Lending to Your Business? Do it Right

Where does your business go when it needs a loan? For many small businesses, the answer is…right back to the owner.

If you have to lend money to your business, do it the right way. There are potential tax benefits for loans to your own business. There also are financial potholes that you could hit if you don’t do things properly.

Here are five things to consider.

1. Making and guaranteeing loans are different. Guaranteeing a loan the company takes is not the same as making a loan to the company yourself. If the company takes out a loan, that does not increase your basis. For owners of S corporations, that means you cannot take into consideration the loan when calculating any pass-through of losses from the business to your personal return.For example, if you own a company in which you have $5,000 in equity and for which you have guaranteed a $10,000 loan, only $5,000 of company losses could be passed through to your current personal tax return. If you had made the loan directly to the company, your basis would have increased to $15,000, and any losses up to that amount could pass through to your personal return.”It goes back to the concept for S corporations that losses cannot exceed the sum of the shareholder’s basis in the stock and any direct debt the shareholder has in the corporation,” says Los Angeles tax attorney Thomas Henning, a partner in the firm of Allen Matkins Leck Gamble & Mallory LLP.

2. Initial investments usually aren’t loans. If you’re just in the process of starting a business, don’t try to say that the money you’ve initially put into your corporation is a loan rather than a purchase of stock. That’s a no-no. You have to actually put money into a company for the stock purchase involved in a startup, and that money cannot be repaid to you as if it had been borrowed. You can lend money to the corporation once it is established.

3. Document all your loans. This may sound obvious, but you don’t want to make a loan just by writing a check to the company. You have to document what you’re doing properly as being a loan from you to the corporation. You’ll need to draw up a promissory note and specify a rate of interest on the loan and terms of repayment. You should also keep proper track of repayments of loan principal and interest. Failing to charge interest on the loan can result in a terrible double-whammy. One, you could have interest “imputed” to you — that is, the IRS could say you have to pay tax on money you should have received. Two, if your business is a C corporation that is losing money, the additional interest deductions simply will be added to the corporation’s retained losses. In short, no current tax benefit for the payments made.

4. Watch your ratios. Proper documentation may also help you avoid having the loan re-characterized by the government as something else, such as an additional equity contribution. While from a tax standpoint it can make more sense to loan money to your business than to invest additional funds, there may be limits on how much you can actually lend. Some business advisors suggest not having a debt-to-equity ratio of more than, say, 3-to-1.”The problem is that if the IRS feels your debt-to-equity ratio is excessive, they may say that the debt is really disguised equity,” Henning says. “If that’s the case, then those payments the company is making that you think are loan repayments could wind up being characterized as you giving yourself a dividend.”That can make a huge difference in your taxes. Only the interest on loan repayments is taxable, but all of a dividend would be subject to tax. Additionally, a corporation could deduct as a business expense the interest charged on a loan. But if the money being paid out is a dividend instead, none of it would be deductible by the corporation.

5. There’s no such thing as a simple loan. You also may have to deal with passive-loss rules and other issues when you lend money to your business. As with any complicated financial or business dealings, it makes sense to consult with your tax pro or attorney and other professional advisers before moving forward.

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How to Get the Best Airfare

Believe it or not, there really is a best day of the week to make your best deal on an airline ticket, and it’s neither Monday nor Friday. It’s Wednesday! And there’s even a best time on Wednesday to buy that ticket.

People who don’t travel a lot for business sometimes envy those of us who do. Why, I don’t know, since business travel is hardly glamorous. And these days it’s getting worse. That said, for many of us, traveling for business is a fact of life. In these days of soaring fuel cost, the cost of travel is skyrocketing as well. As a new entrepreneur, I’ve had to balance the need to travel with the importance of watching our company’s budget.

The good news is there are ways to spend less, especially on air travel. Here’s what I’ve found in trying to cut my own travel costs.

First, you may have to break your old habits. Do you have a favorite airline that doesn’t necessarily offer the flight schedules you need now? It’s more important than ever to join the frequent flyer club of every airline you may possibly fly. Signing up is free and you’ll be able to accrue miles, which eventually can be used for free upgrades or even flights. If you travel a lot on one or two airlines, you might fly enough miles to become a premium-level flyer. Every airline calls a premium level something different, but for most, the first premium level generally kicks in at 25,000 annual miles flown. Next up is usually 50,000 and then there’s the exalted 100,000 mile level.

The other advantage of being at a premium level is those flyers are exempt from the baggage charges most airlines now charge. But there’s also a downside to sticking to one or two favorite airlines-you make be overpaying for fares. I am a platinum-for-life flyer on American Airlines (that means I’ve flown over two million lifetime miles there). I used to almost blindly book on American, since I just kept accumulating miles. That’s not the case anymore. When I’m ready to book a flight, I go online and search for the best fare. There are several sites that can help you do that-on some, like Orbitz.com, Expedia.com or Travelocity.com, you book through the site. On others, like Kayak.com (a favorite of mine), they present the best deals, tell you where they are and allow you to immediately book a flight online.

Airlines are changing rules and offers constantly these days. Many companies are back to offering lower fares for flights booked 21 days in advance and for those dreaded Saturday night stayovers – two things not very popular for business travelers.

A tip often cited by travel experts is to check out regional airports, where flights may be cheaper. The downside is you likely aren’t going to fly non-stop. And make sure you figure in the added cost of ground transportation (if any) to the price of the cheaper fare, to make sure the overall cost is still cheaper. Also, you have to compare (luckily most travel sites and the airline sites themselves make comparisons easy). Flying out of my local airport, John Wayne in Orange County, CA often costs far more than if I make the schlep up to Los Angeles and fly out of LAX.

Other smart tips are:

For the best fares, book your flight on a Wednesday-and never on a weekend. (I don’t really understand why this is important, but several travel experts offered this same advice).

Connecting flights are usually cheaper than flying non-stop. Of course it adds hours to your travel day. If you are connecting, it’s now recommended you leave one hour and 45 minutes between connections.

Don’t book the last flight of the day. Stuff happens and if it happens to this flight, you’ll be spending the night in the airport.

Make sure you check all airline fares and schedules. Recently I’ve gotten good deals flying JetBlue and Virgin America. (And, at the moment anyway, those airlines, along with Southwest, Continental and Delta aren’t charging for the first piece of checked luggage).

Check with the experts. Peter Greenberg is the travel editor on the Today Show and has a great Web site. Check it out at http://www.petergreenberg.com .

These are just a few tips I’ve found. I’m certain you all have your own favorites. E-mail them to me at rieva@smbconnects.com and I’ll share them at a later date. Or if it’s too much for you, remember time is money and find yourself a good travel agent.

Balancing Business Travel with Your Life: 5 Tips

It might be an exaggeration to say that salesman-turned-fishing guide Norm Weston experienced a career epiphany two decades ago. But then, how else do you describe the lure of Southwest Florida’s back country, where the saltwater flats teem with redfish, snook and trout? And how else to characterize the way in which he brought his career into balance?

“I was on a business trip to Miami,” he recalls. “I was a field engineer selling machine parts, and I went to see a customer on a Friday to discuss a possible contract.” The sales pitch turned into a fishing trip off Sanibel Island the next day, where he came to a sudden realization that he was in the wrong line of work. “I had to become a fishing guide,” he says. An increasing number people who travel for a living are concluding that their lives are out of balance. More than half of all business travelers say the time they spent with family has been significantly reduced as a result of being on the road, compared with 39% in 2001, according to a 2004 survey by Company Barclaycard, a British credit-card company. And more than one-third said social time spent with friends suffered through the demands of traveling for their company, compared with 28% in 2001.

How do you hit the “reset” button on your career? If you feel you’re on the road too much, here are five steps toward positive change.

1. Tap the brakes before you get into an accident. Years of heavy travel will take a toll on most people. If you can think of your career as a car ride, remember to hit the brakes every now and then. That means taking breaks from traveling. I just read over some e-mails from an old friend who always seemed to be on the road, visiting a new place, checking out a new restaurant. His insights into business travel were consistently brilliant because he traveled so frequently. But his frequent dispatches from the road ended abruptly late last year with a note from his wife saying that he had died, largely due to the stress of traveling so much. My friend had overdone it. I miss him, and I wish I’d been able to write this column five years ago to warn him.

2. Use the tools you have to set a reasonable pace. This is a struggle for any business traveler — even the ones who have achieved a better balance. I find that Microsoft Outlook’s Calendar function is a good tool. It allows you to identify the most important appointments and it prompts you when they’re due. While that’s far more efficient than writing everything down on a memo pad, it is possible to have too much of a good thing (I like to call it Calendar overload) where every little “to-do” item starts popping up on your screen, frequently interrupting your concentration. I like Franklin Planner for Outlook (www.franklincover/fpo) which lets you to further prioritize your appointments. It also integrates nicely with Outlook. A caution: Technology alone won’t put your life back into balance. But it can help.

3. Ask yourself: Do I really need to be there in person? A lot of business meetings can be accomplished virtually, with the help of Web conferencing software such as Microsoft Office Live Meeting, as I pointed out in a recent column. The use of “virtual meeting” technologies experienced an uptick after 9/11, as companies cut back on business travel. But even now, as corporate travel heats up again, there are still plenty of smart reasons to pick Web-based meeting applications over an in-person meeting. Not the least of these is the fact that you eliminate the stress of traveling (which, according to a Microsoft survey of road warriors, is even more stressful than visiting the dentist).

4. Remember: Garbage in, ugh, garbage out. When you spend time on the road, you tend to eat food you normally wouldn’t (and in quantities you wouldn’t) drink things you wouldn’t, and get insufficient sleep. Whoa. That alone is enough to knock your life out of balance. If you don’t take care of yourself, you could end up like Richard Larssen, who is now a retired seismologist in Palm Bay, Fla. In 1987, on a trip to northeastern Brazil, Larssen was infected with dengue fever, a mosquito-borne viral disease for which there is no vaccination. “I wasn’t feeling well. I was tired, had a slight headache, and a bit of an upset stomach,” he recalls. “I thought it was due to the rigors of travel.” So Larssen stopped in a cafe and had a cold beer. Big mistake. He spent the next three weeks in his hotel, where he lost 20 pounds before regaining his health.

5. Don’t forget your friends, family and loved ones. It’s possible to burn the figurative candle at both ends to have a successful business. But the whole exercise seems rather pointless if you alienate everyone around you in the process. Don’t think of your colleagues and relatives as obstacles standing in the way of your success — tethering you to the office when you should be out on the road drumming up business. Think of them instead as your support group. They’ll be there when you need them.

Are some of these tips just a little too New Age-y for you? Perhaps they are. But consider the story of Brian Talbot, who might have benefited from some of these strategies 13 years ago. He was driving himself hard as an up-and-coming executive in the accounting department of a retail-goods importer in Stamford, Conn., when he discovered that his career was out of whack.

One day, he found himself late for a flight to Los Angeles and “rushed, rushed, rushed,” to make it to the gate on time. “All of a sudden I couldn’t stand up, and just fell to the ground,” he remembers. “The next thing I knew I was being awakened in a hospital bed.” It turns out that he’d had a brain aneurysm — a condition that eventually prompted him to leave his high-stress job and become a nightclub DJ.

Is bringing your career into balance an all-or-nothing proposition? Not necessarily. I met Weston, the fishing guide, a few years ago on a trip to Southwest Florida. We spent the day in the back country catching and releasing some of the most magnificent fish I’ve ever seen. Weston hadn’t gone Luddite, as you might expect. He was one of the first fishing guides in his area to take bookings through a Web site back in the mid-1990s.

But for a former engineer hawking machine parts, I think it’s safe to say Weston had finally achieved the balance he sought. Even if most of his business trips now are slow boat rides into Florida’s Pine Island Sound.

I really can’t think of a better place to be.

10 No-Nos for Smart Business Travelers

These two facts are driving the travel industry crazy, and should be concerning you, too: Business travel is on the rise…but companies are spending less money on their trips. How can that be? Easy. Business customers, like consumers, are demanding more for less. A 2004 Smith Barney study found that 68% of corporate travel managers said they expected their company’s 2005 travel budgets to exceed spending in 2004 by an average of 5%. But 37% of the responding companies also said they are redoubling their efforts to save money — among other things, by buying advance-purchase fares instead of more costly last-minute airline tickets. Translation: Your competitors are getting out there and making contact with customers — maybe your customers — and they’re not losing their shirt on it the way businesses were in the late 1990s, when buying overpriced business travel airfares and booking astronomical hotel rates was a standard practice.

The moral here: You should be showing the same determination to cut travel costs for your business. Here are traps to avoid that will help you save money on your next business trip. If you have a corporate travel policy, consider incorporating some of these suggestions — they’ll help stretch your travel dollar further.

1. Don’t pay full fare for your airline ticket. Never, ever, ever shell out the walk-up fare — that’s the unrestricted, full-fare coach class price — for an airline ticket. In the past, before low-fare carriers such as JetBlue and Independence Air rose to prominence, business travelers had no choice but to pay what an airline demanded. Not anymore. Switch your preferred carrier to a low-fare airline now. Estimated savings: 60-80% off airfare.

2. Don’t become a serious frequent-flier mileage collector. Loyalty points are the crack cocaine of the travel industry, so advising you to be a “casual” user is somewhat naïve. If at all possible, you should stop collecting rewards points now. But the system is what it is, and unless you want to find yourself overpaying for your airline tickets, hotel rooms or rental cars — and even taking unnecessary trips in order to qualify for elite status — pay no attention to the points that may be collecting in your portfolio. If you do, you could become a mileage addict. (Remember, there are close to 10 trillion unredeemed frequent-flier miles out there). Estimated savings: varies by amount of travel.

3. Don’t pay the rack rate for your hotel room. Hotels want you to pay the sticker price for a room (of course, they do). But do you go to a car dealer and pay asking price? No way. Logging on to the Internet can really pay off, particularly if you’re using one of the so-called “opaque” Web sites such as Priceline or Hotwire. (You pick the class of hotel, but not the specific property — and you don’t collect points.) But the savings can be terrific: Better than a traditional online agency, and better even than a hotel Web site, with its “best rate” guarantee. Estimated savings: about 40% off your hotel bill.

4. Don’t accept the key to your minibar. You know that the snacks and drinks in your minibar are marked up several hundred percent. You know that the moment you open the refrigerator, an alarm is probably going off somewhere in the hotel manager’s office (actually, in all seriousness, many minibars automatically charge your room if an item in it is simply moved). Solution: When the front-desk worker offers you a key, turn it down. Tell your employees they’ll never be reimbursed for anything from the rip-off minibar. Estimated savings: can be as high as $20 a day or more.

5. Don’t rent anything other than a matchbox car. Don’t worry; you won’t end up actually driving a subcompact car. The cheapo vehicles are the first to run out, and when they do, the car rental company is contractually obligated to put you in the next-highest class of car at no additional charge. However, if you rent a full-size vehicle, you’ll just end up paying a premium for something you would have either gotten for free or at a vastly reduced rate. (Rental agents will haggle with you over upgrade costs, but they’re usually empowered to give it to you free for the asking.) Estimated savings: up to $40 a day.

6. Don’t tip just because you feel guilty. Airport skycaps, waiters and hotel employees often leave you with the impression that you must subsidize their substandard wages, and that if you don’t, you’re being a tightwad. Truth is, they’ve chosen to work in the service profession and you don’t have to tip them unless they’ve performed quality service that’s tip-pable. A gratuity is earned, and you don’t have to walk around handing out money like candy while you’re away on business. Estimated savings: depends on the length of your trip.

7. Don’t buy the optional car rental insurance. Car-rental employees like to pressure you to buy their own insurance. They show you pictures of damaged cars and they tell you your insurance policy may not cover your rental if you’re in an accident. I’m not saying these employees are wrong. But you have to be smart. Find out what’s covered under your policy (normally, your credit card takes care of almost everything). And remember: These policies often account for a hefty portion of a car-rental company’s profits. So while these add-on insurance policies can be useful for you, they’re even more useful to the rental company. Specifically, its bottom line. Estimated savings: about $20 a day.

8. Don’t order room service or laundry. Both are woefully overpriced. Room service bills come with a service charge of between 10% and 15% (“for your convenience”). And you could buy new clothes cheaper than you could have your laundry cleaned. Talk about a rip-off. Instead, eat in a restaurant and visit a Laundromat. Some hotels have laundry facilities on premises that are far less expensive. Estimated savings: between $5 and $10 a day.

9. Don’t use a hotel phone. Don’t even think about picking up the in-room phone unless it’s ringing. Instead, use your cellular phone. Why? Hotels mark up the phone bill by 100% or more. Oh, and that “deal” with free local calls? Check the fine print, because sometimes, calls of more than 20 minutes — even local ones — get billed at a different rate. Estimated savings: about $5 a day.

10. Don’t pay for anything that you can get for free. That includes, but isn’t limited to, hotel shuttle buses (much better than a pricey cab), breakfast (many hotels offer complimentary meals), dinner (check out the concierge floor, where hors d’oeuvres are on the house) and entertainment (the in-flight TV is free on JetBlue and Song). Only the tourists pay, because they don’t know any better. Estimated savings: depends on length of trip.

Cut Prices in a Sluggish Economy? No Way

Q: This economy is really starting to affect my business. Business is down. People around here seem to be staying at home and not shopping. I’m thinking of cutting prices to bring people in. What do you think?

A: Don’t do it. Seriously, cutting prices seems to be the first thing entrepreneurs think about when the economy heads into a downturn. The reasoning is that this is the only way to combat the fact that consumers, clients and businesses are spending less. Generally, however, this is not a smart strategy. It sends a bad message to your customers-they’ll likely think you’ve been overcharging them all along. Or that you’re desperate, which will make them wonder if your business is about to go under and if they should start doing business elsewhere.

If you cut prices, your customers may sit around, waiting for you to discount once (or twice) again before actually buying. Another danger is once the recession ends, your clients may object to your newly raised prices. You also don’t want to start a price war with your competitors where all players are likely to suffer. And finally, unless you cut your costs as well, cutting your prices will just lead to lowered profitability. And that’s a formula for disaster.

So what should you do? First, focus on value. Why do your customers do business with you? Do they come to you for discount prices, personalized customer service, cutting-edge offerings, products they can’t find elsewhere, convenience, innovative thinking or what? If you’re known, like Walmart, as a low-price leader in your city or industry, then you do need to maintain that mantle and cutting prices might be the best solution for you. If lower prices are not your value proposition, then move on.

Is there an added value component of your business that you can offer customers that won’t cost you much? If you own a retail business, could you have a service like free gift wrapping? A restaurant might offer a discounted appetizer or beverage with the purchase of two meals. An accountant might throw in a free financial assessment, while a marketing company could add a discount to a service to clients who purchase a whole package. A seminar, webinar or workshop could have broad appeal to all types of customers and clients.

Another possibility is to bundle some of your offerings (this works best for service entrepreneurs) and offer tiered packages priced accordingly. Think airline loyalty programs. Those who purchase the platinum package get more choices than those buyers who opt for the gold or silver packages. Or you could simply offer customers a discount in exchange for a long-term contractual commitment. You also might consider adding a new line or service offering-one that you can charge a little less for. It should be different enough from what you already sell, so you don’t cannibalize existing sales.

In times like these, it’s especially important to hang on to your current customers. So make sure whatever discounts you offer to new clients, you extend something equivalent to your existing customer base. Or provide incentives for contract extensions.

A recent survey from TNS Retail Forward said that consumers have changed their shopping habits in order to save money on gas. Over 25% of people have increased their online shopping, so if you don’t have a Web site, start building one immediately.

Before you resort to lowering prices, look for other areas in your business where you can shore up your financial situation. Are you current on collecting your receivables? In times like these, all businesses need a solid collection strategy. You might offer small discounts for timely payments. Check your budget often and look for other inefficiencies. Is your phone plan the best? Can you cut back on travel? Negotiate a better deal on rent? Hire interns or part-timers? Are you using energy-efficient lighting and equipment?

If you lower your prices, you’re going to have less money to reinvest in your business. You want to make sure you have enough cash flowing in to retain your good workers, keep your insurance coverages, pay the bills, build a cash reserve, update your technology, continue to innovate and not stay awake every night awash in fear.

And like I advised several months back, you want to make sure you have enough cash to maintain (or maybe even increase) your marketing budget. Smart entrepreneurs take advantage of recessions and try to do more than survive. If you hold tight to your pricing strategy and do more to increase your customers’ experiences, you can actually thrive.

The Insurance Basics: Property, Liability and People

Most people are familiar with the “everyday insurance” triad: automobile, home and life. Unfortunately, that familiarity often doesn’t extend to the multifaceted fourth leg of the insurance chair for many: business insurance. If you run a small business, what you don’t know about business insurance can hurt you. The terminology used by the insurance industry often is overwhelming, but basically there are three types of insurance for your business: property, liability and people. Here’s a look at all three.

Property: covers building losses

Basic property insurance covers your business against unforeseen losses due to fire, lightning, vandalism and other mishaps. Optional coverage can also be obtained (at additional cost) to cover against less likely events such as earthquakes and floods.

Property policies essentially fall into two groups. A “named-peril” policy will cover certain losses resulting only from causes that the policy identifies. An “all-risk policy” covers any type of loss except for those specified in the policy. The difference is important — one policy specifies what it will cover, while the other identifies losses that it won’t. So pay close attention to these details. Once you decide what sort of protection you need, think about what items you will need to cover. This checklist is not comprehensive, but it contains items worth considering:

  • Buildings, whether owned or leased
  • Inventory and supplies
  • Machinery and boilers
  • Office equipment, including furniture, computers, printers and fax machines
  • Valuable accounting and other paper records
  • Automobiles, trucks and construction equipment
  • Intangible property such as trademarks

Since it’s a good idea to buy insurance based on replacement value, it’s necessary to take stock of your business and list the items that you have, along with their replacement values. Make sure you look beyond the obvious, such as notebook PCs and signs not attached to a building. Once you have the list, decide exactly what items are worth insuring and make sure they are covered by the policy.

Liability: gives you legal protection

Liability insurance provides coverage in case your business is sued for something it did — or didn’t do — that resulted in property damage or injury to someone. This type of claim is common these days, given the extensive number of lawyers offering contingency fees for their services (if they don’t win, you don’t pay).

One classic example is someone who slips and falls on your premises and sues for the loss of income (and possibly medical problems) while they were unable to work. Liability insurance covers the cost of damages awarded to the injured party, as well as the costs associated with your defense in a lawsuit. Consider these guidelines to determine the amount of coverage. One way is to use a recent liability settlement in an industry related to yours as a guide. Another option is to base coverage on your business’s total assets. Check with your trade association and your insurance broker before making final decisions.

Many insurance companies offer broad coverage in a single policy by combining property and liability insurance coverage into a business owner’s policy. Unfortunately, it may not be adequate is some cases. For example, it may suffice for a two-person computer consulting firm, while a restaurant with a lot of customer traffic may need more extensive liability coverage.

Note, too, that liability coverage will not protect you against claims for nonperformance of a contract. That’s covered by professional liability or “errors and omissions” insurance. If you’re in the engineering consulting business, for instance, you’ll want to look into this. (Check out techinsurance.com for an explanation of the coverages in this area.)

Wrongful termination of employees, sexual harassment and race or gender based lawsuits are generally covered by employment practices liability insurance.

People: health and workers’ comp

A health plan covering the medical and dental needs of your workers is optional. Workers’ compensation insurance, on the other hand, is state-mandated coverage for injuries and illnesses that are job-related, and required by employers in every state except Texas. A workers’ compensation policy may pay medical, disability income, rehabilitation and also death benefits.

It’s important that you check with your state’s labor department for its definition of “employee.” It can include a full-time, 40-hour-a-week person as well as someone who works only a few hours a week.

Choosing an insurance agent or broker

It’s never wrong to admit that you may need help in selecting the best insurance coverage for your business. That can come from either an insurance agent or a broker. An insurance agent represents an insurance company and sells only products from that firm. A broker, on the other hand, represents more than one company and is free to suggest any number of solutions.

When selecting an agent or broker, The National Federation of Independent Business recommends that you not limit your search to the phone book or onlinedirectories. Ask for referrals from other business owners, particularly those with insurance needs comparable to yours.

Make sure the agent you choose has professional accreditation, such as the CPCU (Certified Property and Casualty Underwriter) or CIC (Certified Insurance Counselor).

Tips for Outsourcing Your Small Business Needs

Yes, small businesses can benefit from outsourcing too. More and more of them are turning over parts of their operations to outside experts, allowing owners to focus on critical needs and growth. Following the trend of larger companies, small-business owners are outsourcing a range of services, from HR to finance and accounting to customer services. But the outsourcing process requires some time and investment to find the right vendor, build a working relationship, and allow your employees to adjust.

Here’s how to evaluate whether outside experts can perform better, faster or more cost-effectively than your in-house staff. You’ll also find advice about charting a path through the come-hither promises often made by outsourcing services.

First, define your core
Generally, the smart strategy is to hold on to operations or areas that define the core mission of your business. Then, consider outsourcing the other operations that are not as strategic. If, for instance, your point of difference is customer service, make sure you have enough friendly and attentive full-time employees to make good on that. If, however, you promise rock bottom prices, then relying on an outsourcer, such as a Web-based virtual assistant, an automated phone system or an overseas call center, might make more sense.

Also, think through potentially outdated conventions about on-staff specialists, especially given the reach and effectiveness of today’s desktop technology. Traditionally, small businesses have outsourced payroll and human resources services (see this related article).

But owners can now tap outside facilitators for a much greater range of services. For instance, entrepreneurs with strong sales often assume they need a full-time bookkeeper to oversee the books. But, in fact, you can be running a $5 million company and still not really require a full-time bookkeeper. Such services have little to do with the volume of sales and more to do with the level of accounting activity, such as invoicing, bill paying, payroll and the like. Companies with a full-time bookkeeper can save about $30,000 a year by using outsourced bookkeeping services, say, a half-day a week.

Move slowly and commit incrementally
Outsourcing’s advantages will vary with the services, the kind of business you run and, of course, the quality of your provider. It’s worth your while to move slowly and commit little by little. Don’t sign two-year contracts before testing performance and the relationship. To get a feel for the process and to accustom your staff to the idea, first try outsourcing one stand-alone project, and then move on to hiring professionals for other areas or ongoing needs.

“With project professionals, there are no long-term contracts for unnecessary services and companies,” says Chris Hagler, national director of strategic services for Resources Global Professional, a Costa-Mesa, Calif., concern that provides specialists and contingency experts in finance and accounting, information technology, human resources and legal services. “Project professionals are ‘executers’ as opposed to traditional consultants who do not necessarily roll up their sleeves and get the job done,” he says.

Examples of functions to outsource
The roster of choices for high performing, affordable outsourcing services keeps growing. Here are some examples of functions you might consider outsourcing, to boost your day-to-day operations.

  • Specialist and expert help. Elance Online (elance.com), based in Sunnyvale, Calif., for example, offers a range of services for small business projects. It provides access tothousands of professionals around the world for services such as graphic design and multimedia presentations, engineering, sales and marketing, writing and translation, and more.
  • Public relations services. Most small businesses cannot afford a PR pro full-time and likely don’t need one. Much of the news or publicity that smaller companies seek is generated when a new product launches or to support the chief executive officer’s profile as an expert in the industry, or to call attention to expanded services or new hires and so on. To find a PR company that can work well for you, look for someone who understands your industry and takes on smaller-company clients (see this related article).
  • Virtual assistants. Virtual assistants, or independent entrepreneurs who provide administrative, creative or technical support, are a growing phenomenon. They work on a contractual basis via online or electronic communications, handling functions, such as keeping your schedule or your files or your customer intelligence database up to speed. You can find out more by visiting the nonprofit International Virtual Assistants Association (www.ivaa.org). Expertizing, based in Newton, Mass., uses virtual assistants for a variety of projects. “We’re a small company that helps people achieve media attention for their businesses, and have outsourced a lot of work to several virtual assistants,” says CEO Fern Reiss. “It completely changed the way we operate. We meet ‘live’ once a month for a long catch-up, and in between correspond via email and occasionally by phone. We have increased productivity by about30% to 40%, and have finally gotten many of our back-burner projects out the door.”
  • Outsource brokers. When you outsource services or projects, you still need reliable managers to track progress and monitor results. Increasingly, there are third-party services that will manage your outsourcers for you. These brokers, exchanges and networks can recruit, interview and manage the services you need. For instance, ComputerRepair.com based in Boca Raton, Fla., runs a Web site that lets businesses across the country quickly find inexpensive PC support services. The company claims cost savings of 50% for IT service procurement.
  • E-commerce solutions. An online service such as Microsoft’s Commerce Manager can quickly turn your business Web site into an online store. Your e-commerce platform includes an online catalog, online shopping-cart software, 24/7 access for customer orders, secure transactions for credit card purchases and payments, plus continuous tech support — all for about $25 a month.
  • E-mail marketing. Similarly, Microsoft List Builder can produce customized permission-based e-mail marketing campaigns for you, whether your goal is to find new customers or retain existing ones. For about $30 a month, you can use HTML templates to produce professional-quality e-mail newsletters or offers and announcements. You can rely on List Builder to send targeted and personalized messages to distinct customer segments. List Builder also tracks results for you in real time, so you’ll know, instantly, what works and what needs re-jiggering.

Outsourcing dos and don’ts

Try fixing whatever’s not working on your own first. You may have internal resources that can work better than you think.

Carefully evaluate what really can be outsourced. Generally, projects that require team interaction or brainstorming don’t work too well. Self-contained tasks or projects are more suited to outsourcing.

Consider management costs. Sometimes services look good on paper but you end up eating the savings in training and oversight costs.

Be prepared for challenges. It takes a while to build the relationship and synchronize the timing.

Don’t walk in blind. Start with some paid consulting, if need be, so you can ask the right questions in choosing a vendor and keep knowledgeable tabs on performance.

If you outsource significant hunks of your operations, consider having a staff employee(s) to act as a liaison. You want to outsource functions but not accountability.

Watch out for hidden costs. These may include paying layoff-related expenses, overtime costs for remaining employees who may now have more work to do, and telecommunications costs for remote workers.

Know the outsourcing ABCs.

Before you ramp up your outsourcing services, learn these outsourcing ABCs from Kevin Gregson, chief executive officer of Sherwood Solutions, a business advisory firm.

Alignment: Is outsourcing the right move for your business? Business case: Have you taken all costs into consideration? Culture: Can you bridge the cultural difference between your company and the outsourcer? Delivery: How will you define success?

It might take a bit of time to get right, but the benefits of outsourcing can be enormous. Check out your operation to see how it can work for you.

Diversity Pays Off for Everyone

Business owners, it’s time to do more than just pay lip service to diversity. In case you haven’t noticed, every state in America now hosts multicultural communities. Whether you translate diversity into African-American, Asian-American, disabled, ethnic, female, gay, immigrant, Latino, minority, Native American, seniors, special needs, urban — or any other group besides so-called mainstream white male — rainbow demographics are a fact of business life.

This is dramatically spelled out in a recent U.S. Department of Labor report, called “Futurework: Trends and Challenges for Work in the 21st Century”: “By 2050, the U.S. population is expected to increase by 50% and minority groups will make up nearly half of the population. Immigration will account for almost two-thirds of the nation’s population growth. The population of older Americans is expected to more than double. One-quarter of all Americans will be of Hispanic origin. Almost one in 10 Americans will be of Asian or Pacific Islander descent. And more women and people with disabilities will be on the job.”

What does this mean to you? Any company that wants to stay competitive must come to terms with diversity — inside and outside the organization. Of course, the legal and moral arguments for diversity are unassailable. Discriminatory hiring practices not only demean the human spirit, they’ve been against the law for decades. Nonetheless, employers have been notoriously slow to change.

No one thought much about making the business case for diverse employment until reports of the changing workforce and consumer demographics added up to a new math. At the same time, social and political policies like “minority quotas” and “affirmative action” turned controversial for advocates and critics alike, and even ran afoul of the law, as with university admissions polices. Nowadays, global corporations are busy recruiting diverse work groups because of profit motives. It’s good for business. Small and mid-tier firms would be smart to follow that example.

Here are five key business reasons to hire a diverse staff.

1. All business is now international. There’s no such thing as a local company anymore. “The Internet has influenced all commerce,” says Ilene Wasserman, founder of the ICW Consulting Group in Penn Valley, Pa. “I may be a Mom and Pop shop, but I can’t afford a localized or provincial attitude about what we carry and serve.”Every business, whether small-town retailer or international marketer must be savvy about the future generations and how we will trade goods and services across national borders and in multiple languages.

2. Conflict is a good thing. Small-business owners may hesitate to hire qualified candidates different than themselves or the rest of the staff because of worries about resulting tension. But think about it. New ideas only emerge from friction and need. Innovation only arises out of conflict. Comfort zones are hardly the birthplaces of creativity. Plus, a company’s values and culture begin at the top.”Small businesses often grow up around a founder and lots of family members,” says management consultant Adrian Savage, author of “A Spark from Heaven.” “It’s hard for outsiders to come into such a cozy environment. You either fit in with them or you don’t fit in at all. But that makes the resulting business extremely inflexible.” Diverse groups of people, points out Savage, will have better antenna to see opportunities that you will miss.

3. Small pools run dry. With competition fierce and markets international, why narrow your search for skilled help to shallow areas of the talent pool? “We often hire people because we ‘like’ them,” says attorney Carol Merchasin, managing director at Morgan Lewis law firm in Philadelphia. “And we ‘like’ them because they look like us.” Instead, suggests Merchasin, take away the screen of ‘liking.’ Focus on precise skills, competencies and experience to do the job you need done.

While you’re at it, evaluate your preconceived notions. For example, Joyce Bender runs a technology consulting company, which partners with larger firms to provide employment for people with disabilities. She often faces the perception that workers with disabilities are “sick” or “absent” a lot. The reality? “I offer a $400 bonus to workers each year who don’t miss a day of work. And I can’t tell you how many bonuses I’ve given to employees who haven’t missed a day of work in five years. People with disabilities have to overcome obstacles and discrimination. They have to figure out how to get into and out of buildings. They’ve been in tough situations and it’s made them flexible problem solvers. They’re really good workers for small businesses.”

4. Diversity drives sales. Nearly 80% of Fortune 500 companies now have some kind of diversity efforts in place, says Fred Miller in his book, “The Inclusion Breakthrough: Unleashing the Real Power of Diversity.” Increasingly, government and corporate vendors will contract only with suppliers that can demonstrate “cultural readiness,” according to Miller.”The world is changing,” says Miller, who runs the Kaleel Jamison Consulting Group in Troy, N.Y. “If it’s not on your doorstep now, it will be soon. You can’t wait. Reaction time must be instantaneous.”

5. Stable staffs are cost-effective. Suzanne and James Faustlin purchased their Tucson, Ariz., franchise for the Maids Home Service in the late 1990s. The business then had 13 employees and $250,000 in revenues, says Suzanne. Within a few years, the couple had grown the staff to 34 and revenues to$750,000.Like many home cleaning services, the staff is all female and more than 50% minority, in this case Hopi Native American and Hispanic. But unlike many such services, the Faustlins play up the cultural differences. “We think it’s fun and the uniqueness of the traditions is an advantage,” says Suzanne. Every workday starts with an early potluck breakfast. “We get tamales from different types of corn and Hopi blue marble bread,” she says. “We encourage intermingling of the teams. It’s a way to deal with the stresses.” Suzanne says the staff also celebrates many different holidays. She credits those management policies with low staff turnover and easier recruitment. “We encourage employees to refer people and we offer a finder’s fee.” The result: A very stable staff. “We have several family members working together.”

Creating an inclusive company culture that values and respects individual difference is likely to yield tangible, bottom-line results. “Nobody can afford a work force that doesn’t contribute its best work,” Miller says. “Why settle for a sprint when you can win the marathon?”

Prepare for a Vacation, Then Take It!

Yes, you need a vacation. Everyone does, even small-business owners and solo entrepreneurs. Don’t think you can’t take one, just because you run a small company or a home-based business, and don’t feel you can’t extricate yourself from it. You can — and should — take time off if you want to stay in business very long.

“If you don’t take a break, your creative and problem-solving abilities will burn out,” says Alisa Jenkins, a Tampa, Fla., area business and marketing consultant. “Successful businesspeople take breaks,” she says. “It actually helps your business to take breaks.”

Here are 10 tips to help you plan that get-away.

1. Call or e-mail your keycontacts at least two weeks before you leave. By “key contacts,” we mean your key clients, partners, vendors and employees. Post a note on your extranet, if you have one. Tell them the dates you are going to be gone, and someone they can contact in your absence. Two weeks’ notice allows them to reach you with any urgent business that needs your attention before you leave.

2. Designate people in charge while you are gone. Obviously, if you have employees, you want to designate someone to run the company while you are gone. Your employees need to know who’s in charge during your absence. You also need someone to handle communicating with key clients, partners, vendors and/or employees. This may or may not be the same person as the one in charge. You may have your No. 2 run the business, and your No. 3 handle external communications, for example. In any case, these must be people you can trust, to lead and represent your company well.

3. Designate a contact person for you. Along the same lines, you need to designate someone to reach you in cases of — and only in cases of — an emergency. If you have employees, that may be your No. 2. If you don’t have employees, it may be your accountant, attorney, a close relative or someone else you can trust. This person has been entrusted with how to reach you. You want someone who knows when and when not to call you.

4. Make a list of your employees’ work priorities while you are gone. Besides designating the people in charge, you need to establish a list of what tasks and projects you expect your employees to have completed when you return. This sets your agenda, and helps your employees know what is expected of them. It need not be excessively detailed, but it must be clear and understandable.

5. Make a list of your own work priorities for when you return. This list allows you to take your mind off work while you are gone. What you need to do when you return is all mapped out. Confine this list to short-term tasks; those that need to be done and can get you back into the swing of things. Know that many unexpected things may come up while you are gone.

6. Assign someone to do your administrative tasks. By administrative tasks, I mean sorting through your snail mail, handling your phone messages, even answering your e-mail. Again, this has to be someone you trust. If you don’t have any employees, you might consider asking a friend. Even if all they do is go through your snail mail and put the priority items on top of the stack, which can help you get back into your work routine faster when you return.

7. Pay important bills before you go. Or at least set up a payment strategy with your employees for while you are gone. Don’t leave them in the dark due to forgetfulness — or tarnish a valued relationship with a vendor or service provider. Also, leave enough petty cash for your employees to handle unforeseen bills or emergencies.

8. Use security smarts in disclosing your absence. Consultant Jenkins says she is surprised at how many solo entrepreneurs announce in their telephone greeting that they are outof the country for three weeks. That is like saying, “If you want to break into my business, feel free to while I am gone.” Be smarter than that. Tell callers that your business is closed for three weeks, or that you may be hard to reach over the next three weeks.

9. Have your contact person make periodic checks of your business. If you are a solo entrepreneur, you need someone you trust at least to drive by your office from time to time to make sure everything looks in order. You can also tell the local police or sheriff’s office that you’ll be out and request that they swing by the office on occasion.

10. Last but not least, don’t overwork before you leave. Try to add more hours to your day in the weeks leading up to your vacation, to spread your preparations over more time. The last two days before you leave will no doubt be hectic anyway. But put yourself in a position where you don’t have to pull any all-nighters.

While you are on vacation. Should you check in with your office while you are gone? “We recommend you don’t — not at all, if possible,” Jenkins says. “The idea is to completely remove yourself from work.” Two small-business owners I interviewed say they don’t call in. “I may do one courtesy call, but that is more for curiosity’s sake — not to do work,” says Scott Marino, co-owner of WebUndies.com, an online retailer.

“I completely disengage to spend time with my family — no phone calls, no e-mail,” says Mark Anderson, publisher of Strategic News Service, a technology newsletter. “There are people who know how to reach me, but they know that they shouldn’t.”

However, not everybody is alike. Some people may be able to relax more if they do check in daily, or periodically. If this is you, here are some rules to follow:

Have only one contact person. Go through that person and no one else. Don’t accept work calls from anyone else.

Choose the time of day you make the call. Make it be a time that works best for you, not the person you are calling. If you are relieved after a few days that everything is OK, stop calling.

Don’t call during these times: the first 48 hours and the last 48 hours of your vacation. Start and end your time off on weekends, if necessary, to allow yourself these restful buffers.

5 Steps to Better Ergonomics — and Morale

Spend enough money on ergonomic chairs, keyboards and computer screens, and you can kiss your company’s repetitive-strain injuries and related productivity losses goodbye. Or so the conventional wisdom goes. But the conventional wisdom is only half right. Sure, investing in the latest technology and furniture is important. But there’s more.

“Most businesses focus only on machinery and hardware when they talk about ergonomics — desks, tables, adjustable keyboards, furniture, and so forth,” says Richard Rossiter, chief executive officer of Rossiter & Associates, a Cincinnati health-care consultancy specializing in repetitive stress injuries and connective tissue techniques. “Why do businesses spend thousands of dollars maintaining computers and equipment and yet invest nothing to maintain the constantly moving bodies of the people who do the work?”

Indeed, the second half of the equation is the human one — your employees. You can equip them with the latest technology, yes. But if you don’t address ergonomics training as part of the employee wellness equation, and if you’re not fully committed to making employee wellness an intractable part of your corporate culture, you may miss out on the benefits of ergonomics. And the benefits can be considerable.

Study after study suggests a strong link between better ergonomics — or ergo, as it’s called in the industry— and improved productivity. One of the latest, a 2004 poll conducted by Microsoft Hardware, found that nine out of 10 employees said the design setup of their workstation directly affected their ability to be productive at work.

Dennis Downing, president of Future Industrial Technologies, an industrial injury prevention training company in Santa Barbara, Calif., reports that one of his clients, a large newspaper, cut 1,000 lost workdays in 2003 because of an ergonomic training program. “Effective ergo programs need to start at the top of the organization,” says Shannon Powell, president of Active Ergonomics, Inc., an ergonomic consulting firm. “As long as a company needs people to successfully grow their business, the focus should be on ergonomics and wellness.” How do you go beyond the technology to implement a successful ergonomics program at your company?

1. Be proactive, not reactive. Many ergonomics programs are put into place only after workers show up wearing braces and popping aspirin like candy. That’s a shortsighted approach. “With proper training and instruction, workers are able to control many of these exposures (to potential injuries),” says H. Tim Frazer, a practice leader for ergonomics at Philadelphia-based ESIS Risk Control Services. One great way to make sure you’re being proactive is to consult many of the free online resources available to your company, Frazer says. For example, if you’re concerned about ergonomics at computer workstations, consult the Occupational Safety & Health Administration’s Web site on the topic (www.osha.gov/SLTC/etools/computerworkstations), which includes a handy checklist to make sure you’re not exposing your employees to unnecessary risks.

2. Train your employees; and listen to their feedback. Another way to ensure that ergonomics becomes part of your corporate culture is to train your employees to properly use their new, ergonomically-correct equipment. That’s the advice of Alexandra Charish, an ergonomics specialist based in Los Angeles. Any training, she says, should include asking your employees whether they are currently experiencing any pain or discomfort while they work. If so, you should consider making immediate modifications to the work environment. “Employees in a small business are the most valuable asset and are often friends and family,” she says. “Matching tasks more effectively to body height, arm lengths, and choosing a different tool or instrument, can make a big difference.”

3. Don’t dictate workplace policies — collaborate on them. “The best environment to implement an ergonomics program is where the workers feel part of the process,” says Scott Bautch, past president of the American Chiropractic Association’s Council on Occupational Health. “The worst environment is where processes are generally dictated.”He says finding problems — faulty office furniture, a flickering screen — is relatively easy. Switching to new processes and equipment, and at the same time avoiding making employees even more prone to injury, can be a challenge. Bautch has studied ergonomics programs that have failed, and he said the likeliest cause is a top-down order to improve ergonomics that comes as an afterthought and isn’t part of a comprehensive wellness plan.

4. Know when you need outside professional help. Recognize that some workplace ergonomics challenges are too difficult for you to solve on your own. “Some workplace situations are inherently problematic, and you may need professional assistance to solve them,” says Brian Stonecipher, human-factors engineer at Design Continuum, a design company in West Newton, Mass. “Ergonomists are professionally trained to assess problems and develop solutions that address them.”Where do you find them? Organizations such as Human Factors and Ergonomics Society offer directories of consulting members. But is it worth the price? “Don’t look at ergonomic solutions as simply a cost,” Stonecipher says. “Look at it as an opportunity to fix a problem, reduce [health-care] costs and increase productivity.”

5. Go beyond the standard workplace regulations. Showing commitment to employee wellness can have a profound effect on office morale. Erick Petersen, vice president at Planar Systems, a Beaverton, Ore., company that manufactures flat-panel displays, says obeying the rules is not enough. “Take it upon yourself to make sure you’re in accordance with workplace regulations set forth by the state,” but then take it a step further, Petersen advises. Don’t just encourage your workers to sit up straight in front of their monitors, for example; ensure that they are getting the best screens available, he says. That sends the message that you care, which can lift morale and productivity. These steps — from training to collaborating on solutions — may be expensive to you in the short run. “But not addressing ergonomics because it’s too expensive,” says Ronald Scott Hoechstetter, a clinical educational specialist and ergonomics consultant at CarePartners Health Services in Asheville, N.C., “is one of the biggest mistakes a small business can make.”