Three Keys to Super Employee Involvement
If employee involvement is so important to the success of your business, how do you make it happen? There are really only three keys to getting super involvement from all of your people.
Share Information
The first key to involving people in running your business is to open up and share information with your employees. It's definitely not true that your people need to know just enough to do their jobs. Your people need to know as much as you can share about your business. They need to know your dreams about your business. What kind of business are you trying to build? What is going to make your business special and attract the kind of customer you want to attract? Who are your competitors? What are your strengths and weaknesses compared to your competitors? You need to share as much financial information as you can. What does it cost to turn on the lights? How valuable is your inventory? What does it mean to the business if you get one percent shrinkage instead of two percent? Sure, some of this information is sensitive. But if your employees don't know this information, they won't care about the success of the business. And if they don't care, they won't perform.
Ask and Listen
It is a human frailty. Most of us tend to talk more than we listen. Instead of asking our employees what they think should be done to solve a problem, reduce costs, or improve performance, we tell them what we think. All too often, our approach to employees is "just shut up and listen." Pretty soon, they do just that. They develop the attitude, "So what if what we are being told to do won't work?" They just do what they are told to do, even if it is wrong. What do we miss when we just order people to do things and don't listen to their ideas? We miss a lot of good ideas. More important, when our employees aren't involved in deciding how to do something, they aren't committed to doing it right. They just go through the motions. Compare an employee going through the motions to one who is dedicated to making his ideas work. You'll have no trouble spotting the difference.
Share the Rewards
The final key to involving employees is to share the rewards of success with your employees. If you want your people to really care about the success of your business, make sure there is something in it for them. Recognize their contributions. Let them know that they are important and that you value their ideas. And let them share in the financial success of your business. Sure, you made the investment and took the financial risk of starting your own business. It is only right that a substantial portion of the financial rewards of success go to you. But don't leave out your employees. Let them share in the profits and cost savings they help you create. They'll return your generosity tenfold in additional savings and profits.
Why involve your employees in running your business? Because employee involvement is one of the most important things you can do to ensure the survival and success of your business. When you share information with employees, ask for their ideas and suggestions, and share the financial and other rewards of success with employees, you will develop a high-performance work force. You'll have a team of people as dedicated to the success of your business as you are. How can you lose with that?
excerpt from The Competitive Edge
by Fran Tarkenton & Joseph Boyett
Difference Between S Corp & LLC
I've been a sole proprietor for several years and would like to incorporate. What's the difference between a S Corp versus a LLC? My business currently consist of one person - me. Also, once I've decided which route to go (S Corp or LLC) how can I go about - expediently - to incorporate? Thank you.
Basically, there are no standard sales, profit, asset value, or other financial thresholds when incorporation becomes necessary. Often a business entity is desirable when the business commences; however, if you started your business as a sole proprietorship, then deciding whether to form a business entity (corporation, LLC, etc) basically comes down to assessing the level of risk the business poses to your personal assets and your personal financial situation and goals. While your personal financial situation and goals are a consideration and there can be an added administrative burden with a business entity, you should form an entity to house the business when you do envision possible risks to your personal assets.
The benefits of a particular form of business entity vary based on the business ownership, operations, and long-term goals; however, when evaluating the most appropriate legal structure for a particular business, a business owner's three main considerations are protection of personal assets, income tax liabilities, and long-term capital requirements. Both a limited liability company (LLC) and a corporation (C or subchapter S type) are legal entities separate from the business owners that are organized and formed under state law. However, an LLC is a hybrid entity that combines the limited liability protection of a corporation with the tax attributes of a partnership (multi-member) or sole proprietorship (single member). Corporations and LLC's differ in terms of legal structure, governance and tax treatment, but both S corps and LLC's offer personal asset protection to the business owners and, in small companies, similar access to capital and partners. Therefore, taxation is typically the main difference.
An LLC is unique in that it can be taxed as a sole proprietorship, partnership or a corporation (C or S type). Unless an LLC elects corporate tax classification by filing Form 8832 with the IRS when it is formed, a single member or owner LLC is taxed as a sole proprietorship and a multiple member or owner LLC is taxed as a partnership. An LLC electing C corp tax status files Form 8832, whereas an LLC electing S corp tax status files both Form 8832 and Form 2553. Thus, unless you elect corporate (C or S type) tax status for your LLC it will be taxed as a sole proprietorship. From a tax perspective, an S corp does offer certain tax benefits when compared to an LLC taxed as a sole proprietorship or partnership as business net income increases. In particular, one important tax difference between an S corp and an LLC taxed as a sole proprietorship or partnership occurs with respect to the Self-Employment Tax or SE Tax, which is the self-employed individual's equivalent of the Social Security and Medicare taxes imposed on an employee's wages. Net profit passed through to the owners of an LLC taxed as a sole proprietorship or partnership is subject to SE Tax; whereas, net profit passed through to the owners of an S corp or similarly taxed LLC is not subject to SE Tax. Therefore, the S corp structure can offer the advantage of less overall employment tax in situations where it is reasonable to pay a salary amount that is less than the Social Security limit ($94,200 in 2006 and $97,500 in 2007) while distributing the remaining net income as profits to the owner.
While owner-employees of an S corp or similarly taxed LLC can avoid the SE Tax, they generally cannot avoid paying employment taxes altogether. Owner-employees of C and S corps or similarly taxed LLC's who hold executive officer position(s) and manage the day-to-day business of the enterprise, generally need to take a W-2 salary in order to comply with the IRS "reasonable compensation" doctrine for corporate officers. This reasonable compensation requirement tends to mitigate the SE Tax advantages because W-2 salary is subject to Social Security and Medicare tax withholding and also subject to federal and state unemployment taxes. You can review additional comparisons and registration services on our website in the Start A Business and Incorporation sections and the following websites:
http://www.nolo.com/resource.cfm/catID/5DE
04E60-45B
B-4108-8D757E247F35B8AB/111/182/
http://www.inc.com/articles/2000/05/20152.html
http://www.legalzoom.com/law_library/LL
Cs/vs-corps.html
http://www.powerhomebiz.com/vol1
36/structure.htm
http://www.entrepreneur.com/startingabusiness/
startupbasics
/businessstructure/article39846.html
You can also review helpful information on owner compensation in an LLC at the following websites:
http://www.toolkit.cch.com/text/P12_7505.asp
http://www.nolo.com/article.cfm/objectID/AE0A3AFF
-9319-
485D-BABBBD9DF666E8AF/111/182/275/ART/
http://www.businessownersideacafe.com/
business_ideas/
business_payingyourself_1.html
You can also review LLC tax elections, regulations, and forms at the following websites:
http://www.irs.gov/businesses/small/article/0,,id=
137
016,00.html
http://www.irs.gov/businesses/small/article/0,,id=
150
281,00.html
Form 8832:
http://www.irs.gov/pub/irs-pdf/f8832.pdf
Form 2553:
http://www.irs.gov/pub/irs-pdf/i2553.pdf
http://www.irs.gov/pub/irs-pdf/f2553.pdf
While LLCs are a newer form of business entity and have a limited record of legal cases regarding asset protection and other issues, we have found the LLC structure when taxed as a sole proprietorship or general partnership adequate for many small businesses because it provides personal asset protection, pass-through income benefits, opportunity to contribute more to self-employment retirement plans, flexible ownership and income (and cash flow) allocation, and easier administration. But, the choice between an LLC and S corp depends upon your income projections and long-term plans for the business.
Once you have determined the best legal entity structure (corporation, LLC, etc) for your business, you form a business entity by reserving a business name and filing the required paperwork with the State. Though state filings vary depending upon the type of business entity, the least expensive method of forming a business entity is preparing and filing the paperwork yourself. However, it is generally recommended for first time filers to form a business entity through a lawyer or with incorporation services like those offered through our affiliate BizFilings on our website in the Incorporation section. The filing fees are not expensive. For example, their professional service fees for forming an Illinois corporation or LLC range from $130 to $420 plus state filing fees, which are $275 (S corp) and $600 (LLC) under their standard formation package.
In addition to the state business entity filings, you have corporate bylaws, shareholder (C and S corp), member (LLC) and board of directors' meeting minutes, and other business entity governance issues. Depending on your planned operations, you may also have business licensing, federal tax ID, and payroll tax registration considerations. You can review additional registration and filing information at the following state website:
http://business.illinois.gov/registration.cfm
Generally, when reorganizing an existing business, it's advisable to review your planned reorganization with a local tax advisor to avoid or minimize any income tax liabilities. While some related party transactions and asset transfers can be structured on a tax free basis, the existing entity structure, type of assets and other factors can have income tax and other financial complications if done after the business has been operating for some time. Also, when evaluating business entities, it's generally advisable to consult with your local lawyer and tax advisor or CPA who can review the details of your personal and business financial situation and goals. As a Pre-Paid Legal member, you can contact your Provider Lawyer for advice and assistance with business entity risk and formation issues. You can reach your PPL Provider Lawyer at the phone and fax numbers in your PPL materials or through PPL Customer Service at 800.654.7757. If you need a CPA, we have had good feedback on Padgett Business Services, which has franchisees around the country. For a referral to a local office, call (800)723-4388.
Adding Profit Sharing to Offered Benefits
We already have a simple retirement plan and we match up to 3% of employee contribution. How can we set up a profit sharing plan on top of other benefits already being provided?
If you already have a retirement plan, then we assume that you are considering a form of bonus plan to share your company profits with employees. Businesses have considerable discretion in structuring bonus/profit sharing plans as to both the amount of company profits put in the bonus pool and how the bonus pool is awarded to each employee.
For example, some companies put a stated percentage (1%, 5%, or 10% etc) of annual pre-tax profits into the bonus pool and then allocate the bonus pool based on percentages assigned to each employee's position (President, VP, Director, foreman, secretary, etc). Other companies calculate the bonus pools as a percentage of the company's aggregate base salaries. Others have both quantitative and discretionary elements to the individual employee awards. In addition, some companies have fixed or minimal business bonuses for administrative personnel. Further, some small company owners do not have written profit sharing plans, but retain full discretion in deciding how much, if any, of the company profits will be paid out in bonuses.
A bonus/profit sharing plan can be as simple or complex as you want. Basically, a business has to analyze their profits, cash flow, staffing, and other factors to determine a profit sharing structure that they can afford and that provides an effective incentive to employees. For discussion with your business CPA, you can review additional discussions and information on profit sharing and bonus plans at the following websites:
http://www.irs.gov/retirement/article/0,,id=
108948,00.html
http://www.galtglobalreview.com/careers/
bonus_plans.html
http://www.toolkit.cch.com/tools/profit_m.asp
http://www.businessknowhow.com/manage/
holiday-bonus.htm
http://www.denvergov.org/2006BonusPlan/2138
forms1180.asp
Capital for Woman-owned Business
What is the best way to get financing set up for a woman who owns a small business? I am looking for financing between $25,000 and $50,000 and I am working on my Business Plan so I can start applying for financing. Also, do you know of any grants that are available for someone in my position? My business will be out of my home for now and I have a very detailed website set up in addition to the smallbiz website. I am doing a retail business.
Special business funding is often available for women-owned businesses; however, you still need a sound business plan and must meet other qualifications for a business loan. Also, you may find a business loan more readily available than a grant depending upon your business activities. Certain businesses (nonprofit, minority-owned, for example) can benefit from government or private grants; however, most for-profit enterprises do not qualify for grants, regardless of whether the funds are needed to start a new business or expand an existing business. As indicated in the following information, "Most funding institutions do not provide grants or "free money" for starting or developing a business. The Small Business Administration, Bank of America Foundation, and other grant funding sources do not give capital to start a day care or clothing design business, etc. Nor do they provide grants to individuals who will use the proceeds to start their own "for profit" small business."
http://www.powerhomebiz.com/vol66/grants.htm
As the above article concludes, we have also found that government grants are generally very targeted based on the government's interpretation of "public interest" at the time. Most often they are restricted to non-profit and government entities whose sole purpose is the public benefit. Private foundation grants are similarly restricted based on the charitable purpose or mission of the foundation. Federal Government (SBA) loan programs are available; however, they typically require you to work through a traditional lender and have strict qualifications. If you feel your business can qualify for a grant, you can locate and review government or private grant program information through the following websites:
http://www.sba.gov/services/financia
lassistance/grants
/index.html
http://www.fedmoney.com
www.cfda.gov
http://fdncenter.org/
Startup or expansion capital for a business can come from a variety of sources including the business owner(s), relatives, friends, business associates, business partners, banks, leasing companies, federal and state agencies, angel investors, and venture capital firms. The amount required, available collateral, and other factors will affect the source of financing, but small amounts typically come from home-equity lines of credit, credit cards, savings accounts, relatives, friends, professional associates or business partners, while larger amounts typically come from banks, leasing companies, government agencies, angel investors and venture capital firms. A bank or other lender, generally, considers five things in a loan decision - borrowing capacity, invested capital, collateral, business and industry economic conditions, and character of the borrower. These factors, including the personal guarantee of a small business owner, can often overcome a lack of credit history or poor credit in certain situations. Also, lending criteria and near-term goals in lending money vary among financial institutions (banks, government, leasing companies, etc), so it pays to shop around. The following are some financing resources that you can research:
1. Generally, the first place to start looking for a loan is your local banker. Local banks offer traditional financing and government financing options. The Small Business Administration (SBA) has loan programs, but those programs require that you work through a traditional lender and have strict qualifications. You can review the loan programs and local lenders at the following websites:
http://www.sba.gov/services/financialassist
ance/index.html
https://www.wellsfargo.com/biz/intentions/wo
men_bus_svcs
http://www.commercebank.com/business/
http://www.bankofamerica.com/index.cfm?page=smbiz
http://www.thecommunitybanker.com/bank_links/usa
_missouri.htm
2. Regional, state and local business development resources, including those for minority and woman-owned businesses:
http://www.missouridevelopment.org/Business%20
Solutions.aspx
http://www.mbda.gov/?section_id=3
http://www.missouribusiness.net/
http://www.oa.mo.gov/oswd/
http://www.wbenc.org
3. Angel investors. Some angel investors often look for smaller investments (as low as $50,000). Angel investors and venture capital firms expect a significant return on their capital and may expect an equity position in the business, but are often the best resource for financing a new business. The following are related websites:
http://www.usatoday.com/money/smallbusiness/col
umnist/
strauss/2002-07-29-angel-investors_x.htm
http://www.ventureplan.com/venture.capital.
basics.html
http://www.angel-investor-news.com/Investor
Resources.htm
http://www.capital-connection.com/network
sangels.html
4. Equipment leasing companies often have easier credit terms than banks. You can locate these companies in the Yellow Pages.
5. You can search for a loan by using the "Capital Search" engine available from our website in the "Need Money?" section under Capital Search.
6. Your comprehensive business plan will be the best tool to confirm feasibility, plan a new business venture or business expansion, and present your business to lenders or investors. Typically, business plan information flows into a loan proposal. If you need a written plan to professionally present your company to lenders or investors, you can start with the tools on our website in the Start a Business section under Business Plans. The Business Plan software tool that we recommend is only $129, plus there are numerous examples of nicely completed plans to use as a guide. Your local accountant, or CPA, may be of assistance with your financial projections and business plan; but, for free professional assistance, the Federal Small Business Administration (SBA) sponsors Small Business Development Centers (SBDC's) that provide personal assistance with business plans and the volunteer Service Corps of Retired Executives (SCORE) offers small business services. The following are the SBA websites in your area:
http://www.sba.gov/sbdc/sbdcnear.html
http://www.score.org/findscore/index.html
Sample plans and business plan information:
http://www.sba.gov/smallbusinessplanner/index.html
http://www.bplan.com/samples/sba.cfm
http://www.businessplanning-4-you.com
Loan Proposals:
http://www.sba.gov/smallbusinessplanner/start
/financestartup/SERV_LOANPROPOSAL.html
http://members.tripod.com/~dupontinvest/prepar
ing_loan_proposal.htm
