Business E-Newsletter - April 2012

Life Insurance: Protecting Today’s Assets and Tomorrow’s Heirs

Many people obtain life insurance when they first have children and then forget about it, except for when the premium bill comes due. But an effective financial plan includes reexamining your life insurance needs continually throughout your life to ensure the assets you've accumulated are protected and to provide additional opportunities to create wealth.

Estimate Your Needs

Before assessing your insurance needs, look at your annual income. Then tack on one-time expenses, such as a mortgage, debt, and college tuition bills for your children. Remember to consider the amount you still need to invest to fund your retirement. Also factor in your final costs — estate taxes, potential uninsured medical costs, and funeral expenses.

Another factor to consider when purchasing life insurance is whether to also use it to help complement your savings efforts. Because some types of life insurance have a tax-deferred savings component, it may offer you an additional way to save for the future.

Choices, Choices

Next, figure out which type of life insurance is best for you. Many younger people opt for term insurance because of its relatively inexpensive cost. The policy is written for a set period of time and may be renewed (although the premiums usually increase each time you renew).

Mature investors may wish to consider a permanent policy, which combines life insurance coverage with a tax-deferred savings vehicle and is generally more expensive than term. You pay the premiums and receive a fixed death benefit that might potentially rise depending on the policy's cash value. Part of each premium accrues as cash value, and you may be able to borrow against the accumulated cash tax free.

In addition to the broad categories of term and permanent, there are a variety of other life insurance choices available — any of which might be appropriate for your situation.

Estate Planning

Some people use life insurance to fund an irrevocable life insurance trust to either create or transfer wealth for future generations, fund estate tax liabilities, or to help manage small business succession issues. This type of trust helps to preserve assets because, if drafted and executed properly, the death benefit is not subject to estate taxes. It also offers the benefit of flexibility. For example, it may be set up to allow a surviving spouse to receive regular payments from the insurance policy or to set aside assets for a minor. Drawbacks are that you lose control over the policy, insurance premiums could be expensive, and you'll most likely pay legal fees to create and maintain the trust.

Seek Qualified Help

Different life insurance policies and their costs, terms, and restrictions can be confusing. Consider working with a financial or insurance professional to determine which type of life insurance best fits your needs. At a minimum, be sure to include your life insurance needs whenever you review your overall financial planning needs regardless of your age.

The policy is subject to substantial fees and charges. Death benefit guarantees are subject to the claims-paying ability of the issuing life insurance company. Loans will reduce the policy’s death benefit, cash surrender value and will have tax consequences of the policy lapses.

© 2010 Standard & Poor's Financial Communications. All rights reserved.

Give Back to Your Community While Gaining New Business

Everyone knows that putting up an "Open" sign or hanging a shingle is no longer enough to make yourself known to potential customers. And even traditional and social media marketing efforts may not be enough to do the trick. More small businesses are recognizing that to make an impression, you also need to get out of your comfort zone and connect with your business's local community.

That community connection is essential not just for offering moral support, but also for helping your small business stand out and compete against the volume pricing and billion-dollar marketing campaigns of giant corporations. Community involvement changes the game, asking customers to choose where they shop based not solely on pricing or selection, but also on personal relationships and the impact of corporate behavior on friends and neighbors.

If you want to get involved but don't really know how, why not get started with these five suggestions? Let's face it, you can't afford to be shy.

1. Participate in the chamber of commerce as well as in local government, service organizations, and compatible nonprofits and industry organizations.

Even look to your kids' Parent Teacher Associations to make contacts. Start by attending meetings, and gradually move into leadership roles. This will raise awareness of who you are, and you can later talk about what you do. As you become more comfortable, you can garner the support of influential officials, reach out to larger companies, and connect with celebrities to expand your reach. It really does work -- through reaching out to the PTA and being involved in her local chamber, Dana Rankin, owner of Exhale to Excel Jewelry in Kansas City, Mo., found more than 20 new customers.

2. Make yourself visible.

Go on the lecture circuit. Offer to speak on your areas of expertise in university settings and public venues. Take advantage of television and media opportunities that let you be a spokesperson for your industry when a related news event strikes. Public relations consultant Sam Yates, head of Yates and Associates in Jensen Beach, Fla., volunteered with the American Red Cross and soon became the local chapter's TV and radio spokesperson. When Yates appeared on behalf of the Red Cross for a TV interview, a shopping mall manager contacted him and later offered him a contract to handle general publicity and crisis PR efforts. Eventually, more than 20 other malls did the same.

3. Be generous.

Donate your goods or services. Owner Guy Somers of Somers Guitar in Atlantic, Iowa, for example, offered to play short gigs at local churches, holiday concerts, and school career days and wound up quadrupling his clientele. But when he switched to regular advertising, his client base dropped. Similarly, Loveland, Colo.-based M & E Painting commits to painting six houses every year for underprivileged families, asking the community to nominate those most deserving in the region. The company subsequently landed on a variety of preferred business lists and has gained significant media attention.

4. Launch a publicity event.

By yourself, or partner with others to benefit your city or town. In Somerville, Mass., the Gentle Giant Moving Company participates in an annual open-house fair with other trucking businesses. In an atmosphere with food and decorations, each company opens up a truck for kids and adults to walk inside. This helps the trucking company put a face to its organization. And in Rancho Mirage, Calif., smoothie and juice company Juice It Up! visits schools on a regular basis to offer healthful snacks and sell its beverages -- donating a dollar to the school district for each sale. The events are so popular, say owners Brent and Lori Poist, that the company sells out of tickets ahead of time.

5. Offer local discounts or donate small prizes at events.

This strategy can really get the buzz going. Helen Johnson, the owner of Tiny Toes Dance Academy, a children's dance studio in Washington, D.C., provides door prizes (usually worth less than $50 each) for community events. The prizes must be redeemed at the studio, which gets people walking through her doors. The investment has translated into new customers who might never have known about the company.

These suggestions are a great beginning, but every company has different products and services to offer, and every community has different needs. You'll do the most good -- and get the best results -- as you become more involved and find the best fit between what you can offer and what resonates most strongly with customers and residents. 

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9 Ways to Win Back an Unhappy Customer

Some business problems are harder to fix than others. But very few problems can be as frustrating and difficult to address as an unhappy customer.

That's because there's no single way to "fix" a broken customer relationship. Every situation -- and every customer -- is different. Success depends on your ability to listen, adapt, evolve, and rise to the challenge.

Yet there are important techniques that every small business can use to win back unhappy or dissatisfied customers. Put these methods to work, and you'll have the tools you need to turn even the most ardent critic into a loyal -- and vocal -- repeat customer. In today's business climate, this could make the difference between success and failure for any small business.

1. Find Out What's Wrong

This seems obvious, but many business owners and their employees neglect to ask one vitally important question: "What happened?"

It's not necessary to open with an apology, mostly because you won't know what you're sorry for, and those mea culpas often come across as insincere anyway. Instead, open a dialogue with the customer, listen to what they're saying, and get the information you need to offer a solution.

2. Get to the Bottom of the Problem

Once you discover why your customer is unhappy, it's time to assess who, or what, is to blame for the problem. If a miscommunication occurred, for example, you'll want to acknowledge that you or one of your employees could have done a better job of articulating a specific policy.

You may know -- or think you know -- exactly what went wrong. Yet it's also important to ask the customer how they see the problem. They'll give you a different point of view, and in the process they might show you how to come up with a better solution. You'll also open a dialogue with the customer that shows how much you value and appreciate their input.

3. Calibrate Your Language (and Your Tone)

If you want to convince someone to give you a second chance, use language that not only persuades but also enhances your trustworthiness and real concern.

Most people, especially disgruntled ones, can spot insincerity a mile away. That's why it's important to make sure that the sincerity in your voice and body language matches the sincerity of your words.

This isn't always easy to do, especially if you're in a situation where emotions are running high. Just remember that staying calm and being patient doesn't only calm the customer, it also calms you and helps you focus on finding a productive solution.

4. Offer a Specific Plan of Action

Once you've made it clear that you understand what went wrong and why the customer is unhappy, offer a specific strategy to make things right. Vague assurances are exactly that: vague. You're far more likely to win over an upset customer if you present them with a specific solution to the problem.

5. Offer an Incentive

Once you've offered a solution to the problem, sweeten the deal with a price break or some other special incentive. The "incentive" doesn't even have to involve your own products or services; a gift certificate to a local restaurant, for example, is another option to consider.

The idea here isn't just to win back the customer's business. You're also fighting to win back their affection, loyalty, and trust, and a genuinely kind gesture can soften even the most hardened customer.

6. Empower Your Team

If you want to solve customer service issues, you've got to give your employees the power to fix problems and make things right. That's especially true when it comes to dealing with unhappy customers.

If you're the only one who can make the big decision to, say, give a customer some kind of break, you're sabotaging your own customer service efforts. Your employees are often the first people to deal with an unhappy customer, and if they can't address the issue on the spot using their own best judgment, your business might not get another chance.

7. Launch a "Win Back Customers" Campaign

Assemble your fabulous sales team and create a campaign just for previous customers, particularly ones who left disgruntled or otherwise unhappy. Conduct the campaign via social media and in print to make sure you reach everyone. Tell customers you miss them and want to do something -- whatever it takes -- to get them back.

The deals you present could involve price breaks, special incentives, product guarantees, or offers tailored specifically to address ex-customers' concerns. Whatever you do, make sure you also offer incentives to your sales team, since they'll be doing the heavy lifting on this effort.

8. Work Through the Customer's Anger

At first, an unhappy customer who hears, "What would you like us to do?" or "How can we make the situation right?" might not actually pay attention. They may be so accustomed to being ignored that they won't notice that you're working hard to engage him and find a solution.

But be persistent. If a customer requests something that is truly beyond your abilities, gently negotiate toward a middle point. Most customers will appreciate the effort, even if it takes them a few minutes to get over their initial anger.

9. Seal the Deal

Once you win back that unhappy customer, do your best to keep them. Start out at once by expressing your appreciation, and never stop. Remind yourself from time to time why your customer became disgruntled in the first place. The last thing you want is to have to woo back an unhappy customer a second time!

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Top 10 Bookkeeping Mistakes Made by Small Businesses

Statistics from the U.S. Small Business Administration reveal that about half of all new small businesses launched in the U.S. will fail within the first five years. What is the chief cause of small business failure? Poor financial management.

Sound financial management starts with an understanding of some basic rules of business bookkeeping, so here are 10 of the most common accounting and bookkeeping errors made by small businesses -- and how you can avoid making them.

1. Using the Wrong Accounting Method

There are two main business accounting methods: cash and accrual. Cash accounting is the simpler method because it's based on the actual flow of cash in and out of a business. The cash method is used primarily by sole proprietors and businesses with no inventory. On the flip side, accrual accounting records income and expenses as they occur, whether cash has actually changed hands or not.

As they grow and become more complex, most small businesses should switch to accrual accounting, because this makes it easier to accurately match revenue to expenses. Otherwise, the business might look profitable during months with few expenses and unprofitable during months with large expenses, with no way of really knowing the difference.

2. Combining Personal and Business Finances

It's critical that personal and business finances be kept separate at all times, regardless of a company's size. That's why one of the first things new business owners should do is open a business checking account and deposit all business income into this account.

The next step is to work with an accountant to devise an earnings management strategy dictating how cash is removed from the business to meet personal expenses and savings goals. Your earnings management strategy will be driven by such factors as how much of your profits need to be reinvested back into the company, the timing of payments for large business expenses, your cyclical or seasonal cash flow needs, and your long-term personal financial strategy.

3. Misclassifying Workers

In the eyes of the IRS, there are several different categories of workers: full-time, part-time, and temporary employees, as well as independent contractors, such as freelancers and consultants. Classifying your workers in the wrong categories can be extremely costly.

The employee categories are often used to determine who is eligible for employee benefits. Full-time employees are generally eligible for all benefits offered by an employer, while part-time employees may be eligible for a pro rata share of benefits. Temps and independent contractors generally receive no benefits, and independent contractors are not covered by minimum wage, overtime, payroll tax, workers' compensation, or unemployment compensation laws.

4. Not Performing Basic Account Reconciliation

Reconciling your business's books with your business bank statement every month is one of your most fundamental accounting duties.

Account reconciliation is relatively simple: Just compare your books with your bank statement and make sure there are no discrepancies. If there are, contact your bank right away to get them resolved. Doing this on a monthly basis helps ensure that accounting errors are caught and corrected quickly before they result in major financial problems.

5. Being Too Nonchalant About Petty Cash

Many businesses keep an informal stash of "petty cash" that can be used by employees to cover small and incidental business expenses, such as postage stamps, snacks from vending machines, and office supplies. But just because the amounts are small doesn't mean that petty cash shouldn't be accounted for properly.

A simple accounting system for petty cash logs the amount of money initially put into the stash and requires workers to submit a petty cash slip each time they remove money. The slips should total the original amount of money put in when the petty cash stash is exhausted, and then a new stash can be started with a new petty cash deposit.

6. Not Knowing the Difference Between Profits and Cash Flow

A business can have positive cash flow in the short term but still be unprofitable; conversely, it can have negative short-term cash flow but still be profitable in the long term. The first scenario is common among small businesses because they often have to pay suppliers before they get paid by their customers. The second scenario is common among point-of-sale and cash-based businesses, such as retailers and restaurants, that pay their vendors on terms.

To have an accurate picture of your company's true financial condition at all times, work with an accountant to produce regular financial statements. These consist of a balance sheet, income statement, and profit and loss statement, which should be produced at least quarterly.

7. Using the DIY Method of Bookkeeping

Many small business owners pride themselves on their ability to wear a many different business hats, including the accounting and bookkeeping hat. However, this is one area where small business owners are usually much better off hiring a specialist rather than trying to do it themselves.

Accounting and bookkeeping can get very technical and complex. The money spent to hire a trained bookkeeper or accountant, even on a part-time or contract basis, will usually come back to the owner many times over given the time savings and all the mistakes that will be avoided.

8. Not Saving Receipts for Small Purchases

The IRS requires that expenses for business travel, meals, and entertainment that are greater than or equal to $75 be substantiated with a receipt in order to be deductible. So many business owners don't bother saving receipts for expenses less than $75.

Doing this can be a big mistake. While such receipts may not technically be required by the IRS, they are extremely helpful as backup documentation. When it's time to sit down with your accountant and start working on your annual tax return, having a receipt for every deductible business expense, no matter how small, will help ensure that you don't overlook any potential deductions.

9. Not Implementing Adequate Internal Controls

If proper checks and balances aren't implemented in a business's accounting system, bookkeepers may have opportunities to commit fraud and embezzlement. Losses from internal fraud can significantly cripple a small business, or even lead to bankruptcy.

The best way to guard against embezzlement by a bookkeeper is to implement solid internal financial controls. This includes segregating financial duties so that no one employee has unfettered control of every aspect of the business's finances. If it isn't practical for you to hire more than one bookkeeper, you should personally oversee the bookkeeping work and keep tabs on it yourself.

10. Relying Too Heavily on a Paperless Work Environment

To reduce expenses and be better stewards of the environment, many companies today are trying to go paperless. In the realm of bookkeeping and accounting, however, there's simply no substitute for paper documentation and a paper trail, when needed.

There are many instances in which paper documentation of financial records will come in handy or be required. An IRS audit is one example -- you don't want to be unable to produce requested financial documentation because it was lost in your computer system, or your system is temporarily down. While being environmentally conscious is important, bookkeeping isn't an area where you should skimp on the paper.

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Learn How to Delegate Better

It's the end of the month and your business is crying out for attention. You have invoices to send, sales calls to make, a blog to update, and you haven't had time to chase down a lower-cost supplier for one of your products. How can one person possibly do it all? The short answer is that you can't. Not well, anyway.

Owning a small business has always been hard work, which you don't mind. You started your company because you have strengths in multiple areas, and you don't mind rolling up your sleeves and getting dirty. But even if you're an extraordinary accountant, that doesn't mean you know beans about marketing. And just because you can sell anything to anybody doesn't mean you know your way around a web page template. To compete, you'll probably need outside help.

Assess your strengths.

Freelancers are available in lots of different areas, from software development and blog writing to public relations and tax planning. The type of assistance you need depends on your abilities, your weaknesses and areas you want to strengthen in your business. Freelancers let you focus on what you do best, whether it's selling widgets or writing grants.

Determine Your Needs.

What's holding your business back? What are the areas desperate for attention? Is it marketing, accounting or computer glitches? If you have a mentor, ask him to help you either grow in those areas or identify the best places to find freelancers. If you don't have a seasoned businessperson helping you, find one. One resource is SCORE , a nonprofit organization that provides counseling for small businesses.

Take time to clearly define the project's scope and schedule before you look for someone to tackle it.

Begin the Search.

Where do you find good help? Huge online outsourcing companies such as , and have tens of thousands of freelancers. But navigating your way through what can be complicated systems doesn't make your life easier; it gives you more work to do. For example, some sites require you to set up an escrow account and pay through the site instead of paying the freelancer directly. There can be bidding wars and large numbers of resumes to wade through.

Look for niche companies that screen candidates and require them to invest some time and money into the process. The niche sites have fewer members, so you'll have fewer resumes to review and fewer bidding wars for the freelancers. Would you rather review resumes from 15 applicants who are all possibilities or 200 applicants who may net you the same 15 possibilities?

Finding the right niche website depends on your needs. Start by searching for the type of work you need, plus the word "freelancer." For example, if you are looking for a graphics person, search for "graphic design freelancer."

The biggest mistake employers make is hiring based on price alone. The cheapest gun for hire may have no experience in your field, which isn't a bargain if the work isn't up to par. Review portfolios and samples thoroughly prior to offering anyone a contract. Ask for references and ask questions. Have a phone interview to discuss rates and schedules and to invite the prospect's input.

Move Forward.

A good relationship begins with mutual respect. If you want projects with a 24-hour turnaround or decide to expand the scope of the project before it's completed, communicate your expectations clearly and be prepared to pay extra. To protect both of you, especially if your freelancer works remotely, review her work in stages to avoid unpleasant surprises. Once you find the right fit, you'll have more time for what you do best.

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