2 Retirement Plans for Small Businesses with Lean Budgets

Most business owners would like to offer their employees a 401(k) retirement savings plan with all the bells and whistles. But for small businesses with lean budgets and small staffs, offering such benefits may be out of the question. Fortunately, SEP IRAs and SIMPLE IRAs are less expensive and easier to administer. Might one of these tax-advantaged options work for your workforce?

SEP: Flexible and zero setup fees

Simplified Employee Pension (SEP) IRAs are individual retirement accounts you establish on behalf of each participant. (Self-employed individuals can also establish SEP IRAs.) Participants own their accounts, so they’re immediately 100% vested. If participants decide to leave your company, their account balances go with them. Most people roll their accounts over into a new employer’s qualified plan or traditional IRA account.

SEP IRAs don’t require annual employer contributions. That means you can choose to contribute only when cash flow allows. In addition, there are typically no setup fees for SEP IRAs. But participants generally must pay trading commissions and fund expense ratios (a fee typically set as a percentage of the fund’s average net assets).

In 2026, the SEP IRA annual contribution limit is 25% of a participant’s compensation, up to $72,000. That amount is higher than the standard 401(k) account contribution limit of $24,500 (in 2026). What’s more, employer contributions are tax-deductible. Meanwhile, participants won’t pay taxes on their SEP IRA funds until they’re withdrawn.

However, there are a few downsides to consider. Although participants own their accounts, only employers can make SEP IRA contributions. And if you contribute sparsely or sporadically, participants may see little value in the accounts. Also, unlike many other qualified plans, SEP IRAs don’t permit participants age 50 or over to make additional “catch-up” contributions.

SIMPLE: Easy and participant-friendly

Another possibility is to offer a Savings Incentive Match Plan for Employees (SIMPLE) IRA. As with a SEP IRA, your business creates a SIMPLE IRA for each participant, who’s immediately 100% vested in the account. Unlike SEP IRAs, SIMPLE IRAs allow participants to contribute to their accounts if they choose.

Other advantages of SIMPLE IRAs include:

• They’re relatively easy for employers to set up and administer.

• They don’t require your business to file IRS Form 5500, “Annual Return/Report of Employee Benefit Plan.”

• You don’t need to submit the plan to nondiscrimination testing.

• Participants pay no setup fees and enjoy tax-deferred growth on their account funds.

• Participants can contribute up to $17,000 annually in 2026.

• Participants age 50 or over can make catch-up contributions of up to $4,000 in 2026 ($5,250 for those ages 60 to 63).

Participants can contribute more to a SIMPLE IRA than to a self-owned traditional or Roth IRA. But SIMPLE IRA contribution limits are lower than limits for 401(k)s. Also, because contributions are made with pretax dollars, participants can’t deduct them. They also can’t take out plan loans. Then again, making pretax contributions does lower their taxable income. Perhaps most important is that employer contributions to SIMPLE IRAs are mandatory, regardless of your cash-flow situation. However, in general, you can deduct contributions as a business expense.

SIMPLE Roth IRAs are available, too. Ask your financial and employee benefits advisors whether this might be a better option for your business.

Lower-cost options

If you’ve thought you can’t afford to offer workers a retirement plan, think again. In addition to SEP and SIMPLE IRAs, there are now some lower-cost 401(k) options available as well. FMD can review your budget, tax situation and benefit needs and suggest how best to proceed. Contact us.

Strategic Alliances: Collaborate Now, Possibly Combine Later

Even if you aren’t currently preparing to sell your business, you might want to think strategically about your eventual buyer. Sophisticated buyers won’t only look at your financials, they’ll also evaluate how your company fits into their long-term business plan. One way to strengthen current profitability and future exit options is with a strategic alliance.

Current and long-term objectives

Strategic alliances are structured in several ways, including joint ventures, revenue-sharing arrangements and co-development agreements. In some relationships, the two companies simply agree to work together on a particular project. Others involve long-term agreements, with the end game being a merger. Alliances can have set expiration dates or be renewed at intervals after they pass performance reviews. Among the many reasons companies pursue alliances are to leverage core assets, expand sales capacities and reduce operating costs.

Your company doesn’t have to enter into a strategic alliance to make it easier to sell one day. It may, after all, be performing well on its own. Instead, look at a potential strategic alliance as a near-term growth and expense-cutting mechanism with long-term benefits.

If you agree to an alliance, focus on financial and operational objectives, including achieving economies of scale. For example, by combining orders for everything from raw materials to office supplies, both partners may qualify for supplier discounts and reduce overhead costs. What about jointly purchasing capital equipment or upgrading both companies’ IT networks? Or you may want to find a partner to improve transportation logistics by consolidating warehouses. Another idea: Sharing intellectual property, such as customized software.

Keys to success

Your strategic alliance may require time and effort to get up and running. But if you’ve thoroughly vetted your partner and have a well-structured agreement in place, you’re likely to realize benefits. If you don’t, and the relationship becomes a drain on resources, take immediate action.

Some problems can be fixed. For example, it’s easy for alliances to drift from their original purpose. A partnership forged mainly to upgrade an IT system could wind up focusing on improving employee productivity instead — with mixed results. In this case, the partners could refocus and reinforce their alliance objectives. But if problems seem intractable, it’s usually better to terminate the alliance.

Profitable arrangements

Not only can strategic alliances be mutually profitable, but they can help both partners envision a permanently combined company. Alliances often begin informally or as short-term agreements that eventually lead to mergers when the companies realize their synergistic potential.

A successful prior relationship can smooth the merger process. Before joining a strategic alliance, companies typically conduct due diligence on one another. Financial and other conditions can certainly change between the initiation of a strategic alliance and the beginning of merger negotiations. But a well-structured alliance allows partners to keep tabs on each other. If one of the companies experiences leadership challenges or has trouble getting financing, the other is likely to know about it. Such knowledge can speed up the merger transaction process and simplify integration.

Exercise in discipline

Regardless of whether your business eventually merges with a strategic partner, the discipline of building and managing your relationship can strengthen operations and expand your market reach. It can also enhance financial transparency and position your business more favorably to potential buyers. Contact FMD for help honing your financial objectives, vetting possible alliance partners and selling your business.

How to Ensure Your Business Really Owns Its Intellectual Property

Whether it’s a trademark, copyright, patent, trade secret or other piece of IP, its ultimate value to your business depends on you owning it. Without airtight agreements with employees and independent contractors, these workers may claim that the IP they research and develop belongs to them.

Some companies learn they don’t actually own IP assets only when they’ve engaged a business valuation professional in preparation for a sale, or when employees leave and take IP with them. To prevent unexpected ownership issues and costly disputes that could create risk and diminish your business’s value, take action now.

What the law says

Federal copyright law and the laws of most states mandate that employees and independent contractors who invent products, write materials and develop software may be the owners of the IP rights. In fact, in some states, employers may only have a limited license to inventions created by employees, even if they were invented “on the clock” or using company resources.

Fortunately, you can help prevent ownership disputes, including litigation. All states permit businesses to require workers to sign copyright, IP and invention assignment agreements, subject to applicable legal limitations.

Work with an attorney who specializes in IP to draft a standard agreement based on your state’s laws. It should require the employee or contractor to turn over or legally “assign” IP rights to your business. In addition, it should mandate that the employee or contractor assist your company’s legal counsel in securing and enforcing these rights. It’s also important to apply these agreements consistently and enforce them in practice, because inconsistent use can weaken your position in disputes and merger and acquisition due diligence.

Go a step further

When you hire workers (or when you require them to sign an agreement), make sure you ask them to identify all pre-existing inventions that are to be excluded from the agreement. For example, they may have patented inventions on their own or created trademarks for previous employers. Then request that they give up claims to any new inventions that are related to your business activities, even if the inventions are developed during their nonworking hours.

For example, let’s say your company develops 3D printing software. Your agreement should prohibit your code writers from creating related design tools at home and then selling them to your competitors. If, however, an employee working on her own time and with her own resources develops software that’s unrelated to your business, that IP likely belongs to her. Some states, such as California, prevent employers from claiming such IP or asking employees to sign away their rights to it.

Legal and financial advice

Ultimately, safeguarding IP isn’t a passive exercise but a deliberate business discipline that requires foresight, structure and legal precision. Although an attorney’s guidance is critical for this purpose, financial advisors also play an important role. FMD can help you address IP ownership issues before you sell your business or before workers leave your employment. We can also help identify financial and tax considerations of IP. Contact us for more information.

Starting a Business? 5 Things You Need to Know

So you’ve decided to start your own business — congratulations! Many new owners open a business to be their own boss and chart their own course. However, along with those benefits come some complications compared to being someone else’s employee. Planning and budgeting are critical, and you’ll have plenty of new tax compliance responsibilities.

1. It starts with funding

Starting a business takes money. To help you gain access to bank loans and attract equity investors, write a formal business plan that tells your backstory, describes your products and services, and highlights your market research. The plan should explain how you intend to use any capital you raise to grow the business and, of course, why your business will be successful.

Because your new business won’t have a financial track record, you’ll need to create a projected balance sheet, income statement and statement of cash flows using market-based assumptions. Lay out multiple scenarios — including best, worst and most likely results — and identify which variables are critical.

2. Accounting matters

When you set up your business, separate its finances from your personal finances. Commingled financial records can cause tax and financial reporting headaches as your business grows.

Next, understand that lenders and investors will want to know whether your business is meeting performance targets. Establish an accounting system to record transactions and generate financial statements that can easily communicate results to stakeholders. We can recommend cost-effective software solutions.

Initially, you may elect to use the cash-basis or income-tax-basis method of accounting to simplify matters. Indeed, it’s often easier for start-ups to maintain one set of books for both tax and accounting purposes. However, if you have an accounting background, you may opt for accrual-basis accounting from the get-go.

3. Tax planning is a must-do

Many start-up ventures aren’t initially profitable. But it’s essential to start planning for taxes from the beginning. One factor that will affect your company’s tax situation is its entity structure. Depending on your tax, legal and other needs, you might choose a sole proprietorship, partnership, limited liability company (LLC), S corporation or C corporation.

Know that C corporations pay tax at the entity level, then the individual owners pay tax when they receive dividends. This results in double taxation. To avoid this, you may want to consider a “pass-through” entity. Pass-through income generally isn’t taxed at the entity level. Instead, it passes through to the individual owners (along with the business’s deductible expenses) and is taxed on their individual returns. However, the top rates for individual taxpayers are higher than the flat 21% rate for C corporations — though the qualified business income deduction for pass-through entity owners can help make up for that.

Another major tax issue to understand is the appropriate tax treatment for your start-up expenses. The timing and amount of expenses are key to determining what’s immediately deductible and what costs must be capitalized and amortized over time.

New businesses need to plan for other taxes, too. You may need systems in place to file and pay property, sales and employment taxes. Look into initially outsourcing these administrative tasks to third-party specialists so you’ll have time to focus on daily business operations.

4. Estate planning now can save tax later

Another smart consideration if you’re starting a business is estate planning. New entrepreneurs often solicit help from friends and family members. In exchange, founders may make gifts of ownership interests while the business’s fair market value is relatively low, removing potential future appreciation from their estates.

A business valuation professional can help determine the fair market value of your new business based on objective market data and financial projections. Proactive estate planning at this phase can save significant tax dollars over the long run as the company’s value grows.

5. Employees may want equity

Most start-ups operate lean, with only a few employees — each wearing multiple hats. Early employees may agree to forgo high salaries for equity-based compensation, which can help your start-up avoid a cash crisis while still attracting top talent. What’s in it for staffers? Business equity can grow into a valuable financial asset. Plus, employees who own equity may feel more invested and, thus, enjoy greater fulfillment.

There are several types of equity-based compensation to consider, including outright transfers of ownership interests in the business, profits interest awards (partnerships, LLCs and S corporations) and restricted stock or stock options (C corporations). We can help you determine the best form of compensation.

Thoughtful execution

Launching a successful business requires more than vision alone. It also calls for thoughtful execution, informed decision-making and ongoing attention to financial and operational details. Approach start-up matters with strategic foresight by consulting legal, financial and tax advisors. FMD can help you get off the ground.

Considering Layoffs? Try these Alternatives First

It’s every business owner’s least-favorite task: laying off staff. But sometimes, layoffs are unavoidable. Labor costs are a significant line item on most companies’ income statements, and reducing your workforce can potentially help restore stability if your business hits choppy waters.

On the other hand, many costs are associated with staff reductions. These include severance payments, legal expenses, reduced productivity, reputational risk, and the future expense of hiring and training new workers when your company’s finances improve. In fact, you may first want to consider less risky alternatives that reduce or delay the need for layoffs.

Last-resort thinking

Think of layoffs as your company’s last resort. For example, is it possible to first trim some perks? Eliminating unnecessary travel, executive seminars, holiday parties and staff retreats may provide some budgetary breathing room. Provide managers with reasonable cost-cutting targets and completion dates. At that point, you can reassess your company’s situation.

Pruning employee benefits can also yield cost savings. Ask your HR staff to scrutinize benefit use and think about discontinuing the least popular offerings. Just be careful about removing benefit options. Your business may be subject to certain contract terms and other legal obligations, particularly when it comes to retirement and health care plans. Consult knowledgeable benefits experts and your attorney as needed.

You might also need more drastic cost-cutting measures, such as temporarily furloughing workers or implementing a four-day work week. Or you may be able to trim salaries. Would a 5% across-the-board wage reduction solve your business’s financial troubles? Could you offer stock options to compensate and incentivize affected employees? Just make sure that any sacrifices you mandate are shared. For instance, if you lower hourly wages and sales commission rates, your senior executives should also forgo any bonuses.

Beyond workers

Be sure to look beyond employees for solutions. You might be able to restructure your business to enhance performance or change your business form to improve tax efficiency. And if you haven’t already, sunset:

• Unprofitable products and services,

• Obsolete production lines, and

• Duplicative efforts.

You may be able to sell equipment you no longer use or nonstrategic assets such as real estate. Also consider divesting or spinning off any noncore business lines.

Act strategically

If, despite all your best efforts, staff reductions appear inevitable, act strategically. Take advantage of any attrition and look at employees who may be willing to take early retirement. To protect your company’s public face, try consolidating back-office operations before terminating customer-facing employees.

We know how heart-wrenching such decisions can be. So contact FMD to review your financial situation and suggest ways to enhance cash flow, manage budgets, deal with debt and restore your business to good health without taking any unnecessary actions.

Benefits that Help You Care for Your Company’s Caregivers

With caregiving costs rising faster than inflation, it’s harder than ever to juggle parenting young children or caring for elderly relatives while also working nine to five. Your business can help support caregiving employees and boost productivity by offering dependent care flexible spending accounts (FSAs). This benefit provides a tax-advantaged method to pay for eligible caregiving expenses using pretax dollars.

Or maybe you want to make a bigger commitment but are concerned about the costs. If you provide child care directly to workers — for example, by setting up a day care facility in your building — your company may qualify for a significant tax credit.

When employees opt in

To sponsor dependent care FSAs, you’ll need to implement a dependent care assistance program (DCAP), which enables you to retain ownership of your workers’ FSAs. Participating employees must opt in, typically during your company’s open enrollment period or after experiencing a qualifying life event. Then they make pretax compensation deferrals to their accounts, up to $7,500 annually for married couples filing jointly, single filers and heads of households, $3,750 for those married and filing separately. These amounts aren’t indexed for inflation.

Workers can use their FSA balances to pay for eligible expenses, including day care, before- and after-school care, summer day camps, and care for dependent adults who can’t care for themselves. Qualifying expenses must enable participants (and, if applicable, their spouses) to work or seek employment. Using pretax dollars to fund accounts allows participants to pay for qualifying care while reducing their taxable incomes.

Employers win, too

For employers, sponsoring dependent care FSAs also offers potential advantages. First, these accounts can help attract strong job candidates and retain employees.

Second, because participants’ contributions occur pretax, they’re exempt from Social Security and Medicare taxes. That reduces your business’s (and your employees’) payroll tax burden. To increase dependent care FSA participation, you may make contributions to employees’ accounts. However, the $7,500/$3,750 annual contribution limits apply to combined employer-employee contributions. Note that you can’t deduct contributions as a business expense.

You’ll need to ensure that your DCAP complies with IRS regulations, including nondiscrimination rules. Proper recordkeeping, timely reimbursements and clear communication are also critical. Be sure to educate participants about the “use-it-or-lose-it” rule that says FSA balances generally must be spent by the end of the year. (Unused account funds generally revert to employers.) Be sure to train employees to estimate expenses and submit claims to minimize the risk of losing FSA funds. And let participants know their FSAs aren’t portable — meaning they can’t take their balances with them if they leave your company.

Tax help with costs

Another way to retain loyal, hardworking staff is to provide child care directly. For 2026, you may be able to claim an employer-provided child care tax credit equal to 40% of your qualified expenses for providing child care to employees, plus 10% of qualified resource and referral expenditures, up to $500,000. For eligible small businesses, these amounts are 50% and up to $600,000, respectively. The maximum dollar amount will be adjusted annually for inflation after 2026. (The additional 10% credit for resource and referral expenses will continue to be available.)

Qualified costs include those spent to acquire, construct, renovate and operate a child care facility. Or you can claim expenses for contracting with a licensed child care facility. If you provide on-site care, at least 30% of the enrolled children must be your employees’ dependents.

Competitive package

Dependent care FSAs and employer-offered child care can be competitive additions to your employee benefits package. But because of the resources involved, think carefully before designing a DCAP or establishing a child care facility. Your workforce may not want them. Consider distributing a survey to gauge interest before you commit to offering new fringe benefits.

And to help ensure you’re offering the most cost- and tax-effective benefits to your workforce, contact FMD. We can review your benefits lineup, potentially suggest changes and advise on program setup and administration.

Cross-functional Teams can Boost Collaboration — and Sales

“Cross-functional” sales teams that collaborate with other departments often perform more effectively than siloed ones. By providing feedback and support, employees with varied skill sets and knowledge bases can help your sales team create more holistic sales strategies, better align product offerings with customer needs and efficiently adapt to market changes. Here’s how sales can leverage the expertise of marketing, product development, customer service, finance and other internal stakeholders.

Fighting silos

A cross-functional team is any group of employees from different departments brought together to solve a problem or pursue a goal. Your company might assemble such teams to develop new products or services, implement technology upgrades, and complete short-term projects. However, the cross-functional approach really shines when applied to sales and marketing. Even though these departments are closely connected, they often operate in separate spheres.

Silos can also exist within the sales team, where individuals work largely on their own and share limited information. Many salespeople spend their time interacting with prospective customers or clients. They might only “come up for air” to share information and experiences at sales meetings or in conversations with managers. This can result in missed opportunities to communicate insights on customers, prices and other issues.

Team members

By building a cross-functional sales team, you can eliminate such silos. You should aim to create an environment where employees feel comfortable sharing information and working together. Seek early buy-in from employees who communicate well and are open to collaboration. They can help you promote the concept and encourage broader employee buy-in.

Your team will obviously need to include members of both the sales and marketing departments. But don’t stop there. Someone from your IT department could help recommend tech solutions for sales department challenges. A customer service rep might be able to provide insights into how customers are likely to respond to changes in product features. A finance team member could weigh in on profitability by product or customer.

Cross-functional sales teams don’t require complex leadership structures. In fact, appointing a team leader from within the group can encourage open participation and accountability.

Other benefits

The advantages of forming a cross-functional sales team extend beyond improving sales results: Such teams can infuse fresh perspectives into all your departments, inspire greater communication companywide and support more consistent decision-making.

Over time, this approach can lead to clearer visibility into what’s driving revenue and profitability. If you’re looking to better align sales with your overall business strategy, contact FMD. We can help you identify where cross-functional collaboration will likely pay off.

Why You might Want to Build A Wall between Your Business and its Real Estate

Does your business own its real estate in a separate holding company, such as a limited liability company (LLC) or limited partnership? This practice can provide several advantages, including shielding property from your company’s creditors. It can also ease estate planning if, for example, you want to transfer business interests to your children while retaining ownership of the real estate. In addition, there are good tax reasons to separate the two. Let’s take a look.

Asset protection and estate planning advantages

Owning real estate in a separate legal entity can wall off an operating business from its real estate’s potential liabilities (and vice versa). A creditor who targets your business generally can’t reach real estate held in a separate entity. And if, for example, someone slips and falls in your office, factory or warehouse and sues, holding the property in a separate entity may help protect your operating business’s other assets.

Such protection extends to bankruptcy. If your business is forced to file for bankruptcy, creditors typically can’t recover separately owned real estate. However, there’s at least one exception. Real estate you’ve pledged as collateral for a business loan may still be subject to claims by lenders.

Owners of real estate in LLCs or limited partnerships also enjoy estate planning and succession flexibility. Let’s say you have two grown children, but only one is actively involved in the business. You can equitably divide assets by transferring the business to the actively involved child and the real estate to the other. Also, gradually gifting interests in a separate entity holding real estate can reduce the value of your taxable estate.

Tax matters

C corporations that hold real estate can risk unnecessary taxes. Real estate expenses are treated as ordinary expenses on the company’s income statement. If the property is sold, any profit is subject to double taxation: first at the corporate level and then at the owner’s individual level when proceeds are distributed. If you instead own real estate in a pass-through entity, and then lease it to your company, the profit upon sale would be taxed only once — at the individual owner level. Also, your operating business might be able to deduct lease payments so long as the rent is reasonable.

To simplify matters, some business owners buy business real estate themselves. However, this can transfer the property’s liabilities directly to owners and put other personal assets — including the business interests — at risk. So it’s generally best to hold real estate in its own limited liability entity. Just make sure your entity carries adequate insurance coverage.

Possible downsides

Aside from the costs, there are possible downsides to owning real estate separately. For instance, you’ll need to manage separate finances, tax filings and legal structures. But for most small to midsize businesses, the advantages outweigh any disadvantages. Contact FMD to discuss this strategy and determine what’s right for your situation.

Better Billing Practices are Only an Easy Assessment Away

Efficient, accurate billing practices are critical to your business’s financial health. Billing errors or delays can lead to revenue leakage, cash-flow shortages and customer attrition. If your company is struggling with billing issues — or it’s been a while since you evaluated this function — now’s a good time to review your processes and make any needed upgrades.

At the root

Often, billing issues stem from inadequate systems and processes. Assess your billing practices to ensure you’re:

• Invoicing customers for the correct amounts and applying any promised discounts,

• Paying attention to customer complaints and taking immediate steps to resolve them,

• Tracking errors to identify trends,

• Verifying account information to ensure invoices are addressed correctly, and

• Setting clear standards and expectations with customers (both verbally and in writing) about your policies regarding pricing, payment terms, credit, and delivery times.

In addition, train employees to enforce billing policies properly. They should ask customers to pay any portion of a bill that isn’t under dispute. And once a dispute is satisfactorily resolved, they need to ask the customer to pay the remainder immediately.

Rising billing disputes may signal a deterioration in the quality of a company’s products or services. Damaged or late orders may give customers an excuse not to pay their bills. The same goes for services that aren’t provided in a timely or professional manner.

Flexible schedules and tech solutions

If your business is invoice-based, know that regularly sending out bills late can harm collection efforts — so timeliness is critical. Traditionally, many businesses have offered 30-, 45- or 60-day payment terms. But this may have changed in your industry, particularly now that most billing is done electronically. What’s more, many companies permit their most important or largest customers to negotiate customized payment schedules. If you adopt this practice, adjust your cash flow expectations and projections to recognize such variances.

Both small and large businesses generally use automated billing systems these days. But if your company employs manual methods, we strongly advise you to find a technology solution that lets you easily send electronic invoices and receive paperless payments. Doing so can reduce labor-intensive work, improve recordkeeping and expedite payment. As with any technology, however, you’ll need to review it from time to time to determine whether it continues to meet your needs or if better options have become available.

We can help

Contact FMD for billing software recommendations. We can also help you identify potential billing issues early — before they escalate into cash-flow problems, customer disputes or even legal complications.

Selling your Business? You might benefit from Presale Financial Due Diligence

If you’re contemplating a sale of your business, you probably know that any serious buyer will scrutinize your financial statements, operations, assets and legal agreements. Conducting your own due diligence now can smooth the buyer review process and ease deal negotiations. Working with financial and legal advisors, you’ll have the opportunity to fix any problems before your business goes on the market.

Anticipate buyer scrutiny

The primary goal of presale due diligence is to evaluate the quality and sustainability of earnings, identify risks, and normalize financial results before giving prospective buyers access to the company’s books. Financial advisors look for anything that could be considered negative or inconsistent by a prospective buyer and, thus, potentially cause the buyer to reduce the offering price — or even terminate the deal.

Presale due diligence generally focuses on financial performance, tax exposure and other matters that buyers might scrutinize. So, your financial advisor may:

• Analyze the last three years of financial statements to assess revenue recognition policies, margin trends and earnings before interest, taxes, depreciation and amortization (EBITDA),

• Evaluate inventory accounting methods, costing practices and obsolescence risks,

• Look for any “off-balance-sheet” liabilities,

• Assess compliance with federal and state regulations, such as those related to environmental protection and employee-related taxes,

• Review customer and vendor concentrations, related-party transactions, and key contracts,

• Evaluate the strength of confidentiality and nondisclosure agreements, and internal control policies, and

• Identify any outstanding lawsuits.

Addressing these issues now can reduce seller and buyer uncertainty later.

Evaluating IP issues

Presale due diligence also may require your attorney to assess ownership of key intellectual property (IP) such as patents, trademarks, logos and proprietary software. And your financial advisor may review IP documentation to identify gaps or inconsistencies that could affect asset values.

Such verification is critical to a company’s value, especially in industries such as technology, pharmaceuticals and manufacturing. If, say, your business has only a tenuous claim on an internally developed product, it’s better to learn — and possibly fix — this before a prospective buyer finds out.

Start early

The earlier you start planning and preparing for a sale, the better. Ideally, you should engage a professional with merger and acquisition experience to perform presale due diligence on your business at least six months before going to market. If you’d like to make major changes before selling, such as divesting noncore operations or significantly reducing your company’s debt, give yourself even more time. Contact FMD with questions.

ABCs of Customer Profitability

Some customers naturally require more time and resources than others. But when certain relationships consistently consume more of your and your employees’ time than they generate in profit, it may be time to reassess. Taking a closer look at customer‑level profitability can help you understand where resources are going and ensure that high‑value relationships receive the attention they deserve.

Estimate their value to your business

Before you do anything else, determine individual customer profitability. If your business software tracks customer purchases and your accounting system has adequate cost-accounting or decision-support capabilities, this process will be easier. Even if you don’t maintain cost data, you can sort the good from the bad by reviewing customer purchase volume and average sale price. Often, such data can be supplemented by general knowledge of the relative profitability of different products or services.

Don’t ignore indirect costs. High marketing, handling, service or billing costs for individual customers or customer segments can significantly affect their profitability even if they purchase high-margin products.

Give them a grade

After you’ve assigned profitability levels to customers or customer categories, sort them into the following groups:

Group A. These customers are highly profitable. To further increase their value to your business, spend time learning what motivates them. Your proprietary products? Your prices? Your customer care? Developing a good understanding of this group will help you grow these relationships and provide insight into attracting similar customers.

Group B. Customers in this group may not be extremely profitable, but they positively contribute to your bottom line. There’s a good chance that, with the right mix of product, service and marketing resources, you can turn some of them into A customers. But be sure to monitor them closely to prevent them from slipping into the C group.

Group C. These customers tend to be unprofitable. They may also be difficult to work with and perpetually dissatisfied. They may expect special pricing or services, or pay invoices late. Fortunately, eliminating C customers probably won’t require a formal breakup. You can start by reducing the level of attention they receive. Remove them from marketing lists and tell your salespeople to stop contacting them. After a while, most C customers who are ignored will leave on their own.

When a strategic overhaul is warranted

It’s normal for businesses to have a mix of highly and less profitable customers. The key is making intentional decisions about where to invest your time and resources. Reallocating attention away from consistently unprofitable customer relationships — and toward your A and B groups — can boost your company’s financial performance. However, if C customers make up a large portion of your customer base, you may need to consider broader strategic changes. These could include reviewing pricing, refining service offerings, adjusting processes or rethinking which markets and customer segments you want to serve. Contact FMD to learn more.

Pay Equity can Benefit Employees and Businesses

Pay equity is the philosophy and practice of “equal pay for equal work.” Employers known for fair pay practices stand out in today’s competitive labor market. Fostering pay equity can also help reduce the risk of employment law litigation. But what does pay equity mean in practice?

What it does and doesn’t mean

First and foremost, pay equity doesn’t mean all employees receive the same amount of compensation. Instead, companies that embrace pay equity make compensation decisions free of unjust biases related to protected characteristics such as age, race, gender, disability, national origin and sexual orientation. Employees’ pay, both when workers are hired and when they receive raises, is determined according to objective, job-related factors, including:

• Education and training,

• Experience,

• Skills,

• Responsibilities,

• Performance, and

• Tenure.

Determining whether pay inequities currently exist within your business requires a careful, honest assessment. Many companies conduct a formal pay equity audit. This is a thorough statistical analysis of compensation history, policies and structure. The audit’s objective is to identify any inconsistencies, gaps and incongruities that can’t be explained rationally.

Consider these policies

If you discover signs of pay inequity in your company, put in place policies to help eliminate them. For example, you might want to use only initials or random ID numbers during early screenings of job candidates, such as resumé reviews. This practice minimizes the chance that hiring managers will distinguish candidates by ethnicity, gender or other protected identities.

Also, during candidate interviews, refrain from asking about pay history. Many states and municipalities prohibit such questions, so ask your attorney what applies in your situation. (You might also want to take that opportunity to ensure you understand all antidiscrimination laws that affect hiring decisions.) But even if your state or local law doesn’t forbid past salary questions, it’s a well-established best practice to avoid them. Women and people of color are more likely to have been paid less in their previous positions. By using historical compensation to set their current salaries, you risk compounding pay disparities.

More ideas

Here are some other ideas that can help your organization achieve pay equity:

Set standard pay ranges. Generate objective criteria for recruiting, hiring, compensating, evaluating and promoting employees. Then set standard pay ranges that reflect each position’s value to the business.

Avoid individual decision-making. Limit managers’ ability to single-handedly adjust pay for specific employees. These decisions can lead to pay inequities and other problems, such as accusations of favoritism.

Provide training. To help managers and supervisors understand pay equity, conduct information sessions. Such training will help them recognize potential issues and discuss compensation with their reports.

Prioritize transparency. Let staffers know how you set compensation. Also, reassure them that they can discuss pay with their supervisors without fear of retaliation.

Fair work culture

The best talent is typically drawn to companies that prioritize employee well-being and cultivate a fair, transparent work culture. Pay equity can help communicate such principles to potential job candidates. Contact FMD if you’d like help analyzing compensation data or coordinating with legal counsel on a pay equity audit.

Where Should You Hold Your Company Retreat?

As remote and hybrid work have become more common, corporate retreats have surged in recent years. Some or all of your employees may now work from home and experience little in-person interaction with coworkers. A retreat can foster collegial relationships and, ultimately, greater productivity. But the first decision you’ll likely need to make is whether your retreat will be a smaller-scale affair held in your office or an off-site retreat. There are ways to make either one affordable.

Your office

Staying on your company’s premises can keep out-of-pocket costs in check. The most obvious is that you won’t need to rent meeting rooms. And, assuming employees live in the area, you won’t have transportation and lodging expenses. You’ll also likely spend less on food and beverages. A local restaurant can cater your meals and snacks, and you could buy beverages in bulk.

On the downside, employees tend to view on-site retreats as just another day at the office. This can hamper creative thinking and team building and limit possible activities. Worse, employees may be distracted if they can frequently run back to their desks to check email and voicemail.

Off-site locations

In general, workers are better able to focus on a retreat agenda at an off-site location. They’re in a new, “special” environment with no visual cues to trigger workday routines. So, even though you’ll incur greater costs than if you’d stayed in your office, you may get a better return on investment.

The fact is, hotels and other facilities that host company retreats need and want your business! Many things may be negotiable, and you might be able to snag discounts by booking or paying early. Get several quotes and compare prices and services. You’ll have more leverage if you avoid scheduling your retreat during seasonal peaks when local venues tend to be busy with weddings, trade shows and industry conferences.

Hotels earn their biggest margins on food, beverages and meeting setup fees, so they may be willing to provide complimentary or discounted rooms for guest speakers and out-of-town employees. Also, try to negotiate a flat food-and-beverage price for the entire retreat, rather than a per-person or per-event rate.

Possible tax relief

Here’s another way to save: Some of your company retreat expenses may be tax-deductible. They need to meet IRS criteria as “ordinary and necessary” business expenses and can’t be extravagant or include expenditures for employees’ spouses. In general, business meals are only 50% deductible, and entertainment costs are nondeductible. Contact FMD to learn more about tax-deductible costs and the IRS’s documentation requirements.

How to get Inventory Under Control

Uncertainty regarding inflation, demand and foreign tariffs has made inventory management even harder for businesses than it was previously. Although there are many unknowns right now, one thing is generally certain: Carrying excess inventory is expensive. If you’d like to trim your buffer stock and maximize profitability, there are effective ways to do it without risking customer service.

Count and compare

Inventory management starts with a physical inventory count. Accuracy is essential for knowing your cost of goods sold and for identifying and resolving discrepancies between your physical count and perpetual inventory records. An external accountant can bring objectivity to the counting process and help minimize errors.

The next step is to compare your inventory costs to those of your peers. Trade associations often publish benchmarks for gross margin [(revenue - cost of sales) / revenue], net profit margin (net income / revenue) and days in inventory (average inventory / annual cost of goods sold × 365 days).

Your company should strive to meet — or beat — industry standards. For a retailer or wholesaler, inventory is simply purchased from the manufacturer. But the inventory account is more complicated for manufacturers and construction firms where it’s a function of raw materials, labor and overhead costs.

Guide to cutting

The composition of your company’s cost of goods will guide you on where to cut. You may be able to reduce inventory expenses by renegotiating prices with your suppliers or seeking new vendors. And don’t forget the carrying costs of inventory, such as storage, insurance, obsolescence and pilferage. Brainstorm ways to mitigate such threats and improve margins. For example, you might negotiate a net lease for your warehouse, install antitheft devices or opt for less expensive insurance coverage.

To lower your days-in-inventory ratio, compute product-by-product margins. You might stock more products with high margins and high demand — and less of everything else. Whenever possible, return excess supplies of slow-moving materials or products to your suppliers.

To help prevent lost sales due to lean inventory, make sure your product mix is sufficiently broad and in tune with consumer needs. Before cutting back on inventory, negotiate speedier delivery from suppliers or consider giving suppliers access to your perpetual inventory system.

Reality check

Right now, many businesses are sitting on strategic stockpiles they purchased to combat marketplace uncertainty. If this is true of your business and you haven’t been able to move goods fast enough, you may want to consider new inventory management methods. FMD can advise you on such challenges as using software to accurately forecast inventory needs, pricing goods to increase profitability without alienating customers, and modeling the cost impacts of tariffs and other economic variables.

Advisory Boards Provide Family Businesses with Independent Perspectives

Does your family business keep its strategic decisions within the family? It’s common for family businesses to assign relatives to positions of authority and require other employees to defer to them. But “common” doesn’t necessarily mean “good.” Not only is outside input recommended, but it can help reduce the risk of certain problems (such as unaccountability and fraud) and promote long-term financial health. Here’s how your family business might benefit from an advisory board made up primarily of nonfamily members.

A consulting body

An advisory board serves only in a consulting capacity. So it doesn’t carry the fiduciary responsibilities or legal authority of a formal board of directors. Small business advisory boards generally are less formal and enjoy greater freedom to develop creative solutions and suggest new business opportunities.

Advisory boards can also act as mediators. Board members may provide perspective and potential solutions for family disagreements over:

• Your company’s strategic direction,

• Growth and expansion opportunities,

• Mergers and acquisitions,

• Loans and other financing initiatives,

• Compensation and promotion decisions,

• Interpersonal conflicts, and

• Succession plans.

Depending on your board’s composition, it may also be qualified to offer opinions on legal, regulatory and complicated financial issues.

Building the base

You’ll want a mix of professionals from varying fields, demographics and backgrounds on your board. One effective way to recruit advisory board members is to network with business, industry, community, academic and philanthropic organizations. You may also want to involve professional advisors, such as your CPA, banker, insurance agent, estate planner or legal counsel. These advisors will likely already be familiar with your company’s goals, issues and operations.

Specify the mix of traits and qualifications — leadership skills, experience, competencies, education, affiliations and achievements — needed in members to fulfill your board’s purpose. Ensure these individuals are willing to make candid observations and provide constructive advice. They must also maintain confidentiality and exercise discretion regarding sensitive business and family matters.

It may be practical for you or another family member to serve as the advisory board’s chair. But as your business grows in size and complexity and the demands on your time increase, consider delegating this responsibility to a board member.

Nail down the details

Other details to work out include the frequency of advisory board meetings. Meeting at least monthly initially will help the group build rapport and become relevant to your business. Once the board is established, quarterly meetings may suffice. However, emergency meetings scheduled on short notice may become necessary at certain points.

Your business should cover advisory board members’ travel costs and pay them for their time. Cash compensation makes sense for family businesses that intend to remain closely held. However, companies planning to go public often issue stock or equity-based compensation (subject to legal and tax considerations).

Impartial perspectives

If your family business doesn’t already have one, consider creating an independent advisory board to provide impartial perspectives on your company’s pressing challenges and opportunities. Contact FMD to discuss how we can help you design an effective advisory board — or participate as an independent financial advisor to support governance and long-term planning.

Is Your Business Vulnerable to Payroll Fraud?

Payroll fraud schemes can be costly — and for small businesses, devastating. The Association of Certified Fraud Examiners (ACFE) has found that the median loss from payroll fraud schemes is $50,000. However, some long-term payroll frauds, particularly when perpetrated by upper management, have produced losses in the millions of dollars. Can your company afford that? Probably not.

Payroll fraud incidents can also result in bad publicity, weakened employee morale and, potentially, an IRS investigation. It’s critical that your business take steps to protect its payroll function.

Illegal self-enrichment

There are several ways for fraud perpetrators to illegally manipulate payroll to enrich themselves. For example, cybercriminals often target payroll functions. They might use phishing emails to trick your workers into providing sensitive information, such as bank login credentials. This becomes a form of payroll fraud if they divert payroll direct deposits to accounts they control. Criminals might also target you and accounting department managers by sending fake emails from “employees” requesting changes to their direct deposit instructions.

Also watch out for occupational payroll fraud. In the absence of appropriate internal controls, crooked accounting staffers could add invented “ghost” employees to the payroll. The wages of those ghost employees might then be deposited in accounts controlled by the fraudsters.

And any employee who files for expense reimbursement may inflate expenses, submit multiple receipts for the same expense or claim fictitious expenses. This is considered payroll fraud because reimbursements are often added to paychecks. By the same token, workers eligible for overtime who artificially inflate their work hours are also generally considered payroll fraud perpetrators.

Effective internal controls

To prevent payroll fraud — and uncover it quickly if it occurs — implement and enforce strong internal controls. For instance, require two or more employees to make payroll changes, such as increasing pay rates or adding or removing employees. Payroll staffers should be alert for excessive or unusual pay rates, hours or expenses. And if they receive a request to change an employee’s direct deposit information, they should verify the request with the worker before proceeding.

For their part, department managers must closely monitor employee expense reimbursement requests. They should ask employees to explain discrepancies, such as totals that don’t add up or expense claims that lack receipts.

Other effective controls include:

Audits. Regularly conduct payroll audits to detect anomalies. Also audit automatic payroll withdrawals to confirm proper transfers are made.

Training. Educate employees about payroll schemes, phishing attacks and the importance of not sharing sensitive information.

Confidential hotlines. Offer an anonymous hotline or web portal to employees, customers and vendors to report fraud suspicions. Be sure to investigate every report.

Tax responsibilities

Finally, a scheme that’s most often perpetrated by business owners and executives is deliberately failing to pay required payroll tax. Ensure that upper management and payroll department employees understand their tax responsibilities and that no one individual has the ability to divert funds intended for payroll tax to a personal account. Contact FMD for more information and assistance with internal controls.

Consider these Issues Before Providing (or Reimbursing) Mobile Phones

For many employees, mobile phones are no longer a perk — they’re an essential business tool. However, issuing company phones or reimbursing employees for use of their personal devices can create hidden security risks, unexpected tax consequences and productivity concerns for business owners. Here are some key issues to consider before rolling out or revising your company’s mobile phone policy.

Security risks

In general, the biggest security risk associated with mobile phones is that they may lack robust protections against phishing, malware and other cyberthreats. Hackers could use an employee’s phone to access your business’s IT network, leading to theft of customer payment details, payroll data, intellectual property and other sensitive information. An illicit entry could even result in a ransomware incident.

If you allow employees to use phones to access company data, use a mobile device management system that enforces strong security protocols. And instruct phone users to avoid using public Wi-Fi networks (such as those in airports) that could expose them to data interception and malware.

Tax rules for work-issued phones

Another consideration is taxes. Business use of an employer-provided phone typically is treated as a nontaxable working condition fringe benefit if it’s provided “primarily for noncompensatory business purposes.” For example, you may need to reach employees at any time for work-related emergencies.

If the noncompensatory business purposes test is met, the value of any personal use of an employer-provided smartphone will generally be treated as a nontaxable “de minimis” fringe benefit. However, these phones will trigger taxable income if they’re provided to replace compensation, attract new hires or boost staff morale.

Guidelines for employee-owned devices

The IRS has indicated that it analyzes expense reimbursement for employees’ personal phones similarly to how it treats employer-provided phones. So reimbursements generally won’t be considered additional income or wages if:

• You have substantial business reasons for requiring employees to use their personal phones and reimbursing them for doing so,

• Reimbursements are reasonably related to the needs of your operations and calculated not to exceed the expenses that employees typically incur in maintaining their phones, and

• Reimbursements aren’t made as a substitute for a portion of employees’ regular wages.

Employer reimbursements for employees’ actual expenses must usually be made under a so-called accountable plan (contact us for more information). Alternatively, you could provide employees with flat monthly stipends. But stipends that exceed reasonable amounts may be treated as taxable wages.

Formal usage policies

To protect productivity, it’s critical to create written phone-usage policies. Discourage employees from using company-owned phones or their personal devices to make long personal calls, access their social media accounts or stream non-work-related videos during work hours.

If you allow employees to use their own phones at work, be sure to establish a bring-your-own-device (BYOD) policy. In addition to proper usage, it should address such issues as security, data ownership, privacy (for example, your ability to view employee phone data) and proper use. Your BYOD policy might also detail procedures for wiping personal devices when employees leave your employment.

Pros and cons

Many positions call for the frequent use of mobile phones — your executives, salespeople and other “road warriors” are only a few who probably need them. Depending on the nature of your business, it may make sense to issue or reimburse the use of personal phones as a fringe benefit to other employees. FMD can help you review the pros and cons related to equipment costs, security, taxes and productivity.        

What Business Owners should Know about Debt Restructuring

Debt is inevitable for most small and midsize businesses. Loans are commonly used to help fund a company’s launch, expansion, equipment purchases and cash flow. When problems arise, it’s generally not because debt exists; it’s because the terms of that debt no longer match the operational realities of the business. In such instances, debt restructuring is worth considering.

Making debt more manageable

At its core, debt restructuring is the process of revisiting existing loan arrangements to make them more manageable for the company. It focuses on adjusting current obligations so they better align with the business’s projected cash flow and operating needs. This can be a more sustainable approach than, say, taking on new debt or ignoring the growing pressure.

For small and midsize businesses, debt restructuring is generally handled through direct negotiations with lenders. Options may include:

• Extending repayment periods,

• Modifying payment schedules in other ways,

• Adjusting interest rates, and

• Consolidating multiple loans.

The goal is to allow the business to continue operating normally while meeting its obligations.

Warning signs

If debt begins to consistently dictate operational decisions, step back and evaluate whether the structure of those obligations is a problem. Warning signs usually surface gradually. Monthly payments may start to limit the company’s ability to maintain adequate cash reserves, invest in growth or handle unexpected expenses. If you find yourself increasingly relying on short-term borrowing to cover routine costs or juggling payment due dates to stay current, it might be time to explore restructuring.

That said, many healthy businesses explore debt restructuring as a way to strengthen their overall financial positions. Changes in customer demand, economic conditions, interest rates and operating costs can all be valid reasons to consider it.

Timing and perspective

Among the most important aspects of debt restructuring are timing and perspective. From a timing standpoint, options are generally broader and more flexible when you address concerns early. Waiting until payments are missed or covenants are violated reduces your leverage with lenders.

Perspective matters just as much. Ideally, you should approach restructuring as a proactive strategic adjustment to financial obligations rather than a desperate last resort. Doing so will help you focus conversations with lenders on long-term sustainability rather than a short-term bailout.

However, be realistic. Although debt restructuring can ease cash flow pressure and create breathing room to reset strategic objectives, it can’t fix deeper operational or profitability issues. If your business model is no longer viable, restructuring may provide temporary relief but not a permanent solution. It tends to work best when paired with a clear understanding of a company’s financial position and future outlook.

Guidance is essential

If your business is facing increasing debt pressure, restructuring may be the right solution. But that doesn’t mean you should immediately pick up the phone and call your lender. Professional guidance is essential. FMD can help assess the implications of restructuring and whether better alternatives are available.

Protect Business Continuity with an Emergency Succession Plan

Unanticipated crises can threaten even the most well-run company. And the risk is often greater for small to midsize businesses where the owner wears many hats. That’s why your company needs an emergency succession plan.

Unlike a traditional succession plan — which focuses on the long-term and is certainly important, too — an emergency succession plan addresses who’d take the helm tomorrow if you’re suddenly unable to run the business. Its purpose is to clarify responsibilities, preserve operational continuity and reassure key stakeholders.

Naming the right person

When preparing for potential disasters in the past, you’ve probably been urged to devise contingency plans to stay operational. In the case of an emergency succession plan, you need to identify contingency people.

Larger organizations may have an advantage here. After all, a CFO or COO may be able to temporarily or even permanently replace a CEO relatively easily. For small to midsize companies, the challenge can be greater — particularly if the owner is heavily involved in retaining key customers or bringing in new business.

For this reason, an emergency succession plan should name someone who can credibly step into the leadership role if you become seriously ill or otherwise incapacitated. Look to a trusted individual whom you expect to retain long-term and who has the skills and personality to stabilize the company during a difficult time.

After you identify this person, consider the “domino effect.” That is, who’ll take on your emergency successor’s role when that individual is busy running the company?

Empowering your pick

After choosing an emergency successor, meet with the person to discuss the role in depth. Listen to any concerns and take steps to alleviate them. For instance, you may need to train the individual on certain duties or allow the person to participate in executive-level decisions to get a feel for running the business.

Just as important, ensure your emergency successor has the power and access to act quickly. This includes:

• Signatory authority for bank accounts,

• Access to accounting and payroll systems, and

• The ability to execute contracts and approve expenditures.

Updating company governance documents to reflect temporary leadership authority is a key step. Be sure to ask your attorney for guidance.

Centralizing key information

It’s also critical to document the financial, operational and administrative information your emergency successor will rely on. This includes maintaining a secure, centralized location for key records such as:

• Banking credentials,

• Vendor and customer contracts,

• Payroll records and procedures,

• Human resources data,

• Tax filings and financial statements, and

• Login details for essential systems.

Without this documentation, even the most capable interim leader may struggle to keep the business functioning smoothly.

Also, ensure your successor will have access to insurance records. Review your coverage to verify it protects the company financially in the event of a sudden transition. Key person insurance, disability buyout policies, and the structure of ownership or buy-sell agreements should align with your emergency succession plan’s objectives.

Getting the word out

A traditional succession plan is usually kept close to the vest until it’s fully formulated and nearing execution. An emergency succession plan, however, must be transparent and communicated as soon as possible.

When ready, inform your team about the plan and how it will affect everyone’s day-to-day duties if executed. In addition, develop a strategy for communicating with customers, vendors, lenders, investors and other stakeholders.

Acting now

If you haven’t created an emergency succession plan, year end may be a good time to get started. Already have one? Be sure to review it at least annually or whenever there are significant changes to the business. FMD would be happy to help you evaluate areas of financial risk, better document internal controls and strengthen the processes that will keep your company moving forward — even in the face of the unexpected.

Is it Time for Your Business to Start Outsourcing?

As a small to midsize business grows, demands on its time, talent and resources inevitably expand right along with it. Many business owners reach a point where continuing to do everything in-house — or even themselves — begins to slow progress or expose the company to unnecessary risk. Have you reached this point yet? If so, or even if you’re getting close, outsourcing could be a smart move.

Common candidates

Many business activities can be outsourced. The key is identifying functions that, if handled by an external provider, would improve efficiency, strengthen compliance, and give you and your team more time to focus on revenue-generating work. Here are some common candidates:

Accounting and financial reporting. A reputable provider can manage your books, collect payments, pay invoices and keep accounting technology up to date. It should also be able to prepare financial statements that meet the standards expected by lenders, investors and other outside parties.

Customer service. This may seem an unlikely candidate because you might believe that someone must work for your business to truly represent it. But that’s not necessarily true. Internal customer service departments often have high turnover rates, which drives up costs and reduces service quality. Outsourcing to a provider with a more stable, well-trained team can improve both customer satisfaction and operational consistency.

Information technology (IT). Bringing in an outside firm or consultant to manage your IT needs can provide significant benefits. For starters, you’ll be able to better focus on your mission without the constant distraction of changing technology. Also, a provider will stay current on the best hardware and software for your business, as well as help you securely access, store and protect your data.

Payroll and human resources (HR). These functions are governed by complex regulations that change frequently — as does the necessary software. A qualified vendor can help your business comply with current legal requirements while giving you and your employees a better, more secure platform for accessing payroll and HR information.

Downsides to watch out for

Naturally, outsourcing comes with potential downsides. You’ll need to spend time and resources researching and vetting providers. Then each engagement will involve substantial ongoing expenses.

You’ll also have to place considerable trust in providers — especially in today’s environment, where data breaches are common and cybersecurity is critical. Finally, even a solid outsourcing arrangement requires ongoing communication and management to maintain a productive relationship.

Not a one-size-fits-all solution

Every business owner must carefully consider when to outsource, which services are worth the money and how to measure return on investment over time. If you’d like help evaluating your options or better understanding the financial and tax implications of outsourcing, contact FMD.