How You Can Benefit from a Cafeteria Benefit Plan

  Cafeteria Plans are benefit plans that fall under the Internal Revenue Code in Section 125. The plan is set up by employers to help employees have benefits on a pretax basis. Employees can have qualified benefits that allow them to make choices about where their money goes for insurance and medical insurance purposes. These pretax benefits can help employees and employers save money.

   Qualified benefits do not defer or delay compensation for work. These benefits can include health savings accounts, group term insurance, dependent care assistance, adoption assistance, and accident and health benefits. They do not include long-term care assistance or Archer medical savings accounts.

   All plans must be written and specific. They must include eligibility rules and include both taxable and nontaxable benefits. If a plan has only taxable benefits, it is not in compliance with Section 125 of the IRS Code and will be treated accordingly. By offering both taxable and nontaxable benefits, the employer meets the criteria for establishing a Section 125 plan. The plans will cover employees and their families and may cover retirees and their spouses.

   Why is the plan beneficial to employees? When employees deduct part of their income to purchase insurance plans, that amount is deducted from their gross wage before taxes are applied. Let’s use a simple example:

After Tax

Employee gross wage is $1,000

Taxes                                     250

After tax income                   750

Insurance                              100

Spendable income             $650

Pre Tax

Employee gross wage is $1,000

Insurance                              100

Taxable income                    900

Taxes                                     225

Spendable income              $670

   Here you can see the employee gains $25 in take-home pay using a cafeteria plan. The employer can save money as well. Using the same figures above, the employer pays 7.65% in FICA taxes, 15% in Federal taxes, and 2.5% in State taxes. Using the cafeteria plan, the employer would save $7.65 on this employee per pay check. Multiplying tax savings by every employee can add up to significant savings for employers. The more employees an organization has, the greater the savings. With these plans, small business owners can save on each employee.

   There are businesses that will set up and administer your S125 plan for fees. There are other options, however. Some companies will set up the plan and help you for fee. Another feature to look for is whether a plan is friendly or unfriendly. Some plans that are set in place have no provisions for other products or companies, thereby reducing the choices available to employers and employees. Look for a plan that is friendly and will help you have the greatest choices that will benefit you and your employees.

   Why does this matter? Let’s say you set up a plan with a company that is not friendly. You initially get your major medical insurance with a company, but after a year, you determine you can get better coverage or rates from another insurance company. Your plan does not allow you to change your medical insurance. For example, if you set up a cafeteria plan under Aflac, you have the options to make changes in your major medical provider and other benefits. Aflac is known as a “friendly” system for that reason.

   For more information, you can visit the IRS website at www.irs.gov for the rule and regulations regarding Section 125 Cafeteria Plans. The information for this article came directly from that site. If you want more information, you can also contact your accountant, a CPA, your financial planner, or even an Aflac agent.

Have a terrific day!

Patricia

How to Handle Your Debt

   If you own a small business, you might have business debt. It could be a large amount, a small amount, but in any amount it prevents you from investing your income into instruments that make you money. How do you tackle this debt, how do you classify it, and what steps can you take to eliminate it?

   Just as with your personal financial life, you need to stock of your situation and treat your business debt. In Total Money Makeover, Dave Ramsey advises you put business debt into a “debt snowball” to be paid down as quickly as possible Ramsey tells people that beginning with the smallest debt, pay it off right away and it gives you a sense of real accomplishment. You apply the same principle to your small business debt. Perhaps you have a credit card balance or equipment loan to pay. Pay it off now. Then you can use the money you paid on that loan to apply to the next largest loan. By using this method you will eliminate your accumulated debt.

   Ramsey says by starting small, paying off the smallest debt first, you not only feel good about the progress you are making, you provide additional funds to pay off the next highest debt, your interest payments will reduce as the principle is paid down, your financial stability strengthens and you will see there is a way out of the mess you created. As you pay off small and medium debts, the larger debts become more manageable and you know with certainty that you can get out of debt and begin to save money.

   The goal of this method is to establish an emergency fund, a savings account, pay off all your debt, and begin investing in your future by putting money into financial instruments that work for you, instead of you having to work to pay off debt. Here is what Ramsey says in his book, Total Money Makeover, “With gazelle intensity, great focus, extreme sacrifice, selling things, and working extra, we clear all debt. Again, if you are fired up, normally this will happen within eighteen to twenty months. Many people find a way to shorten the time with sheer intensity, and God tends to pour blessings going in a direction He wants them to go.” Finding your way out of debt will help you find a way to have a life again.

   The mounting debt we accumulate in our personal lives and business lives takes years creates stress that shortens our lives. Running a business is not the same thing as running your household, but there are some common practices in both arenas. When you spend far more money than you can make, your income goes out to pay off debt, leaving you angry and frustrated that you can’t really “live” because of your debt. You chose immediate gratification over financial wellbeing. That might sound harsh, but it is the truth.

   You might run a business where constant debt turnover is a fact of life. You can still apply the principles to your overall strategy. Remember this, as you free up your income from paying off debt to investing, you will have more money. You can pay cash for your business needs. It is not impossible and there are companies who operate in this way. The more cash you have, the better your position, the less chance you have to pay more for what you need because you have to finance your purchases.

   With an emergency fund in place, savings in place, and debt reduction an ongoing function of your financial life, you can begin to plan how to increase your business, or change the way you do things in your business. Your options will increase as your debt decreases. Even if you are a solo practitioner who is a consultant, you will find stress levels decreasing if you have provisions for times when business is slow. If nothing else has transpired the past four years, our awareness of our lack of security has risen. We now know that no one is guaranteed a job, or customers, or our income remaining stable. The best thing we can do as individuals and business owners is to prepare for the difficult times even while we enjoy our lives every day.

Have a terrific day,

Patricia

Money Makeovers for Your Small Business

   Last week we took a short romp through Dave Ramsey’s Total Money Makeover for your personal finances. (If you haven’t gotten it yet, shame on you! I told you it would save you your financial life…now get busy!) This week, we will take a peek at using some of those same ideas in your small business. It doesn’t matter if you are a one woman show, an LLC, have three employees, or 95, these principles will apply to your situation. You cannot afford to ignore what has happened in our economy.

   A brief reflection on the past four years of economic wasteland is in order. We got into this mess for several reasons. But underlying all the rhetoric about Wall Street, mortgages, big business and unemployment, is one truth: we spend money we don’t have, so we have to borrow more money, and then we can’t pay it back.

   The real estate business declined, is declining, and will continue to decline, because for many years people with no real income, or no ability to pay a mortgage, got loans. Liar loans, tweaking numbers, ignoring all good sense in lending, and whatever else went on, the industry forgot that loaning money requires an ability to pay back the loan. Those loans were then bundled into securities packages and sold as investment instruments to people who should have known better than to buy poor securities. Ah, well, hindsight.

   Businesses can’t spend money they don’t have, either. It is particularly painful for small businesses now because lenders clutch their assets tightly to their chests. Loans are hard to get, making expansion difficult. Business owners feel the squeeze. There are some things you can do to increase your financial stability.

   First, you need to work on a realistic budget for your business. You must take the time to devise a budget that is based on actual numbers and projections. John Maxwell says, “A budget is people telling their money where to go instead of wondering where it went.” Your budget has to include all expenses, not just the major ones such as rent, utilities and insurance. You have to have cash flow, emergency funds, equipment repair and replacement, labor costs, and so on. Write down every thing you spend money on during the year…including the coffee, cream and toilet paper! Denying what you spend will not save your bacon. It will burn it.

   After your budget is finished, establish your savings account if you don’t have one. Make sure you pay yourself in the savings account first. If you do not follow this simple rule of money management, you will continue to sink. You need a personal and business savings account. Emergencies arise, things go wrong, life happens, as they say. You need money to take care of the problems. Don’t be foolish about this. This is the foundation of your new financial life. If you need to hire a professional to help you get your business financial house in order, do so. You don’t want to lose your business or continue to suffer needlessly.

   If you aren’t setting goals and making plans for your business and how your business financial needs are handled, you’re setting yourself up for failure. The only way to get out of this task is to die.

   In our personal financial lives we need to live on cash, and as much as possible, so do our businesses. Business owners can get themselves in real financial trouble borrowing far more than they can reasonably repay if there is a downturn in the economy. Ramsey makes the point in his book that when you pay with cash, you spend less money. The same holds true in your business. Paying cash saves you hundreds, thousands, or millions of dollars, depending upon your business and its size, and that is real money you can keep in your account, where you need it.

   Believe it or not, making a budget and paying cash are part of your cost containment strategies. You need to know how much money is going out, where it’s going, when it’s going, and how it’s going. You need to track every cent you spend and make sure you aren’t paying more than you need to because you don’t pay cash. Using credit unwisely leads to losing everything. When your budget is finished, your savings set up, your expenses paid for in cash, you can understand clearly just how much money you need to bring into the business to pay bills and have a profit.

   If you have lines of credit, or credit card balances, for your business, work on paying off all balances as quickly as possible. Start small, paying off the smallest amount first. As you eliminate each debt, your sense of freedom and accomplishment will grow. And the best part is that your business will gain stability and solvency. That’s a great business practice!

Have a terrific day.

Patricia

Get a Grip on Your Finances Part Two

   In the dedication page of his book “Total Money Makeover” Dave Ramsey praises all the people who have had the courage to change their financial habits to transform their lives. They did this because they “lived like no one else so later they could live like no one else.” This is the secret, if you will, to get financially fit. You must change your habits and live like no one else. That means you will stop living like your family, neighbors, coworkers, and most people you meet. You will have to resist the siren song to spend, spend, spend and the seduction of material goods. You will have to find out who you are and know your self worth somewhere besides your finances.

   Ramsey begins his book declaring that it is not a complicated scheme, a guide to investing, a get rich quick idea, a new idea, written by someone with no academic credentials, politically correction, wrong, or the same as his other books. He also modestly points out that the book is not getting complaints or criticisms from the people who have read the book, followed its principles and chosen to live their lives differently. After all those caveats, he gets to the actual steps involved in how to get a grip on your finances.

   The chapters in the book are as follows:

1. The Total Money Makeover Challenge
2. Denial (I’m Not That Out of Shape)
3. Debt Myths: Debt is (Not) a Tool
4. Money Myths: The (Non) Secrets of the Rich
5. Two More Hurdles: Ignorance and Keeping Up with the Joneses
6. Save $1,000 Fast: Walk Before You Run
7. The Debt Snowball: Lose Weight Fast, Really
8. Finish the Emergency Fund: Kick Murphy Out
9. Maximize Retirement Investing: Be Financially Healthy For Life
10. College Funding: Make Sure the Kids are Fit Too
11. Pay Off the Home Mortgage: Be Ultrafit
12. Build Wealth Like Crazy: Arnold Schwarzedollar, Mr. Universe of Money
13. Live Like No One Else

   The reason I listed the chapter titles is to give you a peek at the topics Ramsey covers in his book. Rather than giving you dry statistics about money, debt, stress, divorce, and all the other ills associated with money madness, he writes clearly and simply about how to get out of the slavery of debt and financial stupidity. He doesn’t lecture about the results; he includes testimonials of real people who have used the system to change their lives forever. The people giving the testimonials are ordinary people who got in over their heads in ordinary ways. These aren’t compulsive gamblers, people with mental problems that caused them to throw money away, or some other pathology. Most people in this country got into trouble one poor decision at a time.

   There is reason to have hope if your life is in turmoil over finances. The first thing you have to do is stop saying you don’t have a problem. I would say to you that if you have consumer debt other than a mortgage, you might have a real problem on your hands. Unless you’ve been living under a rock the past four years, it should be abundantly obvious to you what happens to people who are in over their hands with their money. If you lack financial stability and disaster strikes in your work life, such as losing a job or losing hours, your life quickly becomes a nightmare. But you don’t have to spend your life in darkness. There is a way out of the mess, it is a proven method, it works for everyone, and the underlying concept for it is simple.

   Ramsey’s method does not involve consolidating debt (something that usually brings the debtor into more trouble) or declaring bankruptcy. What is involved is a total commitment to follow the system, get out of debt, and stay out of debt. People who pay out all their income to cover debt are not putting aside money for investments in their future, their children’s future, or the ability to help anyone else. People living from paycheck to paycheck, whether they are very poor or very rich, suffer the same problem: they are not living, they are enslaved to the debts they owe.

   If you are in bondage to your mortgage, car payment, credit cards, loans and your life is miserable, take heart. You can stop the madness. You can control your financial life. Begin by taking small steps. Freedom is in your future. Get a system, stick to it, and free yourself to actually live and enjoy your life instead of constantly stressing and suffering. Get Dave’s book and read it. Make the decision to change your life, make the commitment to stick to a plan and a budget, and find a new way to live.

Good luck and have a terrific day!

Patricia

Getting a Grip on Your Financial Life

   Whether you own a business, run a business for someone, or couldn’t care less about business, this topic is for you. Dire prediction first: if you don’t get a grip on your financial life, it will get a grip on your behind. And it will never let go and let you live in peace.

   People have flung around pejorative statements about economics for ages. One thing is certain, however, that money makes the world go around. That is also true in your personal finances. In order to have peace of mind, the ability to think and problem solve creatively, and see your dreams come true, you must be in control of how your income is derived and how you spend that income.

   One of the financial gurus for financial fitness today is Dave Ramsey. Ramsey, through personal financial disaster, has developed a system for helping people learn to manage their money, and consequently their lives. Financial problems cause more disease and ailments than I care to mention here, as well as marital stress and breakups, family problems ranging from lack of basic subsistence to lack of educational choices, and ultimately will destroy your emotional and spiritual wellbeing. Money is not the problem. Go look in the mirror to see the real problem. But Ramsey has a way to help you get out of the mess and get a new life.

   Ramsey has written several books, articles, a total program called Financial Peace University, and has a radio broadcast, in addition to appearing on numerous television programs. His golden rules are straightforward, no-nonsense, easy to follow. The best part is that he offers real, demonstrable hope to all who have financial difficulties. You can overcome your problems, start over, and live a life of wellbeing.

   Ramsey destroys commonly held myths about money. First among these: you can live without credit. (I can hear the gasps now!) Outside of buying a house, you don’t need to buy a single thing on credit, says Dave. He points to the problem of buying into the belief system that we are somehow “entitled” to live like kings when we have a serf’s income. He points out that overspending and mounting debt will kill you. He encourages you to relinquish the idea that you need to get cash advances, use your credit cards for daily living, buy things you don’t need on a rent-to-own basis, and why debt consolidation is a trap.

   While you’re howling at this, find a copy of his book, The Total Money Makeover, and read it cover to cover. That will make a believer out of you. The book is filled with practical steps and advice for getting out of debt and succeeding at money management. It has very moving testimonials from real people who put the system to the test and transformed their lives. Imagine being thousands of dollars in debt, and in a short period of time, being debt-free with healthy savings, investments and sound strategies for living the rest of your life. Are you intrigued yet?

   Ramsey claims the only real way to get out of your troubles is to understand first of all that you have to renew your mind. By that he means using biblical principles for dealing with money (there are over 800 scriptures dealing with money,) and giving up the foolishness that passes for conventional wisdom in our culture. You simply cannot continue living beyond your income and think your life will have meaning. Every single thing you spend money on has no lasting value, can be destroyed in the blink of an eye, and costs way more than it’s price tag if your finances are in the red. Ramsey demonstrates over and over that listening to the voices of greed, lust, envy and covetousness leads us to think we have to outdo everybody in our family, neighborhood, whatever criteria you choose to use. You know, doing the same thing over and over and expecting different results is insanity. So spending more and more money hoping to somehow purchase happiness will not work. How has it worked out for you so far? If you are up to your eyes in debt, you know how unhappy you really are. So, are you ready for a change of pace? Let’s get it on, then.

   Next time I’ll share some of the principles in Dave’s book. If you can borrow a copy, do so. At some point you might need to buy the book. Even better, find a Financial Peace University class somewhere near you. The classes run for about 12 weeks and will transform your life. In the meantime, check out Dave’s website at www.daveramsey.com. Thousands of people and major national corporations can’t be wrong if they are touting Dave’s work. You can apply his ideas to your personal and business finances. That’s what we’ll look at next.

Have a terrific day!

Patricia

Blogging and Beyond in Using Social Media

   Blogging is an easy way to begin communicating with your potential customers. Bloggers are people who have a message to share, whether it is family news or a sale in your store. Blogging has become a powerful way to connect with people. You might seek customers for your retail store in your city; you might look for customers for your consulting or business to business sales; you might need customers nationwide for your online store or your services. Whatever it is you want to sale, you can boost customer exposure by blogging. But don’t think that is the only place to share your thoughts. You will also want to use sites such as Facebook or MySpace, YouTube and others.

   Five years ago you would have been absolutely shocked if I told you the future of your business was in a social media site started for acquiring “friends” and acquaintances! Now the idea doesn’t seem silly or strange at all. Businesses have a huge presence on Facebook in particular. Facebook has over 500 million members. Talk about an audience for your message! Not only can you share as much as you want whenever you want, your message can be seen by millions of people in a few hours. If you go beyond a page on Facebook, you can also advertise, adding to your company’s exposure exponentially. Your messages can be different lengths and geared to different audiences throughout the day. But don’t stop at Facebook. Start investigating Twitter.

   The world has gone tweet crazy. Tweets are short bursts of thought or messages sent out whenever you want. You can gain followers on Tweet (be sure your website, Facebook page, and everything else you use sends people to Twitter to follow you.) These little bursts of something, or not much of anything, connect people instantly, especially by cell phone. If you think this sounds crazy, you should understand that entire businesses are devoted to consulting with you about your presence in the world of social communication. If the largest companies in the world make use of these technologies, so should you.

   The reason these methods of communicating are so important is because they are instantaneous. People feel more connected to you when something is going on right now, or today. That immediacy has a powerful pull on the psyche. Sure, people can read older posts or your archives, but the seduction comes from being in the middle of something while it is happening. This feeds our curiosity about what people are doing. You tell people what you’re doing and they develop an interest in following you. This following business is what keeps driving the world wide web and all these blogs, tweets, and websites. You do not want to bypass the most powerful took in business owner’s hands that has ever developed. This makes word-of-mouth advertising look static by comparison.

   If you still feel some doubt or fear, I invite you to take a few minutes and explore online what your competitors are doing. Check out web sites, Facebook and My Space pages, Twitter followers, and blogs. Do a search for bloggers who are talking about businesses like yours. Consider it a very instructive opportunity to bring you much needed information. That information is priceless; but your investigations won’t cost you a cent. Now that’s a good deal for anybody’s business!

Have a terrific day!

Patricia

Why blog for your small business? More social media tips

Why blog for your small business? More social media tips

   Why should you blog? You write because blogging is power. When you write a blog, you will control the message you send out in a way that is impossible if filtered through another party. This is not to say you should give up advertising, telephone page listings, email and newsletter communications. But blogs are immediate, they can be more timely than any other form of communication, they are inexpensive (you do have to use a computer, after all) and you can add or subject anything you want to your blog.

   When you gain control over your message you put yourself at the head of the pack. Business owners who rely upon traditional forms of communication are denying the way culture has changed inexorably since the advent of social media. Does that sound extreme? Let me give you some examples.

   Here are some facts you might not know.

•In 2010 over 57% of Internet users visited a social media site at least once a month

•By 2014, it is estimate that over 165 millions people will use social network sites regularly

•By 2014, over 56% of 55-64-year-olds will use social network sites regularly; over 37% of people over 65 will use social networks

•Over 55 million people in the U.S. visit social network sites monthly

•Twitter users are slightly older than users of other social network sites

•The bad boy of social networks is Facebook with over 500 million users:

            Many are over 35

            Average user has at least 130 friends

            These folks spend over 700 billion (yep, BILLION) minutes each month on Facebook

•More than 240,000 small businesses use social media

   By now you can begin to understand the issue. If you choose not to use social media, your business will be left behind. All kinds of businesses have employees who are blogging in order to share information and drive customers to the business. You might be surprised to learn that includes some of the big boys…such as GM. GM? Right. Having employees blog about announcements, speeches, company details, sales information, what have you, bypasses the public relations department in a way that somehow seems, well, friendlier. People like that informal, person to person touch that is available by using social media.

    You are ready this blog to gain information. I am using this blog to help small business owners. It is not the only way I can provide help to business owners, but it is one very effective way to reach and touch someone easily. If you have something you want your potential and current customers to know, something that you can use quickly and easily, start your own blog.

   If you don’t think you can write or the idea of trying to say something meaningful seems beyond your skills, there is still help and hope for you. Consultants who specialize in setting up and maintaining social media sites are proliferating everywhere. Just look up social media managers in your city and you’ll find a list. You can ask for referrals of other businesses and look at what the manager has done for other people in your area. Usually social media managers charge reasonable fees for their services. If you really can’t swing the fees, then you can find someone to teach you some basics. Most of the sites have user-friendly guides for setting up accounts. If you still feel this is beyond you find a young relative or a friend’s offspring to help. As long as you understand that you, or someone in your company, needs to maintain communication consistently, you will be fine.

   The same advice holds true for websites. If you have a website, do NOT let it be out of date. Lack of attention to details such as these will ruin your credibility. It might seem like a lot of extra work; but you will enjoy the fruits of your labors when your customer traffic improves, as does you bottom line.

Have a terrific day and happy blogging,

Patricia