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Review Your Healthcare Options – Now.

There are over 27 million self-employed entrepreneurs and micro-businesses in the United States. If your small business is anything like the other 27 million, you’re probably struggling with the constant upheaval in the health insurance market. Now is the time to review your small business health insurance.

What should you be looking for in small business healthcare coverage?

  • If you are insuring yourself or just your family, you’ll want to review your current health care needs.
  • Does anyone in your family need to see a doctor or specialist on a regular or frequent basis?
  • Do you currently have prescriptions for yourself or family members?
  • What about bigger ticket items such as planning for a baby or needing a surgery in the coming plan year?

Answers to these questions can help you determine how much insurance you’ll need and where the break-even point is between premium costs, the initial cost of the plan, and other plan costs such as copayments, amounts you pay towards a service, and coinsurance and deductibles, the portion you are responsible for before your insurance kicks in. All of these costs add up to your total costs for the plan. The more you know before you start, the better prepared you’ll be to make a solid financial choice.

Small business Health Options Programs (SHOP) and Health Care Exchanges – Are you insuring just yourself or do you have employees to cover as well? If you are just looking for insurance as a self-employed individual or family, the healthcare.gov website is a great starting place.  Created as part of the Affordable Care Act, the SHOP exchange allows you to review health plan offerings in your state, including prescription drug coverage, copayments for things like doctor visits, specialists and lab tests along with more major events like maternity care and surgery. If you have changes in your healthcare needs since last year, taking a look at these differences can significantly impact your bottom line each month.

Private Healthcare Exchanges – Unlike the public exchanges, private exchanges are just that, private. You can elect to join a private exchange and then select how much coverage you are willing to pay for your employees, also called Defined Contributions. Employers agree to a set dollar amount, say $750 a month and then employees can shop the exchange and select the plans and coverage levels that best suit their needs.  Employers can put restrictions on how the dollars are spent, for example, $500 must be spent on medical insurance and then the remaining funds can be spent on other coverages like dental, vision or voluntary insurances, or the employee may have the option to spend the dollars any way they see fit on the exchange.

Direct Insurance – Offering insurance to your employees? There are rules in the Affordable Care Act about the type of insurance plans that you can offer your employees.  The plans must offer a minimum essential coverage (MEC) for items such as preventative care, annual physicals, child well visits, mammography and other services. You can shop for these plans yourself, which means that you’ll also be responsible for all paperwork, open enrollments, claim issues, eligibility and billing, or enlist the help of an insurance broker. Additionally, some insurers don’t sell small group insurance on a direct basis, so your options may be even more limited without the help of a broker.  If your business belongs to a trade association, there may be additional insurance buying power available.

While health insurance may seem confusing and overwhelming, know that help is out there. Start by working your budget and understanding your basic health care needs. From that point, you can make decisions about the type, level and individuals you’ll be covering.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.

 

Profit versus Cash Flow

Every small business financial advisor has heard it before, “If my business is profitable why don’t I have any money?” The way cash flows in and out of your business is a lynchpin for understanding business finance.  There is also a huge difference between making money and managing it.  So often entrepreneurs start a business because they love creating a new widget, or offering a leading-edge service, but they have little to no business management experience. Terms like forecasting, budgeting and cash flow are meaningless until the monthly bills come due and payroll can’t be covered. Rather than waiting until there’s a problem, let’s make a pact to learn the basics for how profits and cash flow operate.

Lesson #1 Profit and Cash Flow are Different

Profit is revenue minus expenses. That means any monies left over after all the bills are paid is considered profit. Conversely, cash flow refers to the influx and outflow of cash in the business, i.e. where is the money going and why. If you go to the store to buy milk and you have no money, you have a cash flow problem. If you have money expected to you in two months, that makes buying milk nearly impossible now even though profitability is promised at a later date.

 

The other crux is that a business selling additional widgets (i.e. increasing sales) does not necessarily immediately increase cash flow, in fact, more often than not, the increased sales will immediately reduce it. Now you’re thinking, if sales help to generate revenue, why wouldn’t I want more sales?  Sales, especially where widgets are concerned will require an immediate additional cash outlay to manufacture, package, and distribute the item(s). All of these steps must occur well in advance of delivery and invoicing and another ten to 45 days or more can go by before the company is paid for the products. That timeframe between production of the widget and payment of the widget is where cash flow management lives.

Lesson #2 – Look at your options.

Precise cash flow management, much like a synchronized swimming routine, must occur in a timely, well-choreographed dance in order to keep the business operating, expenses covered and employees paid. Part of this monetary routine can include:

Collections – Where are your current account receivables? Are they current or in arrears and if so, how far? By placing your attention on existing receivables and making efforts to encourage payments, cash flow will be improved. For invoices that are more than 90 days past due, consider a collection agency or some other type of arrangement.

Delaying cash payments – Review how your orders are placed for materials with vendors. Can you set contracts for orders where a percentage is paid up front and the remaining balance paid in 15 or 30 days? This will improve cash flow as it will remain in-house longer.

Raising Additional Capital – If you cannot meet your financial obligations within the necessary time, it may be necessary to solicit additional cash through loans, issuing capital stock, employee ownership or some other type of arrangement.  Again, planning and attention to cash flow can help with strategic timing and more attractive interest rates and loan agreements. Covering debts in a crisis mode will inevitably mean less attractive interest payments and possibly selling more ownership than originally intended.

 

Lesson #3 – Too much competition can kill revenue.

That’s right, the one thing that makes capitalism work is competition, yet competition can be the very thing that can take a business under the quickest. How? When businesses are constantly bidding for business and trying to shave off profit margins in order to win the contract, those pennies, nickels and dollars can all add up to no actual profit at the end of the day. Yes, the business has lots of money moving through the business, but not much staying in the bank accounts. Try to be brutally honest with yourself and your bidding so that you know up-front if your business can afford to take a reduction in costs or even a loss in order to gain business.  Make sure that you are working from real numbers and in partnership with your finance team in order plan for losses on one contract and profits on another.

There are volumes of books and doctoral theses on the process of cash flow and cash management which can be consulted. If you don’t have that kind of time, it may be time to bring in some additional financial advisory assistance. Reach out to a PASBA Small Business Advisor and learn how they can help you make sense of your business.

PASBA member accountants bring the collective resources of a nationwide network of Certified Public Accountants, Public Accountants, Enrolled Agents and other practitioners available to answer your tax and financial questions and streamline your business accounting, bookkeeping, and payroll operations.

To find a trusted accountant in your area, visit www.SmallBizAccountants.com.

Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.