Finding and hiring great people has always been a challenge. In today’s highly competitive environment, it’s an even bigger one. Once you hire a great staff member, the threat of losing them looms.

Small businesses are always up against the big guys, who can often offer better benefits or perks to retain top performers. Having to hire and train over and over again sends your costs soaring. But there’s no way around it: as part of your business strategic plan, you need great people to effectively grow your small businesses.

The Globe and Mail, Toronto Star and New York Times all ran articles in the same week highlighting the problem of staff retention in their small business sections.

Here are some of their staff retention strategies:

• Offer perks to make it fun to work at a small business
• If possible, offer benefits and salaries that are in line with other bigger firms
• Provide bonus plans that let employees participate in corporate profits if organizational targets are met
• Participate in building a clear career path for your employees by finding out where they want to go and helping them get there
• Titles matter: acknowledge people for their contributions
• Offer longer-term retention incentives that have, for example, a three year time horizon
• Pre-empt people sniffing out greener pastures by giving star staff raises before they start looking for a better paying job

We at Silver+Goren can add a few things to that list. As small business accountants, here are some staff retention strategies that we’ve seen work for businesses:

• Create a positive workplace that keeps acknowledging employee accomplishments, contributions and needs
• Small business owners interact with employees every day. That makes it easier to be interested in their lives both in and outside of the job—creating strong connections with your people
• Show your employees you care about their efforts by saying thank you publicly or sending a handwritten note
• Instead of relying on money as a motivator, use cheaper but creative perks. It can be as simple as extra time off or providing them with a weekend getaway

Use any or all of the above staff retention ideas, or create your own. It doesn’t matter what you choose, as long as you have something in your business strategy to retain key employees.

Without obtaining and retaining star players, it will be impossible for you to effectively perform your business operations management and develop and grow your business.

As a small business owner, are you the glass half full type? Do you feel your enterprise is on the upswing?

Wave Accounting has taken a new temperature reading among North American entrepreneurs. Wave offers free (ad sponsored) accounting software to small business. Its new survey analyzes the attitudes of more than 250,000 clients with some interesting results.

Here’s what stood out for us:

• 86% of small business owners love what they’re doing
• 82% say the rewards far outweigh the challenges
• 56% say they would never go back to working for someone else
• The most common reason for going into business solo is “being the boss/decision-maker” (57%)
• But more than half underestimated just how hard it is to be their own boss

While most small business owners enjoy running their own business, here’s a look at some of their challenges:

• Two thirds of business owners struggle with the combination of time management and work/life balance
• Not enough down time
• 43% of Wave customers have to do administrative tasks (accounting, bookkeeping) outside traditional business hours
• 20% spend at least part of their weekend working on the same kind of tasks
• Almost half said their business did not earn enough for their families’ needs

So … if there are so many challenges, why are so many small business owners still optimistic?

• 80% of respondents see a bright future for their business
• Two thirds believe their business is in a growth phase. Just 8% say it’s in a decline.
• In the coming year, nearly three quarters plan to expand product offerings or launch new marketing campaigns
• Interestingly, 47% of US respondents see a bright future for their company. That’s compared to just 38% for Canucks.

These responses are very similar to what we see on the ground as a small business accounting service for many different companies across a wide range of industries.

While most entrepreneurs have the same optimism described in the survey, and truly enjoy being their own boss, often they aren’t able to recognize the risks and challenges in starting their own business.

There is something missing from the stats, though. At Silver+Goren we often warn about the high percentage of new business that fail, yet we haven’t heard from those owners. Those answers could be a very useful tool for new small business owners to learn about potential pitfalls and help develop effective business strategies to succeed.

Last week we looked at the Ultra Book, a new offering in the hardware department. Today we’ll focus on the softer side of things. The software trend generating major buzz is cloud computing.

It’s a clever name with a relevant visual. Cloud computing lets businesses buy technology through the Internet instead of having computers and software sit at their organization. There are three types of cloud computing solutions:

1. Infrastructure as a Service (IaaS): Organizations rent servers from suppliers who own and house the equipment
2. Platform as a Service (PaaS): Users rent servers and the system software that supports them
3. Software as a Service(SaaS): Users also rent application software and databases

It’s up to the cloud provider to offer hardware and software remotely, and manage the infrastructure platforms for the applications. There’s a whole host of services involved, including antivirus, backups, hardware and network monitoring and preventive maintenance. Cloud management also offers remote help desk support and support that’s readily available 24/7.

This is really “airing out” the traditional system. Business owners previously had no choice but to buy their own equipment and servers and lease systems and software. The cloud environment takes care of all this plus support, and bills on a subscription-based model that depends on features acquired and number of users. This provides a huge advantage for people that may be starting their own business.

Here are some of the cloud’s direct advantages:

• Accessible from anywhere with Internet
• Pay-as-you-go subscription model
• 24/7 availability
• Scalability
• Eliminates IT department
• Better customer service with more information available in real-time
• Easier to share data with advisors, such as your small business Chartered Accountant, which facilitates more efficient business record keeping and faster response times.

Here’s another key advantage for small businesses: access to more sophisticated applications. You keep all the functionality of your current in-house solution, and add numerous other functions that may be price prohibitive if you licensed software directly. Cloud based task management systems such as Basecamp simplify the process of maintaining day to day business operations management.

In a cloud computing environment, these additional features are affordable thanks to the pay-as-you-go model. Even if you run a home business, you can access significant technological resources well beyond your IT budget.

Of course, all that benefits your bottom line. Extra functionality can improve productivity and profitability for many Canadian small businesses. It makes it easier to compete with much larger organizations, locally, globally…really anywhere under the cloudy sky.

I just returned from the AICPA Technology + Practitioners Symposium, representing our small business accounting firm. It’s an annual conference, and this year more than 1,600 accounting professionals were there. One of the things we do is review and discuss the evolution of technology, and offer predictions on technology trends and directions.

A prediction that struck me was the demise of the notebook computer within the next couple of years. It’s expected that they will be replaced by a new lighter, sleeker, portable computer known as the “Ultrabook.” This is a brand-new category of portable computer and it needs to meet certain specifications laid out by Intel:

• Less than 2.1 cm thick
• Weight is less than 1.5 kg
• Full-size keyboards
• Extended battery life. Five hour minimum, up to nine hours plus depending on the vendor
• USB 3.0 or Thunderbolt technology for rapid data transfer
• Intel Anti-theft Technology
• Solid-state memory to facilitate quick boot-up: wake from deep sleep in under 7 seconds
• Oversized touch pads allow easy movements such as pinch and zoom

Individual vendors are offering additional features. The new HP Folio offers nine hours of battery life increasing all the way to 20 hours with an optional battery slice that clips to the bottom of the laptop.

Given the size specifications there are some drawbacks including batteries that aren’t user replaceable, and no internal DVD or Blu-Ray drive. Because the memory is solid-state, storage capacity will be smaller but boot up will be quicker. You also need an external video port which will mean that you need a dongle to plug in an external monitor.

As with all new technology, there’s a price attached. It’s expected Ultrabooks will sell in the $1000 price range. That can be several hundred dollars more than similarly configured standard business laptops.

Having a portable laptop that lasts longer in the form of an Ultrabook will allow business owners to track their budgeting and cash flow and allow easier access to business record keeping while on the move.

It’s always very exciting to see how quickly and dramatically technology changes each year. With changes come opportunities to small businesses for productivity enhancements. The Ultrabook seems to be another example of how Canadian small businesses can use new technology to help equalize the playing field with much bigger businesses.

So, you want to start your own business. You’re sick of your job. You want to make your own hours and reach economic freedom. But you don’t want to start from scratch.

Many people are in that boat. That’s why buying an existing business can be very attractive.

When you buy something that’s already up and running, you cut down on many of the challenges involved in launching it yourself. But it’s important to know you face a different set of risks. One big factor that can be missed in due diligence is often staring right back at you: employees.

It can be great to have an existing workforce. They know the products, the customers and they know how to do their job. But for many reasons, you may need to make changes. Maybe they were hired because they were the old owner’s nephew and they’re not great at their job. Maybe after some thorough business strategy planning your new business vision requires fewer heads. Here’s the issue: if you let people go, you may have to pay severance.

If you bought the company by acquiring its shares, then you’ve inherited all the employees’ past service, employment terms and agreements, bonus plans and severance obligations.

It’s different if you acquired the company’s assets. An asset sale effectively terminates all employment agreements with the vendor, without any flow-through obligations for the buyer. This means the vendor is liable for all termination and severance costs.

But as the buyer, if you want to re-hire any old employees, you’ll probably have it to do it on the same terms they had before. This will either be part of your purchase agreement, or a provincial employment statute. It usually includes recognizing an employee’s prior service.

The impact in all cases can be significant when dealing with employee rights and responsibilities. Under the Ontario Employment Standards Act, small businesses need to give one week’s notice of termination for each year of service, to a maximum of eight weeks.

On top of this, there is common-law to consider. In prior cases, courts have determined that unless the termination is for just cause, the employer needs to give an employee reasonable notice (or pay in lieu of notice).

What is “reasonable notice?” It’s determined by a few things, including the employee’s age, years of service, position and salary. Under common law, you may need to pay out as much as 24 months of pay.

We were recently involved in a transaction for a small manufacturing company that had been in business for 40 years. They had 35 employees, some of whom had been with the company for more than 20 years. The payroll obligations for severance were over half a million dollars.

There is a safeguard here, in the form of a written employment contract. It can mitigate the issue. But many entrepreneurs don’t appropriately take this into account when they buying a business, and end up exposed to significant liability and risk. Always make sure you do your due diligence and do a thorough business audit before committing.

Do you have extra cash hiding somewhere in your business? It turns out more and more small business owners do. Last week’s blog looked at a Citibank survey on sacrifices owners make to keep their small businesses alive. This week, we look at a recent Globe and Mail article discussing what to do with excess cash for small business owners. Many are holding on to cash because of economic fears– but it really isn’t all doom and gloom. It’s always been true and still is: there are smarter ways of dealing with funds then stuffing them in a mattress.

The first step according to this article is to figure out if you have excess cash – and how to calculate it. You need a 12 month cash flow projection that reflects your business cycle. Most small businesses have more cash during certain parts of the year and less in others, depending on their busy season. It’s always wise to review those cash flow calculations with your Chartered Accountant or financial adviser to make sure you’re making reasonable assumptions in line with your small business plan.

If you figured out you do have more cash than you need to operate your business effectively, you need to look at possible strategies. The Globe offers the following five:

• Pay down debt (loans, lines of credit)
• Set up a holding company to protect the cash from creditors
• Invest in your business (new equipment, property)
• Invest in yourself (Registered Retirement Savings Plans, larger salaries and dividends to improve your personal lifestyle)
• Use your money to make money. Invest in locked-in options such as guaranteed investment certificates.

There can be consequences to having your extra cash flow lying around. The article points out people can be misled by having extra cash available. It can lead to inappropriate business decisions and failing to properly monitor the effectiveness and profitability of operations.

At Silver & Goren we have some more ideas for using excess cash:

• Make sure all your corporate income tax and HST installments are paid on time. The CRA’s rate of interest is significantly higher than what you earn on investments or pay on your line of credit.
• Take advantage of all supplier discounts. There’s often a 2% discount offered if the count is paid in 10 days rather than the usual 30 day credit term.
• Make your RRSP contribution at the beginning of the calendar year rather than waiting until February 28 of the year following.
• Consider buying property and stop paying rent. Given that interest rates are at historic lows and additional funding is available through the Canada Small Business Financing Program, it’s very possible to buy real estate and not pay much more than you’re currently paying in rent.

Like most things in running a successful small business, managing your cash effectively requires an appropriate business plan. And that doesn’t involve a mattress, shoe box, or any other place you can store cash.

“All Work and No Pay.” That’s the headline on a story about a Citibank survey with surprising statistics. It reports more than half of small business owners have gone without a pay check to keep their company going. Almost a quarter of owners have done this for a year or more!

The survey polled 750 small business owners across the United States. It seems entrepreneurs will also pick employees over profits.  Roughly 80% reported smaller profits, and 60% reported reducing profits, so they could avoid cutting jobs. They also reported working longer hours and suffering more personal stress.

More than half of those surveyed tried to reinvent their companies in order “to stay afloat or competitive.” Almost half reported they focused on overhauling products and services, adjusting infrastructure such as technology or staffing, and increasing marketing.  Marketing efforts included more time with customers and more use of the Internet and social media.

When they were asked about the future, plans included increased marketing, better cost control and increasing new products or services.

While the headline seems surprising, at Silver & Goren we see these choices all the time. Small business owners will do almost anything to keep their company alive. And it can be dangerous. We have seen entrepreneurs mortgage their home, borrow from friends and family and sell off investments.

Being Chartered Accountants servicing small business owners with small business accounting, we have a responsibility to challenge some of these decisions. We need to make sure they’re appropriate and in the best interests of our clients—in the long run.  Some small business owners become so invested in survival, they can’t make objective decisions about the viability of their business without the help of trusted business consulting services.

We have a question to add to that survey. Every small business owner needs to ask themselves: “should we be doing this?” It’s not easy – and often results in unpleasant answers.

Tips for small business owners

It’s essential to step back and assess your environment, looking for changes. Is the product and service you’re offering still relevant and valued by the customer? Has the competitive landscape changed both in terms of number of competitors and prices being offered? Do you have enough qualified and motivated team members? Is there enough capital so you can adapt the business to meet the needs of the future?

These are key questions, and there are many more like them. As a small business owner, you need to address them before making sacrifices outlined in the survey – not after. All work and no pay just isn’t feasible. It may be difficult, but sometimes the best thing we can say to our clients is “enough.”

The song was released three decades ago, but its message is still relevant today. Radio stars couldn’t keep up in the flashy world of television.  Now, the medium threatened with possible extinction is the newspaper. We’ve been talking about the demise of print newspapers for a few years. A major article in the business section of the New York Times recently looks at the shrinking of the vaunted US publication The Washington Post.

The piece explains that the number of newsroom staff has dropped from more than a thousand to fewer than 640 people—with more layoffs pending. Major bureaus in various areas have closed. And at the end of the day (perhaps a tired cliché with the intensity of the 24-hour news cycle), the paper is faced with many competitors offering what they do…only doing it better.

At the Post, they’re trying to deal with the changing environment by innovating on the Web. Their challenge involves reinventing themselves, while staying true to the value and culture that made them a great newspaper. As an example, it’s harder to retain an online audience for a lengthy, in-depth look at a topic—while investigative journalism is one of their strong suits.  It’s probably still too early to tell whether or not they will be successful…or disappear.

Reading this reminded me of a blog I read recently written by David Bergstein called “11 Things you Take for Granted Today that Technology will Kill within Six Years”.  In his post he predicts that the following would all disappear:

• wristwatches
• paperback books
• instruction manuals
• greeting cards
• card keys
• tollbooth agents
• maps
• credit cards
• check books
• retail coupons
• cash

That’s quite the list. While you may or may not agree with some or all of the items, I think it’s easy to see how many could be on the chopping block. Although, I’m not sure six years is the right time frame.

But the bottom line holds true. The pace of change is so quick and the impact of technology on our lives and our work is so dramatic that’s hard to imagine any business or industry that is not at risk of being transformed—or killed—in the short to medium future.

This has huge implications for all businesses performing business strategy development. It’s no longer enough to look at your customers and competitors when developing your business strategy.  Now, it’s more important than ever to consider how your business fits in the larger business environment. That means keeping an eye on where the next category killer is going to come from. The radio stars probably never anticipated what television meant for them.

How often do you buy a lottery ticket? And how seriously do you bet on your chances of winning? A recent article in the Daily Beast news blog definitely caught our attention.

There’s a lottery in the US called Mega Millions that offers a jackpot of some $500 million. The article listed 15 things that are more likely to happen than winning the Mega Millions.

These include:

• death by vending machine – one in 112 million
• dying in an airline related terrorist attack – one in 25 million
• having identical quintuplets – one in 15 million
• becoming president of the United States – one in 10 million
• dying from bee hornet or wasp stings – one in 6.1 million
• dying from being left-handed – one in 4.4 million
• becoming a movie star – one in 1,505,000
• dying in a plane crash – one in 1 million
• death by flesh eating bacteria – one in 1 million
• getting struck by lightning – one in 1 million
• dying in the bathtub -one in 840,000
• dying in an on-the-job accident- one in 48,000
• murder – one in 18,000
• dying in an asteroid apocalypse – one in 12,500
• dying in a car accident- one in 6700

The odds of winning mega millions – one in 176 million

So you may be wondering why I think this was worth repeating. I’m amazed at the number of people I have spoken to whose idea of retirement planning is buying lots of lottery tickets. While there’s always the one in 176 million people who in fact does win the jackpot, it’s probably not the preferred way to do financial and estate tax planning.

Organizing your affairs to accomplish your financial goals requires planning and discipline. But if you’re willing to make those commitments, you will have much better odds than death by vending machine.

Together with the end of April, the tax deadline is creeping closer. We still have lots of tax planning tips for you. Today we’ll look at investment income.

The normal types of investment income you earn are interest, dividends and capital gains. Each of these is taxed differently.

Interest is taxed as normal income at whatever your marginal tax rate is. In Ontario, this means 46.41% in the highest bracket. Capital gains are only one-half taxable, so the effective rate on this type of income is only 23.21% at the highest bracket.

Dividends are taxed somewhat uniquely because of their nature. They are a distribution of after-tax profit to the shareholders of a corporation. So dividends are taxed to reflect the fact the corporation paying the dividend has already paid tax on profits. If you’ve been paid dividends, the amount included in your income is “grossed-up” to notionally reflect the total amount of pre-tax income the corporation has earned. You would then receive a credit to offset the tax the corporation has already paid.

There are two types of taxable dividends. The first are called “eligible.” These dividends are paid from public corporations, or from private Canadian-controlled corporations whose income was taxed at the highest corporate rate. “Non-eligible” dividends are from Canadian-controlled private corporations that have paid tax on their income at the small business rate.

The tax rate on eligible dividends in the highest bracket is 28.19% for 2011 while the tax rate for non-eligible dividends is 32.57%.

Now that you have a break down, let’s look at your tax planning opportunities. You can consider acquiring investments whose gain, when sold, would likely be taxed as a capital gain, such as publicly traded shares or real estate. There are a number of rules to determine whether a particular gain is a capital gain or regular income, but in most cases these types of investments are capital gains.

You can also acquire shares that pay dividends rather than investments that pay interest, your chartered accountant can help you with this.  There are many large corporations who have issued preferred shares that pay a dividend, offering a better after-tax rate of return than many interest-earning investments, while also offering what can be considered a guaranteed yield.

If you’re in a situation where one spouse earns dividend income, but whose total income is very low, they may not be able to take full advantage of the dividend tax credit they’re allowed. The higher- income spouse can claim the dividend income earned and then can claim the full dividend tax credit.

If you acquire investments that pay interest, you must declare the interest earned annually. You can defer tax by acquiring an investment that matures after the end of the current calendar year, delaying the income inclusion for one year.

If you’re able to acquire investments outside of your RRSP, it may be possible for you to have interest deductibility on borrowed money. Interest is generally not deductible when the loan was taken out for a purpose other than to earn income subject to tax. Examples would be your home mortgage, credit cards or loans to buy RRSPs. But if you borrow money to buy shares that pay dividends or investments that pay interest, the interest you pay for these investments would be deductible.

With appropriate tax planning you can structure your affairs so the interest you pay on things like your home mortgage, for example, would be tax deductible. You can do this by using the money from the mortgage to buy your income-earning investments.

Another tax effective strategy is to acquire shares of mutual funds. These are pools of assets invested by professional managers. Annual income earned by these funds is taxed to you as it’s earned as dividend income or interest. But the growth in value of the funds is only taxed to you upon sale.

By organizing the types of investments you acquire and managing how they are required in the most effective and appropriate way, you can substantially reduce the taxes you pay and increase your net after-tax return on your investment.