If that is the case, then they would now be eligible to receive overtime pay. Many employers choose to avoid this option as it could lead to higher and unexpected labor costs.

A furlough of salaried employees would not jeopardize their exempt status because exempt employees are not entitled to compensation for any week in which no work is performed. If you begin furloughs for extended periods of time, you may be required to comply with federal or state WARN laws.

Pay Cuts

Generally, employers have the right to institute pay cuts for hourly employees, as long as the wage meets minimum wage standards. In some states, you may be required to provide advance written notice to employees. Check with your state department of labor for the laws in your area.

If you cut the pay of an exempt employee to the point where they are receiving less that $455 per week, they could be considered an hourly employee as explained above. However, if you need to cut pay as a result of an economic downturn, you may be exempt from the overtime rules if the cut is maintained each month as the new salary (and does not increase or decrease each week) and if it is in response to your business’ long-term needs. If you choose to go this route, speak with your state department of labor to ensure that you are in compliance.

Another alternative is to reduce exempt employee pay without dictating the hours they work. The downside, of course, is that without a corresponding reduction in schedule, exempt employees may become demoralized by the appearance of working the same amount for less pay.

Changing Benefits:

Unlike mandatory benefits like worker's compensation and social security taxes, employers are not required to provide fringe benefits such as paid time off, severance pay, retirement plans, and holiday pay. Oftentimes, businesses choose to offer these perks as recruitment incentives.

Generally, while employers can change or eliminate paid time off (PTO) policies, they cannot take away PTO hours if they have been accrued. Employees will be entitled to their PTO leave, or you will have to pay them for the unused time. Note that the same rules may not apply to unused sick leave.

If you currently offer retiree health benefits, nothing in federal law prevents you from cutting or eliminating those benefits unless you have made a specific promise to maintain the benefits, according to the Department of Labor.

Reminder

If you need to change any fringe benefits, wages, or hours, research your state's employment laws to ensure you are in compliance. Remember to apply benefit packages consistently to your employees to prevent discrimination claims. 

For more information, contact an attorney and/or accountant for legal and financial assistance.

About the Author:

Ijeoma S. Nwatu
Ijeoma S. Nwatu
Ijeoma S. Nwatu is a digital strategy and communications consultant. She is the Communications Manager for ColorComm, an organization that aims to uplift women of color in the communications field. When not working with clients, Ijeoma can be found speaking about career transitioning and social media marketing. Follow her on Twitter: @ijeomasnwatu.

How Wearable Tech Can Help You Achieve Better Business Performance

By smallbiztrends, Guest Blogger
Published: May 19, 2016 Updated: May 19, 2016

It takes stamina and energy to run a business. Not only that, but study after study shows that improved fitness actually helps to increase brain power – and helps maintain that mental edge longer in life.   

That is why it is important for your body to be strong and fit. With a healthy body you will be able to perform at your best -- and potentially turn your own performance into better performance for your company.   

Luckily today, with the Internet of Things becoming a reality, you can manage your health and fitness effortlessly -- and better than ever before.  

The relatively new field of wearable tech can help you understand how your body is performing, so you know to rest, eat better, or get more exercise.  In other words, wearable tech can help you get and stay more fit and healthy. 

Wearable tech for fitness purposes refers to any device, accessory such as a watch, or article of clothing that monitors various body functions and conditions such as heart rate or breathing, and sends you back information so you can make better decisions about your health and fitness.   

Data about your body is gathered through sensors or other electronics that are contained in the wearable tech device.  That data is transmitted wirelessly (through WiFi or a mobile phone network) back to an app or software that interprets the data.  Lastly, the interpreted information is available to you -- often in real time or with very little delay. 

And the best part?  Wearable tech is become more affordable.  Some wearable tech items still in early stages of experimentation may be expensive but small fitness trackers can be had for under $25 -- well within the budget of startup entrepreneurs. 

If you want to dip your toe into the water of wearable tech for health and fitness purposes, start with a simple fitness tracker like Jawbone Up, Garmin or Fitbit.  The trackers, often worn on your wrist, may track your activity levels, body conditions such as heart rate, and sleeping patterns, and help you log your diet and meals so you can stay on track nutritionally. 

Another category of wearable tech are smartwatches.  Smartwatches can be used along with a mobile phone as a communications device.  But some smartwatches can also track fitness, health signals and activity levels. 

More advanced wearable tech may include articles of clothing.  Current items on the market include socks, T-shirts and sports bras with sensors embedded to help you monitor your body conditions during exercise in much more detail than a simple fitness tracker can do.  For instance, wearable tech socks can monitor your walking or running gait to help you avoid foot, ankle and leg injuries.  

When looking for wearable tech for fitness and health purposes, keep a few things in mind: 

Is it comfortable? If it isn’t comfortable and you don’t wear it, it can’t help you perform at optimal levels. 

Is it waterproof? If you want to swim with the item on, can it stand up to that? 

What apps does it use, and on which platforms? Smartwatches may connect with your mobile phone, so compatibility is important. 

How many functions does it measure and what level of information do you get receive?  While an entry level fitness tracker may be fun, be sure it is capable of giving you the kind of information about heart rate, for example, that you are expecting.  Not all devices are made equal -- so compare features. 

How easy is it to use?  If an associated app is too complex to master, chances are the device will just sit in a drawer. 

Is the cost worth it?  Finally, remember to consider cost.  While my remarks about wearable tech becoming affordable hold true, it’s also true that some wearable tech can run into the hundreds, even thousands, of dollars.   

Bottom line: technology today not only helps with business functions, but it can help us as owners with our personal performance.  And that in turn may translate into better business performance. 

About the Author:

smallbiztrends
Anita Campbell

Guest Blogger

My name is Anita Campbell. I run online communities and information websites reaching over 6 million small business owners, stakeholders and entrepreneurs annually, including Small Business Trends, a daily publication about small business issues, and BizSugar.com, a small business social media site.

Creating A Savings Account For Your Business

By BarbaraWeltman, Guest Blogger
Published: May 12, 2016 Updated: May 12, 2016

“Save a part of your income and begin now, for the man with a surplus controls circumstances and the man without a surplus is controlled by circumstances.” That was advice given by Henry Buckley, an Australian politician in the 19th century. This sentiment is just as important today for small business owners who want to control their circumstances. Here are some of the reasons why:

Growing your business debt free

Expansion, a special project, or hiring new employees takes money. It’s not uncommon to borrow money to finance growth. There are problems with borrowing money:

  • Interest. The lender charges interest that must be paid along with repayment of principal. While we are in a low-interest environment today, interest rates could rise in the future, making it more costly to borrow money.
  • Cash flow. Typically you’re required to make monthly payments of interest and principal. Say you borrow money for a special project you anticipate will generate substantial profit. You likely will be servicing the loan before you see any revenue from the project, requiring you to use other funds to repay the loan.
  • Access to capital. It’s not always easy, or quick, to obtain the financing you need. There may be an opportunity requiring immediate action that you could miss while waiting for a loan to close.

If you have your own savings fund, you can use it whenever, and to whatever extent, you need. You don’t have to ask anyone for permission or assistance.

The unexpected

Business owners don’t have to be reminded that the unexpected always happens—good or bad. A violent storm may wreck your premises and you have to make repairs; you may also have to work from another location until your premises are restored. A key employee may leave suddenly and you need to recruit a replacement. Your competitor across town is retiring and has offered you her business. Sure, you may have some insurance to cover repairs following a storm, but it may not be enough. You may work out a deal with your competitor to pay her over time, but you’ll pay more for the deal than you would with cash.

If you have your own savings fund, you can address the unexpected, saving you anxiety and cost. You’ll be able to ride out slow economic periods and optimize boom times.

Retirement

Many small business owners expect that the sale of their business will generate the funds for a comfortable retirement. This notion may work for some, but should not be regarded as a general rule. You may choose to retire at a time when the economy is down and you won’t reap what you’d expected. Or your business may suffer reverses, leaving you with little or nothing to sell.

If you have a qualified retirement plan, you can save for your retirement on a tax-advantaged basis. Contributions are tax deductible, effectively sheltering your current profits. And because of penalties and other rules, you can’t easily use the funds before retirement, so the money will be on hand for its intended purpose: your retirement.

Conclusion

Savings is never easy. Many small business owners work essentially hand-to-mouth. However, a change in mindset to include savings as part of a business’s budget is one way to ensure that you’ll be able to control your circumstances.

About the Author:

BarbaraWeltman
Barbara Weltman

Guest Blogger

Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser's Small Business Taxes, J.K. Lasser's Guide to Self-Employment, and Smooth Failing as well as a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for three years in a row. Follow her on Twitter: @BigIdeas4SB or at www.BigIdeasforSmallBusiness.com

Cash or Accrual Accounting? Finding the Right Fit

By Caron_Beesley, Contributor
Published: April 20, 2016 Updated: May 16, 2016

If you’re getting started in business keeping track of when you get paid is key to good cash flow management. It’s also basic bookkeeping. After all, you don’t want to count income, and pay tax on it, until it hits your books.

But that’s not always the case. Small business owners have a choice as to how they record income – and this can have a big impact on your taxes and your financial picture.

Let’s take a look at the two methods of accounting and the impact this can have on your taxes, cash flow, and view into your finances.

Understanding Cash Accounting vs. Accrual Accounting

The most obvious method of accounting used by small businesses is called the cash method. This involves recording income when you receive payment for services rendered. Similarly, expenses are only counted when the money leaves your account.

Cash accounting is particularly useful for helping you accurately manage cash flow because it only records revenues and expenses when they appear in your account. This way you know how much cash you have on hand a particular moment.

For most of the year this has little impact on your taxes. However, if you file your tax returns using the calendar year, and invoice a client on December 15th but don’t get paid until January 5th. Under the cash method, you would record that income in the new tax year. The same goes for expense checks. If you make a purchase in December but the supplier doesn’t cash it until January, you can’t claim that deduction in the year which you wrote the check.

The cash method can also skew the big picture. If you generate a lot of revenue in one year, but didn’t receive payment until the next, your books can look slanted - showing too little profit and negative cash flow one year, and too much the next.

Tip: Cash flow accounting is also limited to certain business types. Corporations (other than S corporations), for example, with average gross receipts over $5 million can’t use the cash method. Read more about excluded entities.

The alternative method to cash accounting is called accrual accounting.

Instead of recording income when you receive it, with the accrual method, income is recorded when the sale is made, even if you don’t get paid for another 30-60 days. Similarly, expenses are recorded when services or goods are received, not when you pay for them.

This may seem confusing, but the accrual method can actually provide a more accurate picture of your business operations than the cash method. Instead of showing what cash you have on hand, the accrual method gives you a better idea of what you earn each month (as opposed to the cash method which only records payments when they are made). Of course, the downside is that you get a less than accurate representation of cash flow (although a cash flow forecast and statement can help with this).

Another consideration is time. With the accrual method, you’ll have to deal with more bookkeeping (recording both the date of the sale and the date when payment is received).

The Hybrid Method of Accounting

You don’t have to actually stick to the cash or accrual method. The IRS permits businesses to use any combination of cash, accrual, and other methods if the combination accurately reflects your income and you use it consistently. However, there are restrictions. If your inventory is necessary to account for your income, you must use the accrual method for purchases and sales. Read more about exceptions.

Which Accounting Method is Best for your Business?

There is no right accounting method for all businesses. Both cash accounting and accrual accounting have their pros and cons and its best to consult your accountant and tax preparer to find the best fit for your business. As a general rule, certain businesses prefer one over the other depending on the following factors:

  • Business Size. Smaller businesses like sole proprietorships and partnerships may prefer cash accounting for its simplicity and minimal bookkeeping. Businesses often switch to accrual accounting as their businesses grow to more accurately reflect their revenue and expenses.
  • Tax Deductions. Depending on the type of business you run, cash or accrual accounting may be more beneficial when filing your taxes. If you incur expenses in December 2016, but don't pay for them until January 2017, you can still claim tax deductions for 2016 if you use accrual accounting. On the other hand, you would not be able to claim deductions until the 2017 tax year if you use cash accounting.
  • Internal Accounting. Using the same accounting method internally and for tax purposes is a good practice because it simplifies the accounting process when calculating your income and expenses. However, the IRS does allow you to use a different method for internal accounting and tax accounting, if you decide to do so.

Read more about accounting periods and methods from the IRS. This Small Business Taxes Virtual Workshop also offers useful pointers on accounting methods for new businesses.

About the Author:

Caron_Beesley
Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Absenteeism in the Workplace: 7 Ways to Resolve this Bottom Line Killer

By Caron_Beesley, Contributor
Published: April 12, 2016 Updated: April 15, 2016

Employees are the lifeblood of a small business but they are also human and need time off to deal with sickness, manage family needs, and fulfill civic commitments like jury duty.

Personal time off is essential, but what happens when it becomes a problem? Persistent absenteeism (habitual and intentional time off) is a chronic problem for U.S. employees costing $3,600 per hourly employee per year, and $2,650 per salaried employee per year (source).

Not only does absenteeism effect your bottom line, it increases everyone’s workload leading to poor quality output and a sour atmosphere all round!

Absences occur for many reasons – burnout, stress, bullying, low morale, job hunting, etc. There’s also a generational element when it comes to absenteeism. Research suggests that millennials are more likely to skip a day when they feel anxious, whereas as baby boomers value showing up for work, even when they are under the weather.

Whatever form absenteeism takes, it’s bad for business. But here are seven ways to resolve persistent absenteeism:

1. Try to Identify the Root Cause

There’s often a good reason behind that call you just got from an absent employee excusing themselves from work and your gut instinct can guide you on this one. However, if you are noticing an excessive pattern and finding it hard to take your employee’s word for it, then it’s time to take action. If an employee is just not bothering to show up or giving you advance notice, then an intervention is essential. Start keeping a paper trail and records of absences.

2. Give Employees an Opportunity to Explain Themselves

The first thing you can do is give employees an opportunity to explain themselves. When they return to work, have a one-on-one discussion about their absence and express your concern. This is not a disciplinary discussion, but more of a fact-finding mission. Your goal is to understand what’s happening and try to solve the issue. For example, if stress is a factor, then you may need to discuss strategies that can help, such as shifting workloads, reducing responsibilities, etc.

Very often, employees are pleased that they have been given an opportunity to air their problems or grievances. But be warned, you may learn things that you don’t want to hear, particularly if it turns out that your management style is the problem. Try to remain objective during the discussion and use it as a platform to change things.

3. Put a Performance Improvement Plan in Place

If the tactic above doesn’t work, then you need to put a performance review plan in place that sets specific goals for improvement, attendance being one of them. Put the plan in writing and clearly explain the timeframe of the plan and the consequences of not fulfilling its requirements.

4. Develop and Communicate a Clear Leave Policy

A written policy won’t stop absenteeism, but it will help you deal with it more effectively. It will also demonstrate to all employees that you don’t tolerate absenteeism. Use the document to clearly explain paid and unpaid leave policies and the consequences of unexcused absences. If you have a company newsletter or intranet, use these to promote your policy.

Note that the law doesn’t require you to provide common leave benefits, but it does require employers to provide leave under the Family and Medical Leave Act (FMLA). Be sure you know what the law is. Read more about the FMLA leave entitlement qualifying medical events in SBA’s Employee Benefits Guide (scroll down to “Leave Benefits”).

5. Review your Management Style

It’s hard to acknowledge, but one of the more common reasons for employee dissatisfaction is management style. Could your style be encouraging employees to harbor grudges or lose morale? Step back and assess what you can do differently. Is your open door policy really that open? Do employees really feel valued? Plan on setting side more management time for your team, discuss their professional goals, and share your vision for the continued growth of your business and their role in it.  For more inspiration read: Top Tips to Lead and Empower Employees.

6. Consider Introducing Incentive Plans

While they’re no guarantee you can control absenteeism, incentive plans and employee programs such as flex-time, wellness programs (by the way, the Affordable Care Act rewards employers who operate wellness programs), and project completion perks, are proven to increase morale and productivity. A survey by the business-to-business division of Staples, found that employees that participate in such programs have made them:

  • Feel more valued (85%)
  • Happier and more motivated (70%)
  • More loyal to their employer (66%)
  • More productive and results-driven (~60%)

7. Terminate Repeat Offenders

If you’ve exhausted all these intervention measures and aren’t seeing improvement, then termination may be your only option. Follow your HR policy to the letter on this one and refer to the law as it pertains to terminating employees, final pay checks, and more.

Absenteeism happens, but don’t ignore it. Find out why it’s happening, be empathetic to the needs of your team, and establish clear policies so that everyone understands what’s acceptable. Finally, be prepared to take the necessary action when required. It’s your bottom line that’s at stake after all.

How do you deal with employee absenteeism? Leave a comment below.

About the Author:

Caron_Beesley
Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Are you Keeping Ecommerce Info Safe? How to Assure Your Customers That Their Info is Safe

By bridgetwpollack, Guest Blogger
Published: April 7, 2016 Updated: April 7, 2016

Ecommerce has become commonplace as businesses and online tools have made it easier and easier to exchange goods and services with customers around the globe.

While some consumers may have advanced knowledge of online security practices and feel confident shopping on various ecommerce sites, other consumers may not feel as comfortable. It’s up to you as a business owner not only to convince potential customers to shop with you, but also to protect their information online. Follow best practices to protect your customers’ sensitive online data. 

Invest in an SSL Certificate

If you’re collecting usernames, passwords, email addresses, and payment information for online transactions, calm customer anxieties by investing in a secure socket layer certificate, or an SSL certificate. Conscious shoppers look for the “https://” URL prefix and green address bar that indicates the presence of an SSL certificate as an added layer of protection from malicious interception.

An SSL certificate doesn’t guarantee to a customer that your business will keep their info safe. But it does ensure that their information will be safe in transit between their computer and the business taking their order.

Investing in this extra service will cost between $50 and $150 a year; a small price to pay to provide customers added peace of mind.

Be Transparent

You won’t find too many customers who are keen to spend time reading the small print of a company’s terms of service and privacy policy. But it’s still important to spell out your policies and procedures on a terms or policies page on your website.

Your privacy policy doesn’t have to be complicated, but it should explain what information is collected from users and customers and how your company uses that information. For instance, your email opt-in and opt-out policies should be stated here. If you’re using a third-party payment service for ecommerce, you may want to refer customers to that service’s terms of service and privacy policies as well.

Once you’ve posted your privacy policy, make sure all staff members adhere to it. A policy is useless if it’s not in use!

Welcome Customer Contact

No matter what you state on your website or sales page, some potential customers may just need reassurance they can trust your business. Make it easy for customers to get in touch with you by live online chat, email or phone.

And if you receive questions about how you do business online, welcome them! Answer promptly, and volunteer to seek more information if you don’t have the specifics a customer wants.

Your willingness to interact one-on-one with customers, along with your online security measures, will work together to create a shopping environment that’s comfortable and trustworthy.

Want an experienced eye to review your privacy policy or other ecommerce safety procedures? Get in touch with a SCORE mentor.

About the Author:

bridgetwpollack
Bridget Weston Pollack

Guest Blogger

Bridget Weston Pollack is the Vice President of Marketing and Communications at the SCORE Association. She is responsible for all branding, marketing, PR, and communication efforts. She focuses on implementing marketing plans and strategies to facilitate the growth of SCORE’s mentoring and trainings services. She collaborates with SCORE volunteers and develops SCORE’s online marketing strategy.

Depositing Your Employees’ Withholdings

By BarbaraWeltman, Guest Blogger
Published: February 11, 2016 Updated: February 11, 2016

As an employer, when you withhold income taxes or other funds from employees’ paychecks, you’re obligated to apply the funds appropriately in a timely manner. If you fail to do so, you can be severely penalized. Understand your deposit responsibilities, the consequences of failing to adhere to them, and what you can do to ensure you’re doing the right thing.

Employment taxes

Certain taxes are imposed on an employer: the employer’s share of Social Security and Medicare (FICA) taxes, federal unemployment (FUTA) tax, and state unemployment tax. However, employers are also required to collect from employees federal (and where applicable state) income tax, called income tax withholding, as well as the employees’ share of FICA tax. Employees’ taxes are called trust fund taxes because the withholdings are held in trust for employees; the funds don’t belong to the employer. Employers must remit the employees’ withholdings in a timely manner.

Timely deposits. If employment taxes for the quarter are $2,500 or more, you must timely deposit federal employment taxes with the Treasury. If such taxes are under $2,500 for the quarter, instead of depositing them, you can simply send a check when you file your quarterly employer return (Form 941). And if these taxes are $1,000 or less for the year, you can pay annually (Form 944) (the IRS notifies you that you’re eligible for annual filing, and paying employment taxes at that time).

The definition of “timely” for depositing employment taxes depends on the amount of these taxes. Generally, there are two deposit schedules: monthly and semi-weekly. At the start of each year, determine which schedule to use based on the amount of employment taxes during a “lookback period,” which is usually the prior 12 months. The monthly deposit schedule applies if you reported taxes of $50,000 or less (many small businesses); the semi-weekly deposit schedule applies if taxes are $50,000 or more. (A next day deposit rule applies to very large employers.)

Penalty for failure to make timely deposits. In general, if you fail to make timely deposits, there’s a 15% failure-to-deposit penalty. However, if you “willfully” fail to deposit the trust fund taxes, a 100% penalty is imposed on the “responsible person.” If you withhold funds from an employee’s paycheck but don’t deposit the money with the Treasury, you’re personally liable for all of the undeposited amount. This penalty, called the trust fund recovery penalty (TFRP), applies even though your business is organized as a corporation or limited liability company designed to provide you with personal liability protection.

A “responsible person” is someone who has the duty and power to collect and pay trust fund taxes. Usually this is an owner who can sign checks, but many others can be treated as responsible persons.

A “willful” failure to deposit the taxes results when the responsible person knows or should have known that the taxes weren’t deposited and effectively disregards the law. For example, if cash flow is tight and the owner of a company knows that funds that should be deposited are instead used to pay a supplier or the rent, this is viewed as a willful failure. No evil intent or bad motive is necessary for the penalty to apply.

Strategy. To avoid the 100% personal liability for unpaid trust fund taxes, it’s a good idea to establish company procedures which ensure that trust fund taxes are deposited before any other creditors are paid.

Find more information about the trust fund recovery penalty (TFRP) from the IRS.

Elective deferrals

If your company has a 401(k) plan or SIMPLE-IRA, employee contributions through salary reductions (“elective deferrals”) must be timely deposited with the financial institution where you maintain the plan.

Timely deposits. Generally, elective deferrals must be deposited on the “earliest date on which such contributions can reasonably be segregated from the employer’s general assets.” They cannot be made later than the 15th business day of the month following the contribution is withheld. However, small businesses (those with fewer than 100 participants in the retirement plan) enjoy a safe harbor: deposits are timely if made no later than the 7th business day after the date the deferrals would otherwise have been paid in cash to participants (i.e., payday).

Penalties for the failure to make timely deposits. This mistake is viewed as a prohibited transaction triggering a 15% excise tax. If the mistake isn’t corrected, the penalty can be substantially greater. Find more about fixing a late deposit from the IRS.

Conclusion

Missteps in depositing employees’ funds in your care can cost you dearly. Be sure to understand your deposit obligations. Work with a knowledgeable CPA or other financial advisor to make sure you meet deposit responsibilities and avoid penalties. 

About the Author:

BarbaraWeltman
Barbara Weltman

Guest Blogger

Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser's Small Business Taxes, J.K. Lasser's Guide to Self-Employment, and Smooth Failing as well as a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for three years in a row. Follow her on Twitter: @BigIdeas4SB or at www.BigIdeasforSmallBusiness.com

Creditworthiness: 10 Do’s and Don’ts for Small Business Owners

By Marco Carbajo, Guest Blogger
Published: February 9, 2016 Updated: February 9, 2016

Whether we like it or not, access to credit is an essential part of running a small business, but being considered creditworthy can be a challenge. According to Credit Karma, more than 75% of Americans have a credit score below 700.

If you're one of the many who have a credit scores below 700, there's no time like today to take the steps needed that could have a major impact on your personal and business creditworthiness.

Here are ten important do’s and don’ts to get you on the path to creditworthiness.

Do pay all your bills and invoices on time

Paying on time is one of the key building blocks of establishing creditworthiness. It builds good relationships between you and your suppliers resulting in better terms and stronger purchasing power. Payment history accounts for 35% of your FICO® scores and is a contributing factor in the makeup of your business credit ratings.

Don’t forget to read the terms and conditions

Read and understand all aspects of business contracts and credit agreements prior to signing the dotted line. You could end up incurring extra fees or charges by not reading and understanding the terms and conditions.

Do build your business credit reports and scores

Banks, lenders, suppliers, insurance companies and investors use company credit reports from business credit reporting agencies such as Dun & Bradstreet. “Just as your personal credit has a big impact on your financial health, your business credit can help you get competitive business loan rates and terms from potential suppliers,” says Marc Kirshbaum, president of Experian's Business Information Solutions group.

Don’t co-mingle your personal and business finances

For starters, create a separate bank account and obtain a business credit card.  Be sure to keep excellent records and document all business expenses. Documenting allows you to become a better bookkeeper for your business, making it easier during tax time.

Do obtain a business credit card

A business credit card is an invaluable tool for building business credit, managing expenses, and separating your personal and business expenses. With a business credit card used solely for company purchases and expenses you eliminate the risk of co-mingling funds.

Don’t just pay the minimum amount due

It’s essential to pay more than the minimum amount due whenever possible. Paying more helps reduce your overall balance owing, which improves your credit utilization and raises your score. This also helps prevent your debt from piling up since your chipping away at the overall balance.

Do look into alternative financing programs

Alternative lenders offer many opportunities for small businesses to get funding without relying on traditional models of risk assessment. Programs such as revenue based financing and crowdfunding have gained in popularity over the years. In addition, the power of the internet has given rise to online alternative lenders which look at various aspects of business data as opposed to relying on credit scores alone.

Don’t max out your credit cards

Credit utilization plays a major factor in the makeup of your personal FICO® scores accounting for nearly 30%. The percentage of how much you owe compared to the amount of your credit limit is known as credit utilization. Keep your ratios on both personal and business credit cards below 40% in order to maximize your credit potential.

Do pay better than terms

Paying invoices in a timely manner will earn a business an 80 Paydex® score with Dun & Bradstreet.  To earn a perfect score of 100 requires that you pay better than terms with vendors and suppliers. Paying invoices 10-20 days before the due date is essential for building strong company credit ratings.

Don’t forget your business has assets

Tangible assets such as real estate and equipment are often the collateral used to secure various types of financing. But don’t rule out intangible assets such as your company’s reputation, social capital, brand, and intellectual property. These assets are important and valuable to a company.

About the Author:

Marco Carbajo
Marco Carbajo

Guest Blogger

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in 'Fox Small Business','American Express Small Business', 'Business Week', 'The Washington Post', 'The New York Times', 'The San Francisco Tribune',‘Alltop’, and ‘Entrepreneur Connect’.

Beyond Your First Employee: How to Plan for and Manage a Growing Small Business Staff

By bridgetwpollack, Guest Blogger
Published: February 4, 2016 Updated: February 4, 2016

You did it! You hired your first employee. What a relief to have someone to help you grow your business.

But what about when it’s time to hire a second employee, and a third? How can you make sure to manage your employees fairly?

While following federal and state employment laws come first and foremost, they’re not the only elements to be concerned with as your company grows. As your human resources management tasks add up, be sure to consider the following tips for long-term success.

Hire by the book

This is the part of your business where it helps to be boring. Yes: boring.

Consistency is key for completing human-resource management tasks smoothly. While it may seem generous or nice to treat employees on a case-by-case basis and set up employment policies that work for each of them, this tendency can create disparities between employees and cause tension.

To avoid stress, keep your employment policies as close as possible among new hires. Don’t rely on your memory to recall what steps you took last time you hired an employee, either. If you don’t have a human resources plan, employee handbook, or hiring task list, it’s wise to sit down and prepare these guides for your business. Not only does it treat each employee equally and fairly -- it helps your management team act consistently as well.

Doing things “by the book” may not be exciting, but it can make your life easier.

Plan for staff growth

When you hired your first employee, you might have been desperate for a first mate to stick by your side as you navigated the waters of your growing business. That person might complete many diverse tasks in a given shift and act as a generalist to assist you.

Once you move past your first employee, though, it’s important to more clearly define the roles for your new hires. Before you write that job description, think of specific tasks you need help with and how a new hire might best serve the short- and long-term goals of the business.

While cross-training can help your business run seamlessly -- and everyone might need to pitch in during busy periods -- having particular staff members dedicated to specific areas of work will streamline your day-to-day operations and help your team work better together.

Shine your “boss” badge

As a small business owner, you might work closely and for long periods of time with your employees. But a close relationship doesn’t mean you should be unprofessional. Set boundaries between you and your employees by adhering to company policies, limiting off-hours communication, and setting a good example around your team.

As your staff grows, you may not know new employees as well as the people who helped you get started. You can still develop a personal connection with these new staffers through regular staff meetings, brown-bag lunches, and periodic one-on-one check-ins. By communicating regularly and professionally, you’ll be a leader your team looks up to.

Not sure what steps to take to refine your human resources management skills? Contact a SCORE mentor to discuss your questions about adding new employees to your small business.

About the Author:

bridgetwpollack
Bridget Weston Pollack

Guest Blogger

Bridget Weston Pollack is the Vice President of Marketing and Communications at the SCORE Association. She is responsible for all branding, marketing, PR, and communication efforts. She focuses on implementing marketing plans and strategies to facilitate the growth of SCORE’s mentoring and trainings services. She collaborates with SCORE volunteers and develops SCORE’s online marketing strategy.

Pages

Subscribe to RSS - Managing