Business Briefs

Once a revolutionary breakthrough in communications technology, email is now an afterthought for many people. But that can cause problems for businesses: Servers get filled up, messages get lost, and employees’ productivity isn’t quite what it could be.

Although doing so may seem superfluous or antiquated, providing employees with some retraining or upskilling on proper email usage can improve efficiency and morale. Obviously, you don’t want to spend a lot of time or money on this, but a “lunch-and-learn” seminar or a series of quick meetings could prove effective and affordable.

Here are some email management tips that you might want to consider:

Set up project-specific folders. Too many users still store emails in one of three places: the in-box, the “Sent” folder or the “Deleted Items” folder. Creating job-specific folders allows employees to more easily find what they need and to periodically purge unneeded emails once a project or period ends.

Regularly check junk mail folders and adjust filters as necessary. Like many companies, yours has probably set up junk mail folders to cut down on the number of useless and potentially dangerous emails launched at your staff.

Bear in mind that you may need to periodically adjust the filter settings to ensure employees aren’t inadvertently blocking legitimate messages. Ask staffers to check their junk folders and see whether anything important is in them. Once an acceptable sensitivity level is set, establish an automatic archiving process to systematically purge junk emails.

Encourage employees to hit the unsubscribe button. They’re technically not spam but eventually end up that way. The e-newsletters, bulletins and other regular messages that employees signed up for years ago, but no longer use, can clutter up in-boxes and distract workers from their current job duties. Ask every employee to review their subscriptions and get rid of any they’re no longer using.

Refine distribution lists. Most businesses long ago established companywide and departmental email distribution lists. But, again, project-specific lists can greatly benefit the work groups that spring up in the normal course of operations. Remind users how to create their own distribution lists and, equally important, establish a policy for deleting these lists and the emails associated with them at the appropriate time.

Set daily times to check email. In the old days, employees might have hovered over their in-boxes, anxiously awaiting new messages and replying to nearly everything that came in. Now the problem may be the opposite.

With the popularity of texting and instant messaging, not to mention video calls and meetings, staff members may ignore their email for long periods. Recommend that they check their in-boxes at several specified times during the workday. This way, email won’t be a distraction, but it also won’t be a source of missed communications.

Discuss timely email responsiveness. How quickly one should respond to an email depends on various factors. However, if employees are too lax in their response times, it can have a negative impact on the company.

Customers, of course, won’t appreciate a business that takes too long to answer questions or address issues. Employees may also grow frustrated with each other when internal emails are left unread or not replied to.

If necessary, set company policies regarding responsiveness. Generally, business-related emails should be replied to within 24 to 48 hours, but you may want to tighten up that time frame for customer-facing staff.

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Among the biggest long-term concerns of many business owners is succession planning — how to smoothly and safely transfer ownership and control of the company to the next generation.

From a tax perspective, the optimal time to start this process is long before the owner is ready to give up control. A family limited partnership (FLP) can help you enjoy the tax benefits of gradually transferring ownership while you continue to run the business.

How it works

To establish an FLP, you transfer your ownership interests to a partnership in exchange for both general and limited partnership interests. You then transfer limited partnership interests to your children or other beneficiaries.

You retain the general partnership interest, which may be as little as 1% of the assets. However, as general partner, you still run day-to-day operations and make business decisions.

Tax benefits

As you transfer the FLP interests, their value is removed from your taxable estate. What’s more, the future business income and asset appreciation associated with those interests move to the next generation.

Because your children hold limited partnership interests, they have no control over the FLP, and thus no control over the business. They also can’t sell their interests without your consent or force the FLP’s liquidation.

The lack of control and lack of an outside market for the FLP interests generally mean the interests can be valued at a discount — so greater portions of the business can be transferred before triggering gift tax. For example, let’s say the discount is 25%. That means, in 2022, you could gift an FLP interest equal to as much as $21,333 (on a controlling basis) tax-free because the discounted value wouldn’t exceed the $16,000 annual gift tax exclusion.

There also may be income tax benefits. The FLP’s income will flow through to the partners for income tax purposes. Your children may be in a lower tax bracket, potentially reducing the amount of income tax paid overall by the family.

Some risks

Perhaps the biggest downside is that the IRS tends to scrutinize how FLPs are structured. If it determines that discounts are excessive or that your FLP has no valid business purpose beyond minimizing taxes, it could assess additional taxes, interest and penalties.

The IRS also pays close attention to how FLPs are administered. Lack of attention to partnership formalities, for instance, can indicate that an FLP was set up solely as a tax-avoidance strategy.

Not for everyone

An FLP can be an effective succession and estate planning tool but, as noted, it’s far from risk free. We can help you determine whether one is right for you and advise you on other ways to develop a sound succession plan.

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Businesses have had to grapple with unprecedented changes over the last couple years. Think of all the steps you’ve had to take to safeguard your employees from COVID-19, comply with government mandates and adjust to the economic impact of the pandemic. Now look ahead to the future — what further changes lie in store in 2022 and beyond?

One hopes the transformations your company undergoes in the months ahead are positive and proactive, rather than reactive. Regardless, the process probably won’t be easy. This is where change management comes in. It involves creating a customized plan for ensuring that you communicate effectively and provide employees with the leadership, training and coaching needed to change successfully.

Prepare for resistance

Employees resist change in the workplace for many reasons. Some may see it as a disruption that will lead to loss of job security or status (whether real or perceived). Other staff members, particularly long-tenured ones, can have a hard time breaking out of the mindset that “the old way is better.”

Still others, in perhaps the most dangerous of perspectives, distrust their employer’s motives for change. They may be listening to — or spreading — gossip or misinformation about the state or strategic direction of the company.

It doesn’t help the situation when certain initial changes appear to make employees’ jobs more difficult. For example, moving to a new location might enhance the image of the business or provide more productive facilities. But a move also may increase some employees’ commuting times or put them in a drastically different working environment. When their daily lives are affected in such ways, employees tend to question the decision and experience high levels of anxiety.

Make your case

Often, when employees resist change, a company’s leadership can’t understand how ideas they’ve spent weeks, months or years carefully deliberating could be so quickly rejected. They overlook the fact that employees haven’t had this time to contemplate and get used to the new concepts and processes. Instead of helping to ease employee fears, leadership may double down on the change, more strictly enforcing new rules and showing little patience for disagreements or concerns.

It’s here that the implementation effort can break down and start costing the business real dollars and cents. Employees resist change in many counterproductive ways, from intentionally lengthening learning curves to calling in sick when they aren’t to filing formal complaints or lawsuits. Some might even quit — an increasingly common occurrence as of late.

By engaging in change management, you may be able to lessen the negative impact on productivity, morale and employee retention.

Craft your future

The content of a change-management plan will, of course, depend on the nature of the change in question as well as the size and mission of your company. For major changes, you may want to invest in a business consultant who can help you craft and execute the plan. Getting the details right matters — the future of your business may depend on it.

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In Notice 2021-61, the IRS recently announced 2022 cost-of-living adjustments to dollar limits and thresholds for qualified retirement plans. Here are some highlights:

Elective deferrals. The annual limit on elective deferrals (employee contributions) will increase from $19,500 to $20,500 for 401(k), 403(b) and 457 plans, as well as for Salary Reduction Simplified Employee Pensions (SARSEPs). The annual limit will rise to $14,000, up from $13,500, for Savings Incentive Match Plans for Employees (SIMPLEs) and SIMPLE IRAs.

Catch-up contributions. The annual limit on catch-up contributions for individuals age 50 and over remains at $6,500 for 401(k), 403(b) and 457 plans, as well as for SARSEPs. It also stays at $3,000 for SIMPLEs and SIMPLE IRAs.

Annual additions. The limit on annual additions — that is, employer contributions plus employee contributions — to 401(k)s and other defined contribution plans will increase from $58,000 to $61,000.

Compensation. The annual limit on compensation that can be taken into account for contributions and deductions will increase from $290,000 to $305,000 for 401(k)s and other qualified plans. This includes Simplified Employee Pensions (SEPs) and SARSEPs.

Highly compensated employees (HCEs). The threshold for determining who is an HCE will increase from $130,000 to $135,000.

Key employees. The threshold for determining whether an officer is a “key employee” under the top-heavy rules, as well as the cafeteria plan nondiscrimination rules, will increase from $185,000 to $200,000.

Participation in a SEP or SARSEP. The threshold for determining participation in either type of plan will remain $650.

Business owners, along with their HR and benefits staff or providers, should carefully note when the new limits and thresholds apply. Sometimes the answer isn’t obvious. For example, the 2022 compensation threshold used to identify HCEs will be generally used by 401(k) plans for 2023 nondiscrimination testing, not 2022.

Review your employee communications, plan procedures and administrative forms, updating them as necessary to reflect these changes. Whether your company offers a 401(k) or another type of defined contribution plan, we can provide further information on the applicable tax rules.

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Every business should prepare an annual budget. Creating a comprehensive, realistic spending plan allows you to identify potential shortages of cash, possible constraints on your capacity to fulfill strategic objectives, and other threats.

Whether you’ve already put together a 2022 budget or still need to get on that before year end, here are four red flags to watch out for:

1. It’s based on last year’s results. Too often, companies create a budget by applying an across-the-board percentage increase to the previous year’s actual results. Clearly the pandemic showed us how an unexpected event can wreak havoc on a budget. However, even without such an event, this approach may be too simplistic in today’s complex business environment.

Historical results are a good starting point, but not all costs are fixed. Some are quite variable based on various factors, such as the supply-chain disruptions we’ve seen in 2020 and 2021. And certain assets — such as equipment and people — have capacity limitations to consider. Prepare accurate forecasts of revenue and expenses on a department-by-department basis using up-to-date technology to capture timely data.

2. It lacks companywide consensus. Your finance or accounting department shouldn’t complete the budget alone. Seek input from key employees in every department and at various levels of management.

For example, your sales department may be in the best position to estimate future revenue. A production or service manager may offer insight into unanticipated expenses or necessary investments in equipment upgrades. And the product development team can help forecast revenue and expenses related to new products and enhancements to existing products.

In addition, soliciting broad participation gives employees a sense of ownership in the budgeting process. This can help enhance employee engagement and improve your odds of achieving budgeted results.

3. It’s unrealistic. Good budgets encourage hard work to grow revenue and cut costs. But the targets must be attainable, based on your company’s history as well as economic and industry trends.

Employees will likely become discouraged if they view the budget as unachievable or out of touch with what’s actually happening on the ground. If budgets repeatedly fail, employees may start ignoring them altogether. Tying annual bonuses to the achievement of specific targets can help encourage budget buy-in.

4. It ignores or underestimates cash flow. Even if expected revenue is forecast to cover expenses for the year, production and cost fluctuations, as well as slow-paying customers and uncollectible accounts, can lead to temporary cash shortages. Of course, more significant events can have an even bigger impact.

An unexpected shortfall can seriously derail your budget. So, look beyond the income statement and balance sheet. Forecast cash flow on a weekly or monthly basis. Then create a plan for managing any anticipated shortfalls.

For example, you might need to contribute extra capital from cash reserves. Or you might need to apply for a line of credit at the bank. Alternatively, you might consider buying materials on consignment, revising payment terms with customers or delaying payments to suppliers (if a penalty won’t apply).

As you’ve no doubt experienced in 2020 and 2021, the environment in which your business operates is constantly evolving, so budgeting needs to be an ongoing process. We can help you develop a reasonable annual budget and monitor actual results throughout the year.

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It’s understandable and indeed critical to focus a marketing campaign on the strengths and distinctive benefits of the products or services in question. However, something that’s easy to overlook is how your business and its offerings differ from — and are preferable to — the competition.

Making this distinction isn’t as simple as, “Well, we’re better because we say so.” When you can present prospective customers with accurate data and solid reasoning behind why your products or services will fulfill their needs better than other options, you’ll stand a much better chance of turning those marketing dollars into revenue. This is where competitive intelligence comes into play.

Determine what you do better

Competitive intelligence is the process of legally and ethically gathering and analyzing information on your competitors. It can help you collect valuable data on their:

• Financial positions,
• Business practices and reputations,
• Products and services,
• Strategic directions,
• Growth or expansion plans (as well as any closures or relocations), and
• Mergers, acquisitions and strategic alliances.

This information enables you to not only recognize your competitors’ strengths and weaknesses, but also better identify and anticipate market trends. As a result, your marketing campaigns can emphasize what customers need, how you can deliver it and where the competition falls short.

Gather good info

Gleaning intelligence is relatively simple. At the most basic human level, chatting with customers and prospects, bank reps, financial services providers, and other business contacts can help keep you in the know about what’s going on in the marketplace. You might encounter these individuals in the regular course of business or seek them out at trade shows, conferences and networking events.

Relying on fortuitous conversations alone won’t get the job done, however. You (or an employee) will need to gather information regularly. Scan major news providers — as well as relevant business publications — for updates on your competition or industry in general. Your competitors’ brochures, catalogs, press releases, annual reports and other collateral also contain valuable information. And, of course, don’t forget to regularly visit their websites and blogs, as well as their public social media accounts.

In addition, there are a variety of powerful search engines and online resources that can boost competitive intelligence efforts — though some do charge for a subscription. For example, Dun & Bradstreet offers industry, market and company-specific intelligence for both public and private businesses. The Securities and Exchange Commission (sec.gov) provides free financial reports on public companies.

Be sure to fact-check and verify any information you find: Inaccurate data can skew your observations, negatively affect your business decisions and hurt your reputation in the marketplace.

Make a strong case

To succeed at marketing today, you need to make a strong case based on accurate and timely data relevant to your company’s purpose or industry. Competitive intelligence can help you find this information and integrate it into marketing campaigns. Contact our firm for help evaluating your marketing efforts from a return-on-investment perspective.

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Years ago, it may have seemed like only government agencies with top-secret intel or wealthy international banks had to worry about hackers. Nowadays, even the smallest small business could see its reputation ruined by a data breach, while larger companies could have their sensitive data taken hostage in a ransomware attack that costs millions to resolve.

A cybersecurity assessment can help ensure that your business is taking the proper steps to protect itself. It can also give you a competitive edge by demonstrating to customers and prospects that you take data privacy seriously.

More tech, more risk

Many, if not most, of today’s companies are taking advantage of technologies that allow them to gather, track and analyze customer and financial data. This includes software for mission-critical activities such as payroll, accounts receivable and payable, supply chain management, HR and benefits, and on-site security.

These systems are often cloud-based, meaning the information is stored online so users can access it remotely at any time of day or night. The convenience and analytical power are breathtaking, but they also create a tempting target for cybercriminals and raise the stakes of exposure exponentially.

In truth, the risk of a breach goes far beyond disclosure of confidential personal or financial information. It also raises serious concerns about potential personal injuries, property damage and work stoppage. Imagine the harm a hacker could cause by tampering with a building’s security or fire systems, or remotely manipulating vehicles or equipment.

Benefits of an assessment

Conducting a formal cybersecurity assessment helps you:

• Take inventory of your hardware and software,
• Identify potential vulnerabilities (including access by vendors, partners, and current and former employees), and
• Implement internal controls and other protections to reduce risk.

An assessment can also enable you to develop an incident response plan to mitigate the damage in the event of a breach.

There are several recognized cybersecurity standards and frameworks available to guide these efforts, including those developed by the National Institute of Standards and Technology and the International Organization for Standardization. The U.S. Small Business Administration also offers cybersecurity assessment tips and best practices on its website.

If you’re particularly concerned, you might want to shop around for a qualified IT consultant to conduct a customized risk assessment. This may make sense if you’re in an industry subject to specific risks.

Become a hard target

Cybersecurity is important for every size and type of company. It may be comforting to think that the bad guys only go after the big guys, but hackers don’t always go after businesses with deep pockets. Sometimes they attack the softest target. Make sure you’re well-protected.

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When choosing health care benefits, many businesses opt for a self-insured (self-funded) plan rather than a fully insured one. Why? Among various reasons, self-insured plans tend to offer greater flexibility and potentially lower fixed costs.

When implementing a self-insured plan, stop-loss insurance is typically recommended. Although buying such a policy isn’t required, many small to midsize companies find it a beneficial risk-management tool.

Purpose of coverage

Specifically, stop-loss insurance protects the business against the risk that health care plan claims greatly exceed the amount budgeted to cover costs. Plan administration costs generally are fixed in advance, and an actuary can estimate claims costs. This information allows a company to budget for the estimated overall plan cost. However, exceptionally large — that is, catastrophic — claims can bust the budget.

To be clear, stop-loss insurance doesn’t pay participants’ health care benefits. Rather, it reimburses the business for certain claims properly paid by the plan above a stated amount. A less common approach for single-employer plans is to buy a stop-loss policy as a plan asset, in which case the coverage reimburses the plan, rather than the employer.

The threshold for stop-loss insurance is referred to as the “stop-loss attachment point.” A policy may have a specific attachment point (which applies to claims for individual participants or beneficiaries), an aggregate attachment point (which applies to total covered claims for participants and beneficiaries) or both.

Aligning plan and coverage terms

If you choose to buy stop-loss insurance, it’s critical to line up the terms of the coverage with the terms of your health care plan. Otherwise, some claims paid by the plan that you might expect to be reimbursed by the insurance might not be — and would instead remain your responsibility.

Properly lining up coverage terms isn’t always straightforward, so consider having legal counsel familiar with the terms of your health care plan review any proposed or existing stop-loss policy. In particular, watch out for discrepancies between the eligibility provisions, definitions, limits and exclusions of your plan and those same elements of the stop-loss policy.

Because stop-loss insurance isn’t health care coverage, insurers may impose limits and exclusions that are impermissible for group health plans. For example, a stop-loss policy can exclude coverage of specified individuals or services. Or it can impose an annual or lifetime dollar limit per individual.

You’ll also need to look carefully at the stop-loss policy’s coverage period. This is the period during which claims must be incurred by individuals or paid by the health care plan to be covered by the insurance. Specifically, determine whether it lines up with your plan year.

Cost-effective coverage

After buying stop-loss insurance, be extra sure to administer your health care plan in accordance with its written plan document. Any departures from the plan document could render the stop-loss coverage inapplicable. We can help you determine whether stop-loss insurance is right for your business or whether your current coverage is cost-effective.

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Employers offer 401(k) plans for many reasons, including to attract and retain talent. These plans help an employee accumulate a retirement nest egg on a tax-advantaged basis. If you’re thinking about participating in a plan at work, here are some of the features.

Under a 401(k) plan, you have the option of setting aside a certain amount of your wages in a qualified retirement plan. By electing to set cash aside in a 401(k) plan, you’ll reduce your gross income, and defer tax on the amount until the cash (adjusted by earnings) is distributed to you. It will either be distributed from the plan or from an IRA or other plan that you roll your proceeds into after leaving your job.

Tax advantages

Your wages or other compensation will be reduced by the amount of pre-tax contributions that you make — saving you current income taxes. But the amounts will still be subject to Social Security and Medicare taxes. If your employer’s plan allows, you may instead make all, or some, contributions on an after-tax basis (these are Roth 401(k) contributions). With Roth 401(k) contributions, the amounts will be subject to current income taxation, but if you leave these funds in the plan for a required time, distributions (including earnings) will be tax-free.

Your elective contributions — either pre-tax or after-tax — are subject to annual IRS limits. For 2021, the maximum amount permitted is $19,500. When you reach age 50, if your employer’s plan allows, you can make additional “catch-up” contributions. For 2021, that additional amount is $6,500. So if you’re 50 or older, the total that you can contribute to all 401(k) plans in 2021 is $26,000. Total employer contributions, including your elective deferrals (but not catch-up contributions), can’t exceed 100% of compensation or, for 2021, $58,000, whichever is less.

Typically, you’ll be permitted to invest the amount of your contributions (and any employer matching or other contributions) among available investment options that your employer has selected. Periodically review your plan investment performance to determine that each investment remains appropriate for your retirement planning goals and your risk specifications.

Getting money out

Another important aspect of these plans is the limitation on distributions while you’re working. First, amounts in the plan attributable to elective contributions aren’t available to you before one of the following events: retirement (or other separation from service), disability, reaching age 59½, hardship, or plan termination. And eligibility rules for a hardship withdrawal are very stringent. A hardship distribution must be necessary to satisfy an immediate and heavy financial need.

As an alternative to taking a hardship or other plan withdrawal while employed, your employer’s 401(k) plan may allow you to receive a plan loan, which you pay back to your account, with interest. Any distribution that you do take can be rolled into another employer’s plan (if that plan permits) or to an IRA. This allows you to continue deferral of tax on the amount rolled over. Taxable distributions are generally subject to 20% federal tax withholding, if not rolled over.

Employers may opt to match contributions up to a certain amount. If your employer matches contributions, you should make sure to contribute enough to receive the full match. Otherwise, you’ll miss out on free money!

These are just the basics of 401(k) plans for employees. For more information, contact your employer. Of course, we can answer any tax questions you may have.

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When creating or updating your strategic plan, you might be tempted to focus on innovative products or services, new geographic locations, or technological upgrades. But, what about your customers? Particularly if you’re a small to midsize business, focusing your strategic planning efforts on them may be the most direct route to a better bottom line.

Do your ABCs

To get started, pick a period — perhaps one, three or five years — and calculate the profitability contribution level of each major customer or customer unit based on sales numbers and both direct and indirect costs. (We can help you choose the ideal metrics and run the numbers.)

Once you’ve determined the profitability contribution level of each customer or customer unit, divide them into three groups: 1) an A group consisting of highly profitable customers whose business you’d like to expand, 2) a B group comprising customers who aren’t extremely profitable, but still positively contribute to your bottom line, and 3) a C group that includes customers who are dragging down your profitability, perhaps because of constant late payments or unreasonably high-maintenance relationships. These are the ones you can’t afford to keep.

Devise strategies

Your objective with A customers should be to strengthen your rapport with them. Identify what motivates them to buy, so you can continue to meet their needs. Is it something specific about your products or services? Is it your customer service? Developing a good understanding of this group will help you not only build your relationships with these critical customers, but also target sales and marketing efforts to attract other, similar ones.

As mentioned, Category B customers have some profit value. However, just by virtue of sitting in the middle, they can slide either way. There’s a good chance that, with the right mix of sales, marketing and customer service efforts, some of them can be turned into A customers. Determine which ones have the most in common with your best customers, then focus your efforts on them and track the results.

Finally, take a hard look at the C group. You could spend a nominal amount of time determining whether any of them might move up the ladder. It’s likely, though, that most of your C customers simply aren’t a good fit for your company. Fortunately, firing your least desirable customers won’t require much effort. Simply curtail your sales and marketing efforts, or stop them entirely, and most will wander off on their own.

Brighten your future

As the calendar year winds down, examine how your customer base has changed over the past months. Ask questions such as: Have the evolving economic changes triggered (at least in part) by the pandemic affected who buys from us and how much? Then tailor your strategic plan for 2022 accordingly.

Please contact our firm for help reviewing the pertinent data and developing a customer-focused strategic plan that brightens your company’s future.

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