Health Care Reform – Growing Your Business – Not Your Overhead

Well, health care reform, or at least the Patient Protection and Affordable Care Act, is now the law of the land. And, what ever your personal feelings about this legislation, as a business owner or manager you need to prepare for the impact. We’re not accountants at UPi, and, like you, we are consulting with ours to understand the tax implications of this legislation.

What we do understand is that small and mid-size businesses are going to need to more closely consider the impact of their operating decisions and practices on their tax situation and federal liabilities. Adding that 51st employee or keeping them, is now more than just a simple hiring/firing decision. Similarly, if you are under 25 employees with average wages below $50,000 you’ll need to consider the benefits of new tax credits vs. the benefits of adding the next employee or offering raises to your employees. Again, your accountants will need to be involved.

If you go over 50 employees, you not only are subject to either providing health care benefits with a at least a 50% company contribution, you are also subject to rules regarding the % of wages an individual employee is forced to contribute and possibly penalties if certain employees opt out of your plan and join one of the Exchanges in order to obtain federal subsidies. You will be faced with possibly higher benefit costs, taxes and fines, and a new administrative burden to just try and keep track of it all.

Beyond the accounting implications, there have always been some good reasons to focus on productivity and headcount. Now, we have added some legislative cliffs so it would be wise to avoid falling off one of them.

Therefore, if you are below the magic 50 employee number (or 25 and want to get the new tax credits) and want to stay there but still grow your business, you need to find and adopt strategies and technologies that increase the productivity of your existing head count.

Fortunately there are a variety of areas you can explore:

• Automation with technology
• Outsourcing non-core functions
• Business process streamlining
• Organization changes
• Go to market strategies

Further automation of operations and administrative functions is almost always possible as technology moves on. If you’re still using checks to pay vendors, look into EFT (electronic funds transfer) through your bank or accounting software. Similarly, encourage your customers to pay you by EFT. You’ll get the money in the bank faster and eliminate the labor associated with processing a written check.
If you’re a distributor, new racking, scanners, load management software, or other automation may improve operations in the warehouse reducing costs and labor. For sales and service functions, investigate leveraging the power of smart phones and other handheld devices.

While it may be a dirty word in some corners, outsourcing (either on-shore or off-shore) certain business processes should be on your list of things to look at. Not all outsourcing means sending work and jobs to China or India. You can outsource by having payroll done by an outside firm vs. an internal payroll department (your bank might provide this service). If you run a call center, there are a number of providers who can do that for you (many with domestic operations so your customers will never know they’re not talking to you).

Another approach is to look for functions that are seasonal or have spikes in usage. Rather than staffing to perform these functions year round or continually hiring temporary workers, find an outside supplier that can perform these functions on an as needed basis. As an example, our affiliated photography business recently outsourced photo editing. We’ve reduced costs by 75%, improved turnaround, and improved productivity by keeping skilled photographer resources shooting vs. editing. In our case we went with a Hungarian company but that was our choice. Make the power of the internet work for you too.

With the technologies and service providers available today, IT functions are a very good area to look for opportunities to outsource. Running your own data center and managing your own network is rarely cost effective and rarely provides high reliability. Now, with the added costs and administrative burden associated with each additional employee, this is an outsource opportunity that must be seriously evaluated.

Similarly, if your business’s accounting needs are very standardized, investigate one of the SAS (software as a service) solutions now available vs. keeping an old in-house accounting system running. Email can be outsourced to Google, Microsoft, or any number of providers. Both actions will reduce your capital investment and operating expenses while at the same time improving service and reliability.

If you’re serious about your business, invest in some outside skilled resources to take a look and give you an impartial assessment. Not only might you find waste that will bring dollars to the bottom line, you may uncover untapped skills or opportunities that can lead to revenue increases here to fore unimagined. Investigate your business processes, structure and markets.

Over time we all build up ways of doing things that might have made sense at some point but may not any longer add value to the business. Yet these processes become rituals that are performed every day, week, month and year and take up valuable labor time to accomplish. Look at your processes; ask yourself why are we doing this? Can we do it another way. Often times, the answer is we don’t have a valid reason or we can do it another, quicker way. Don’t be afraid to change.

Strategically modifying your business structure to split it into smaller units is something that might not be on the table but for these arbitrary distinctions of what is and what is not a small business. However, now you need to ask a few questions: Should we split unrelated businesses into multiple companies to keep them below these magic labor thresholds? Are there functions we do really well in support of our primary business that may be valuable as a service to other companies and might make money as a stand alone entity? Are there parts of our business that don’t fit now but that could be sold to somebody else? Exploring these and other questions can lead you to some remarkable step changes and opportunities.

Finally, you should look at the markets your in (products, geographies, industries) and ascertain if you are really making money or is something a drag on the overall business. Existing a product line, closing a branch office or even firing a customer are never easy decisions. There is always the easily identified lost revenue associated with the thing under consideration. But, you need to dig deeper and determine the true cost of that revenue and whether it’s really worth the effort.

In the end, the point of these improvements is not to keep a company artificially below 50 employees. The goal is to maximize the output, income, and performance of the business so that when it does need to grow beyond 50 employees, it powers through that barrier with a step change up not an incremental employee.

As we have said in our Perspectives on Cap and Trade for Carbon (an issue that is about to reemerge front and center in the ongoing national debate) and on Keeping Afloat in Tough Times, management action is required. For assessing your options to allow for continuing to grow without falling off the cliff, we recommend a high spot review of your business. Look for the areas that are labor intensive and for opportunities to reduce, improve the productivity, or eliminate that internal labor.

When performing your review and conducting the analysis, remember you not only need to reduce labor but you need to translate that reduced labor need into actual reduced head count. Taking an hour of labor out of everybody’s day improves productivity overall and maybe employee morale, but it still doesn’t take anybody out of the equation. An hour of reduced accounting time doesn’t mean you can let the accountant go. They can’t be replaced by using 8 hours saved in the warehouse. No, you must find ways to replace or eliminate entire jobs.

We understand that last sentence may sound harsh and an overreaction to a higher benefit cost or a $2000 per employee fine. However, we firmly believe that when the reality of the costs of this legislation begin to be felt; fines, premiums and administrative cost will all rise substantially.

Whatever ones politics, nobody who owns or runs a business can deny that a plan that uses 10 years of revenues (taxes, fines, fees) to cover 6 years of costs is not sustainable. As business owners and managers we need to adapt to this new reality by retooling our businesses and growing them not by working harder but smarter. When you need to go beyond that 50th employee, make sure you go to 100 employees not 51.

The business papers and political pundits are full of stories and opinions that talk about prolonged periods of mediocre jobs growth and economic activity, the end of American specialism. Well, we are one small business that’s not ready to surrender and accept mediocrity. We are confident there are a lot of other businesses out there that feel the same way and that the American dream is alive and well in the hearts and minds of its small and mid-size businesses, each looking to grow and prosper.

A Glance at Payroll – Strong Business Credit

Initially, managing two or three employees may seem relatively easy. You may even be able to handle the tax aspects on your own with the right amount of research and advice. However, as your business grows, you may find it more and more difficult to manage the distribution of funds-as well as the calculations involved in taxes and other deductions-to such a degree that you may wish to invest in a new employee or even an outside service to help you manage payroll services.

Failing to properly handle the multitude of fees, taxes, withholdings and other items required can bring on various legal issues and result in fees, back-taxes and numerous other problems. Having someone on-hand who can handle all of these responsibilities appropriately will ensure that the workload is out of your hands, and that you, the government and your employees are all satisfied, with no surprise fees or fines for improper payroll handling.

The various deductions are ever changing. It is safe to assume that, in the majority of the time, the rates increase; however, the problem comes when it’s time to track the increases. Historically, the United States has had a serious issue with Social Security, and thus, small business owners have to adjust their deduction models. Review the increases over the past decade and consider hiring additional help in this field.


If your small business is threatened with a lawsuit, check with your insurance agent to see if the dispute or lawsuit may be covered by your business insurance policy. If the dispute or lawsuit is covered by insurance, then typically the insurance company is required to pay for the legal fees in defending the lawsuit as well as any judgment or settlement that is within the policy limits.

If your small business entails giving your clients advice, publishing articles written by others, manufacturing products, or engages in any other kind of business that might get you entangled in a lawsuit, the business is recommended to incorporate immediately.

In the case of an adverse legal judgment against the business, your personal assets could be wiped out. If your small business currently operates as a sole proprietorship, incorporating may be a good idea. Incorporating protects small business owners from personal liability of any judgments against the business. As members of a corporation, business owners enjoy limited liability, which means they are personally protected by small business laws from certain liabilities of the business and any adverse judgments.

The Importance of Business Plan Organization


The organization of a Business Plan is very important. I use an eight section plan format that is in a specific order as each section builds from the previous section (note: you may have to jump back and forth on a limited basis between the Products and Services Section and the Marketing Section, as well as, the Strategic Section, depending on the extent of your market and product development to date). There is fluid thought and connected reasoning employed to achieve a Plan that reaches its intended purpose (i.e. to run a business, to buy a business, to enter a Joint Venture, to finance a business, to complete a particular project, etc). Although the Executive Summary is the first section of a Plan, it should be written last. All the other Sections should be developed in a build block order provided in a Business Plan Workbook Process.

A Business Plan is a business document; you are not writing prose. It should contain a precise and concise format and be organized into numbered Sections and Sub-Sections, which contain specific information in short, paragraph form. Plans should be produced in paper form, computer format and online format. Computer Format means the Plan is integrated into the Company’s Computer Network. It also means the Table of Content’s Sections are hyperlinked so you can easily navigate and access information on the Plan just by clicking on the links.

You should have your Business Plan uploaded securely, online (via login and password access) on your website so that Key Managers, Employees, Sales People, etc can access the information remotely no matter their location. You can have different versions available online for particular purposes, segregated by different logins and passwords. For Example, you can have your Sales Plan accessible remotely so your Salespeople can use it as a sales tool or update it with up to the minute feedback for the Sales Manager and the Marketing Department. Another example would be having your Funding Business Plan accessible online with versions for different audiences: bankers, venture capitalists, angel investors, etc.

Business Plan Sections

1) Table of Contents

The Table of Contents is one of the most important parts of the Plan. The TOC should be very detailed and well organized so that the reader and user can find and access the information easily and quickly. You can write a great Plan with all the necessary information in it, but if the reader can’t easily find or access the information, then the Plan ceases to be a useful tool.

The TOC should be organized by each Section and Sub-Sections of the Plan with the corresponding page numbers. It is strongly recommended that your Plan be developed as an outline document, with all the Sections and Sub-Sections in the Table of Contents hyperlinked to the page where the information resides. This way the reader and user can access the information quickly and easily.

2) Section One: Executive Summary

The Executive Summary should be written last. Why? Because it organizes and summarizes the entire Business Plan. You cannot achieve this effectively until all the other sections (2 through 8) of the Plan are completed. We suggest developing two renditions of the Executive Summary – a short version of 2 – 3 pages in length and a longer version of 5 – 7 pages. The short version should be written after the long version is completed, keying on the most significant information from the long version.

The Executive Summary gives the reader a quick overview of the important facts contained in your Business Plan. The long version of the Executive Summary can act as a standalone document to be used to succinctly explain your Business and generate interest in your opportunity, or products and services. For instance, the long version of the Summary can be sent to a Venture Capital Firm to generate and gauge initial interest, to be accompanied by your one-sheeters: Fact Sheet / Venture Overview / Investment Overview. If interest is indicated, you can send the VC Firm a custom tailored Funding Business Plan (customized to their particular investment requirements) which will contain the short version Executive Summary.

Brevity, yet completeness and inclusiveness, is key when writing your Executive Summary. It should be concise yet have adequate detail about your Business Plan. It may take several attempts to achieve this balance.

3) Section Two: Company Overview

This section encapsulates who you are as a Company: the History, Structure, Ownership, Locations, Products and Services Summary, Strengths and Weaknesses, Performance, Customers, Trends, Company Assets and so forth. This section comes first in the Business Plan (following the Executive Summary) since it serves as an introduction to the necessary details and background of your company.

4) Section Three: Management and Operations

This section builds on the Company Section explaining in more detail who will run the company and how it will be run. You can have the greatest business idea but lack the right people to execute your Plan. Therefore, the Management and Operations Section is one of the most important elements of the Plan.

5) Section Four: Products and Services

Now that you have developed the Company and Management / Operations Sections, it is time to describe your Company’s Products and Services in detail. This section identifies why your Product and Service is unique and where weaknesses reside. Customer and Market identification, analysis and segmentation starts in this section to be later developed in the Marketing Plan and implemented through the Strategic Plan.

6) Section Five: Marketing Analysis and Plan

The Marketing Section explains in great detail how your Product and Service will be positioned and distributed in the market, supported by detailed, believable market research. This section deals with your Industry, Market Segments, Target Markets, Market Trends and Growth, General Competitive Environment, Customer Choices and Competitive Analysis / Positioning / Edge, to culminate in your Marketing Strategy and Programs.

7) Section Six: Strategic & Sales Plan

The Strategic Plan puts the Marketing Plan into action, showing how to implement the Marketing Plan into a cohesive and executable Sales Plan. The Strategic Plan develops a system to effectively deal with Potential Problems and Risks and culminates in producing Company Strategies, Tactics and Strategic Programs. These programs are implemented through the developed Sales Programs and Sales Plan. Operating Budgets, Control Mechanisms, Milestones and Sales Forecasts are also integral parts of the Strategic Plan.

The Strategic Plan provides a process for Strategic Management, Auditing and Reassessment. It measures performance, has control functions and corrective actions, reassessing when and where necessary. Strategic Planning is top-down and bottom-up, completely integral to your Company’s Operations, from the Vision and Leadership of the CEO, to Management’s Implementation Oversight, to the Sales and Operations Units. It provides company-wide Strategic Vision, Focus, Structure and Discipline, while providing an atmosphere of learning and awareness, with a process for identifying deficiencies and, in turn, fixing those challenges.

8 ) Section Seven: Financials

If you develop an effective Strategic Plan through our a well prescribed process, completing the Financial Section will not be as difficult as often anticipated. The principal reason why business owners have such a hard time constructing the Financial Section is most often due to a cursory job on their Strategic Planning Process. Financial Projections are not believable or realistic when the Strategic Plan doesn’t do an adequate job of harnessing the Market Plan into an achievable well thought out Company Strategy. Good Financial Forecasting starts with a well developed Product or Service Plan (Section 4), a well researched Market Analysis and resulting Marketing Plan (Section 5) and culminating into a solid Strategic Planning Process (Section 6). This ensures your “best guesses” as to future performance are well researched and developed. This is why it is so critical that you work through a good Business Planning Workbook in a building block order; otherwise, your Financials will be lacking accurate forecasting. The culmination of a good Strategic Planning Process makes for solid Financial Projections.

Probably the most important of all the Financials is the Cash Flow Statement. The Cash Flow will assist you on a daily basis in running your business effectively. Simply put, the Cash Flow shows the influx of cash and the outflow of cash in your Business. Cash Management is absolutely critical in successfully running your business, project or venture. The Cash Flow Statement is also very important when you are seeking funding for your operation and analyzed closely by lenders, investors and venture capitalists alike. Your Cash Flow is also critically important to your relationship with your Suppliers. Having a Supplier Business Plan containing a history and projection of Cash Flow can really help your Suppliers become good partners in managing your cash flow, thereby, enhancing your profitability significantly.

The Cash Flow Statement should be your guiding force in Financial Modeling and Cash Management. Effectively managing your Cash creates leverage, which will lead toward increased profitability. The leverage is created within a Cash Flow Management System as it shows how much cash is necessary to grow and finance your Company. Many businesses focus on the Profit and Loss Statement, which is very important; however, they often over look the Cash Flow Statement. Good financial analysis focuses on the Cash Flow Statement, then relates it to the Profit & Loss components (i.e. minimizing costs), which in turn increases Profitability and results in a stronger asset and equity base on the Balance Sheet. Financials and good Financial Management stem from the inter-connectivity of a Company’s Financials. Don’t forget how important Cash Flow Management is to your Company’s future profitability and net worth.

Another very important Financial, which works hand in hand with the Cash Flow Statement and Cash Management, is your Company’s Target and Actual Budget. Budgets are used principally for two purposes: Planning and Control. A Budget matches short term targets with long term Strategic Planning, while providing an indicator of future problems ahead. A good Budgeting System will indicate when Costs and Expenses are heading over Budget (Actual vs. Target), providing the business owner time and opportunity to correct the problem before it significantly affects Cash Flow. Your Budget is an extension of (and a result of) your Cash Flow Statement, helping you to effectively control and plan your operational cash, costs and expenses.

We recommend Rolling Budgets which look forward 12 months on a monthly basis, budgeting an additional three months at the end of each quarter. This way you always have a 12 month continuous outlook for Planning Purposes, yet provides you real time Cost Basis for Control purposes. A Budget should be flexible so that you can separate the effects of variations between Actual and Estimated results. Moreover, a Budget is a tool to evaluate your Business Units (Departments) and Management’s Performance. Needless to say, assembling a good Budget requires the input of your entire organization, which in turn, is a very good thing. Just as your Business Plan should be an integral part of your Company’s every day operations, so too should your Cash Flow, Cash Management and Budgeting Process be intertwined fully into company operations.

It is important to understand how your Financials relate to each other as you build and develop them. This is why Financial Software Programs are so beneficial, making Financial Analysis, Development and Projections a snap (once you have developed a solid Strategic Plan). There’s a lot of back and forth between the Profit and Loss Statement, Balance Sheet and Cash Flow Statement. When using a Financial Software Program, it is important that the program allows you to customize the Formats for your specific needs and download the Financials into Excel Spreadsheets for maximum utility and flexibility.

When making Financial Projections, the projection period differs for the particular company, venture or project. For instance, a large scale Real Estate Development Project’s Cash Flow Projection could be three, five or ten years, depending on the project scope and length. Also Real Estate Companies and Projects typically require additional Financials, such as, the Construction Cost Analysis and Cash Flow, Schedule of Real Estate, Construction Cost and Disbursement Schedule, and so on (Note: some of these may be applicable to other business sectors as well- for instance, a Tire Distribution Company may have substantial real estate holdings, hence, a Schedule of Real Estate would apply). Also, for Real Estate Companies and Projects (as well as for companies applying for business finance), the Loan Package is an important aspect of your Business Plan.

A very important component of the Financial Section is the Assumptions sub-section. This details the assumptions you have utilized in developing your financials. It is important to list the various calculations and formulas used in developing your Financials since those formulas can be company, deal or project specific. Detailed assumptions provide transparency to your Financials.

Financial Projections need to be believable and realistic. If anything, they need to be conservative. Too often we also see extremes of too few numbers or too many numbers. Provide best case, worst case and expected Financial Projections, along with simple and detailed formats. Remember that if you build out your Financials as a result of a good Strategic Planning Process, the financial results will most likely be believable and realistic as possible. We find that if your Financials have truly conservative numbers (yet still see profitability), you will often exceed your Plan which becomes a great Psychological boost for your Company (and any lenders or investors).

9) Section Eight: Appendix

The Appendix Section of a business plan can be aptly called the Due Diligence section. It contains the “proof in the pudding”. It contains all the Bulky Documents which supply merit and proof to your Business Plan’s assertions. Since the Appendix is large in volume, it is important to have a separate Table of Contents with Tabbed Sections for easy reference for this section.