How to Reduce Shipping Costs for Small Businesses

Shipping Unboxed: How to Reduce Shipping Costs

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If your small business runs any kind of shipping operation in-house, you’re likely familiar with the common headaches that come along with order fulfillment: boxing sold items; taking several trips to the post office or UPS & FedEx stores, dealing with increasing rates, never having enough packing tape, and several more problems which sometimes lead businesses to abandon the process altogether or partner with a fulfillment company. There are, however, several modern methods business owners ought to try before giving up. In this introductory article to our series on shipping and ecommerce, we are laying out concrete strategies to keep shipping costs, and time commitments, low when fulfilling customers’ orders.

Over the past number of years, more and more storefronts began taking online orders and the COVID-19 pandemic forced those die-hard traditional brick-and-mortar shops to adopt shipping to survive. Running a shipping operation in tandem with a traditional storefront is near-Herculean for small teams, so for those teams where every dollar and every minute counts, these tips are for you:

 

Use Flat-Rate Boxes Provided by Carriers

USPS, UPS, and FedEx all have their own flat-rate shipping boxes you can use instead of your own boxes. Since these carriers all charge by your package’s dimensions, more often than not their flat-rate boxes will end up costing less per shipment. Even better, you can have flat-rate boxes shipped to your business in-bulk and often for free.

USPS in particular offers a near-unbeatable deal for their Small Flat Rate Box. If you are shipping objects smaller than 8 5/8″ x 5 3/8″ x 1 5/8″, you can use a Small Flat Rate box domestically for as low as $8.65 for a fully-insured delivery. The upper weight limit for USPS flat-rate boxes is 70 pounds per parcel.

One downside to using carrier packaging is, of course, the sometimes-aggressive branding covering the box. If you still want your own brand and business personality to shine through, you can simply place your own branded packaging within the box, but you can also do a number of other things inside your parcel to make the shipment memorable and personal. An example of this (and a great tip for small businesses still shipping in house) is to attach hand-written thank you notes to the inside of packages.

 

Take Advantage of Commercial Base Pricing

If you aren’t already using commercial base pricing to buy postage for your small business’ shipments, drop everything and start today. Commercial base pricing is a program from the USPS (also used by UPS) which discounts shipping rates when you buy postage from an online provider. Discounts for parcels can be lucrative with USPS First Class postage discounted 26% per parcel on stamps.com, one of the most well-known online postage providers.

There are no minimum or maximum postage limits on commercial base pricing, so businesses who ship parcels infrequently can benefit just as much as large ecommerce companies. All you need to take advantage of commercial base pricing is a computer and printer. Extra points if you are using a carrier’s flat-rate boxes! Making these two simple changes are important first steps to running a leaner shipping operation.

 

Weigh Packages Accurately to the Ounce

If you’ve chosen to take advantage of commercial base pricing postage and print your own shipping labels, it is essential that you use a digital postal scale to make sure you aren’t overpaying for shipping. Without a postal scale you are forced to estimate your parcel’s weight which can only lead to two things: overpaying for postage or getting the dreaded “return to sender due to insufficient postage” stamp. Underestimating postage is a headache for you and your customers but getting an ounce-perfect reading only takes one trip to Staples. Or better yet, new members to Stamps.com can snag a free digital scale for free when they make an account.

Counterpart to weight, measuring your parcels is good for accuracy but also opens another door for savings. USPS charges approximately $16.25 for packages measuring 11 1/4″ x 8 3/4″ x 6″ and then close to $22.65 for packages 12 1/4″ x 12 1/4″ x 6″ not accounting for weight. Meaning if you can shave only a few inches off your packaging, you can massively save on your per-parcel pricing.

 

See if Prepaid Shipping Works for Your Business

USPS, UPS, and FedEx all offer their own versions of prepaid shipping labels which offer a huge discount when bought in bulk. Prepaying for your postage is a great way to reduce headaches, but also can be quite the gamble for small businesses.

Prepaid postage is fantastic for small businesses that run subscription packages or any kind of item that is consistently sized and consistently shipped. For example, if you run a postal book club where you send the same book to a list of subscribers, prepaid shipping is likely a monstrous money-saver. Being that the company will know exactly how many parcels they will be sending, also since all the packages will be the same size, the company can confidently buy their postage upfront at the beginning of a month and likely save loads of money.

For companies that run more ad-hoc shipping, as in they only ship after orders are made, prepaid shipping may either leave them short or with too many labels at the end of the month. And, companies that sell several differently sized items may run into issues calculating prepaid shipping ahead of time.

 

Consider 3rd Party Shipping Insurance Companies

If you are still using major carriers’ insurance for your parcels, you’re likely missing out on savings. Parcel insurance is likely one of the last things on your mental checklist before a package goes out, so take this moment to reassess if you could be leaving money behind on each of your sales. Shipping insurance is often pennies on the dollar for smaller parcels, so small businesses with a healthy output of parcels would do well to see how they can save. The most well-known 3rd party shipping insurance company, Shipsurance, charges 90% less per sale than the USPS directly.

3rd party shipping services aren’t for every small business. If you are using base commercial pricing, for example, it is a near-certainty that the website you are using also maintains their own insurance system. A great example of when 3rd party parcel insurance may come into play is if you sell small, luxury items like jewelry. 3rd party parcel insurance companies generally are quicker to respond to claims and more directly reimburse for parcel contents compared to carriers like USPS. If you declare your items ahead of time, you can rest even easier.

 

Finding Your Dream Shipping System

Every small business is unique and so is every shipping solution. No matter if your small business ships one parcel a month or 1,000 there is a good chance there is still money to be saved. Do your research and get intimate with the details of your own shipping procedure. A few dollars savings becomes a boatload after a steady stream of parcels. The Internet and home printing were both revolutions for the shipping industry, but we are only enjoying the synergy of those several advantages right now. One thing is certain: small business owners have no excuse to wait in line at the post office anymore.

SMB Owners Share Solutions on Getting Around ‘Right to Repair’ Issue

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Nearly every small business, be it a manufacturer, medical office, restaurant, or dry cleaner, has run into the nagging ‘right to repair’ issue. While the issue has been brought to light recently by McDonald’s finicky soft-serve ice cream machines, for small businesses, the right to repair issue could threaten their very survival. 

The scenario is very simple: a machine that is vital to your small business’ operations breaks down, and if your state does not have a right to repair law, you have no choice but to contact the manufacturer of the machine – or a repair company authorized by the manufacturer – to repair it. This process can take a significant amount of time and cost thousands of dollars, as the manufacturer essentially has the monopoly on repair services and can charge whatever it wants.

SMBs Lose Time and Money 

Business owners say that having the right to repair their own machines through whatever local repair shop they choose would reduce machine downtime, increase the lifecycles of their machines, and potentially save them money on repair costs. It also costs consumers money, especially with cell phones, as many consumers would rather replace their cell phones or other electronic devices than go through the hassle and expense of contacting the manufacturer to fix them.

Manufacturers, however, claim that the right to repair would divulge proprietary trade secrets and could, in some situations, even be dangerous -for example – if a doctor’s office tries to repair a piece of medical equipment on its own and does not do it correctly. 

Either way, small businesses, such as manufacturers that rely on complex CNC machines or farmers that use John Deere tractors are caught in the middle of this issue, and it is costing them time and money. The US Public Interest Research Group (PIRG) estimates that Americans throw away 416,000 cell phones each year because most states do not have right to repair laws in place, and electronics makers such as Apple force customers to come directly to them for repairs. 

So if your state does not have a right to repair law in place, what do you do when your crucial machine breaks down? Kapitus spoke to everyday small business owners to find out. 

Get to Know Your Machine’s Warranty

In some cases, your machine’s warranty will cover the cost to repair, or parts needed to repair the machine yourself, said Ryan Fyfe, COO at Workpuls, Inc. 

“As with many pieces of legislation, the Right to Repair Act is a set of guidelines intended to keep electronics manufacturers accountable for their products,” he said. “The bill states that all companies must make their devices easily repairable and provide parts or tools necessary to do so. Keep in mind that you may not be able to get a refund on your device if it can’t be fixed…More often than not, the warranty will cover damaged components even after you’ve been using it for some time or attempting DIY fixes yourself. In addition, see what type of warranty your device has from its manufacturer before making any repairs, so you don’t void the protection policy.”

Get Comfortable Negotiating

Kyle MacDonald, president of GPS fleet tracking systems provider Force by Mojio emphasized that manufacturers generally want to keep you as a customer and therefore are often willing to negotiate repair prices.

“I am personally a supporter of ongoing ‘Right to Repair” campaigns since small businesses like mine would benefit from being able to seek lower-priced repairs by independent entities rather than going to the manufacturer,’ said MacDonald. “That said, we negotiate with the manufacturer when there is no other option for repairs. A lot of people think repairs aren’t negotiable, but we have had some success in talking manufacturers down to a lower price in the past. We also keep all warranty information on hand in case we can evoke the language used there to seek a free or low-cost replacement.”

Have Backups 

James Green, owner of Build a Head, added that his company works with manufacturers to make sure machines get repaired quickly. 

“We have made sure that we have at least two (usually more) of every essential machine so that production doesn’t come to a complete halt if one machine breaks or has an issue,” said Green. “Our management staff has also made it a priority to build personal connections with our manufacturers so that we can hopefully get repairs done more quickly. We haven’t had too many issues, but whenever we do, we try to personally reach out to our connections to reduce the time it takes to fix the problem.”

Be Your Own Repair Person 

Most small business owners that Kapitus spoke with said the real solution is to learn how to repair machines themselves. Of course, this solution will take training and hours spent watching instructional videos on Youtube, but it could be well worth it. 

Alex Wan, co-founder of small business Vinpit, said learning how to fix his own machines has become an invaluable skill. “I experience frequent breakdowns of my machines, and if I were to pay someone every time something needs fixing, then I’d have spent millions by now,” said Wan. “In short, I usually do a lot of the fixing on my own unless they’re complex and need an expert to get things done. Even when I hire someone to do repairs for me, I usually ask them to take me through the steps because I know I’d need that skill in future. In my honest opinion, small business owners ought to have basic repair skills especially related to their line of work since they could save them boatloads of cash.”

Jose Mier, founder of Heliotherapy Research Institute, said that becoming his own repairman has also saved his company a lot of money. “When I started out with my business and moved to an office, I kept running into problems with the air conditioning unit,” he said. “I had to constantly call AC repairmen, and the costs were piling up. Then, I decided to learn to fix the ACs myself. I watched many YouTube tutorial videos and took some help from professionals…Now, when I run into problems, such as electric control failures and leaks, I’m able to fix them myself. In the past few months since I learned this skill, I’ve been able to save myself a lot of hassle and money.”

Push for Legislation 

If your state does not have a right to repair law, you may consider writing to your local politician to push for one. Right to repair laws in states that have them typically require manufacturers to provide repair information on their machines to all customers, including manuals, and offer parts that can be used to repair their machines. 

“Repairing your own machinery is actually a great idea, but often one might not be able to do that despite having the knowledge because some companies do not provide the information or the parts one might need,” said David Attard, a web designer at CollectiveRay.com. This act will help small businesses save time and money.”

You can check to see if your state does have a right to repair law. If not, you can contact your local politician and join repair.org, an industry trade group that is advocating for a right to repair law on a federal level. 

Creative Staffing

Inventive Ways Small Businesses are Tackling Staffing Challenges

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Staffing challenges? Why not just hire more people? If only it were that easy. In what is now dubbed the “Great Resignation” the pool of qualified applicants seeking work has been shrinking in just about every field. Staffing shortages often hurt small businesses the most where each set of hands matters more than ever. Having less staff on board and less qualified applicants seeking work should mean disaster for America’s small business owners but that is not the case. We spoke with a number of small business owners across the country who have been exploring creative ways to deal with the seemingly insurmountable challenges that staffing shortages pose. Here are their inspiring stories of resiliency:

Incorporating Social Good

“When I started my blog, I worked with a largely American team. While the Great Resignation hasn’t affected me nearly as much as most brick and mortar businesses, we have had a few members of the team leave.

As a team, we have made the decision to work with young workers from other countries, predominantly third world, who need the experience as well as the work. We make it our mission to not only onboard the new team members, but also offer them upskilling and mentorship.

We have had amazing results. We’ve found that the international team has a deep desire to work and learn, something we consider incredibly valuable.”

 

Mollie Newton, Founder & Editor, PetMeTwice.com, Columbus, OH

 

 Optimizing Schedules

“We run thousands of virtual events every month, and for the most part our staff is able to handle this volume smoothly. However, December is exceptionally busy for us with both virtual team building and virtual holiday parties. For the first three weeks of December we make staffing and other adjustments to optimize our available staffing. For example, while in December we have set start times for events, like 11am, 1pm, 3pm, and so on — the goal is to to prevent overlapping time slots, so that fewer staff members can facilitate more events. When there is a small amount of overlap we have a host and co-host system to manage it. For example, usually the lead host will facilitate an entire event, including the intro, games and activities and conclusion. In busy times, the co-host may lead the intro, which means that the event isn’t disrupted if the host would otherwise be a few minutes late coming from another event. Again, the result is we can run more and better events for our clients.”

 

Michael Alexis, CEO, TeamBuilding.com, Covington, WA

 

Re-Thinking Delegation

“When dealing with staffing shortages, we make sure that our individual team members aren’t forced to take on additional or overtime work to make up for it. It is not their fault that there is a shortage in staff, so they shouldn’t have to take on the brunt of the additional work. We want to respect their job duties and time, so instead we have to figure out how to create an efficient delegation plan. We analyze individual strengths and specialties, and we work on delegating tasks effectively to the people who will be able to handle them correctly and quickly. If there is still additional work to be done, management staff will help complete them. Occasionally, we will hire freelancers to help with specialized projects or time-consuming tasks. There are always freelancers available to hire, so we know that they are always a possible resource.”

 

Kyle MacDonald, Director of Operations, Force by Mojio, Campbell, CA

 

Leveraging  AI

“As the owner of an SME ecommerce store, I’ve had to get savvy with resourcing the business as efficiently as possible. An example of how we maintain our customer service levels with 65% of the staff we had last year is by using AI tools. We use a chat bot to field all customer service enquiries both through live and email. The chat bot’s main aim is to separate those enquiries which the customer can solve themselves by visiting our FAQ’s or a product page from those more serious enquiries which require human invention. The other benefit of using a chatbot is that it offers an immediate reply, where as before our customer service agents would take up to 48 hours to reply, so in effect our service levels have actually improved with less staff.”

 

Marc Bromhall, Founder, Surf Gear Lab, San Clemente, CA

 

Embracing Flexibility

“In the current business environment that has been adversely affected by the pandemic, flexibility is the name of the game. In my opinion, flexibility isn’t just about giving employees the freedom to come to and leave the office at convenient times; it’s also about equipping them with a diverse set of skills. This way, even if there are fewer employees available at the office, their wide range of skills will allow them to work together productively. Let’s take the example of a retail store. If each department manager is also trained to administer employee satisfaction surveys, that means they will not only help customers with finding the products, but they’ll also be able to take the required feedback from them. This will ensure that there is enough flexibility in the workplace to compensate for a low number of employees and keep the business operations running smoothly.”

 

Elisa Bender, Co-founder, RevenueGeeks, California, USA

 

Staffing and the Future of Work

Technology and necessity have kickstarted a new conversation on the nature of work. Traditional pieces of a business as rigid as staffing itself have changed in ways never imaginable even five years ago. Modern alternatives and flexibility means that more of America’s flavorful and invigorating small business will survive which is always a good thing. As small businesses flex their every advantage in trying to stand toe-to-toe with big-name competitors, it’s clear that the businesses who adapt have the best chance of coming out on top.

Open Communication and Your Office

How to Create a Culture of Open Communication in Your Workplace

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A growing trend in the business world has been creating a culture of “open communication” in the workplace. Open communication workplaces have been a welcomed and growing trend among employees, supervisors, and bosses — but what exactly constitutes “open communication” and is it right for your business?

What is an Open Communication Office Culture?

In short, an office with a culture of open communication is one where employees feel comfortable speaking openly without fear of backlash. Open communication means that both supervisors and employees can speak candidly about their problems in an environment in which both know they will be treated fairly.

For example, imagine that a designer is concerned about their current workload and thinks they may not be able to meet current deadlines. If that designer didn’t feel comfortable speaking about their limits to their supervisor, the designer may work late, then grow resentful of their job and company. In a culture of open communication, the designer would feel comfortable approaching their supervisor to adjust their workload. In the same respect, an open communication-friendly supervisor would authentically listen to the designer’s request and act on it in whatever way possible.

Changing an office culture doesn’t happen in a day, but changes from the top of a company often trickle down. The most essential step of fostering open communication is getting bosses and supervisors educated on the key points of an open communication office.

Know Your Employees as People

While this tip may sound abstract, seeing past employees’ titles and into their humanity is the basis of an open communication office. Learn your employees’ goals, ambitions, hobbies and otherwise. Let meetings and work conversations go off-topic every once in a while. Keeping communications strictly business quickly builds an “us versus them” mentality between employees and bosses.

A great way to get to know your employees is to get out of the office. Set up social outings a few times a year at local restaurants or attractions. By putting everyone on equal footing outside the office, higher-ups can take off their “boss caps” and learn about their employees less by their work responsibilities and more by their genuine personality.

Anonymous Feedback Channel

Either through surveys or anonymous email inboxes, having an anonymous avenue for feedback is one of the best ways to get candid criticism from employees in the early days of an open communication office. The goal, of course, of an open communication office is for employees to feel comfortable speaking their minds but starting anonymously is great first step for learning what your employees are looking for and in a zero-stakes environment.

If you plan to set up an anonymous Google Survey, advise employees to not use their gmail accounts when filling out the form, as it may show alongside their results. Advise the same when using an anonymous feedback email inbox.

When drafting your survey, ask the type of questions that matter to employees but that they may not be comfortable saying out loud. Ask questions like “do you feel happy at work, why or why not,” “Do you think our office runs efficiently, why or why not.” It is essential that when you get genuine criticism or feedback that you act on it immediately. Employees will begin to feel like their voices matter when their feedback leads to concrete action.

Learn from Exit Interviews

Employees leave companies for a multitude of reason, but make sure someone isn’t leaving your business because they felt stuck or unheard. Employees in exit interviews will likely be more open about both the good and bad things about an office since they are on the way out anyways. Don’t be afraid to ask hard hitting question not only about office culture but about the performance of bosses and supervisors.

Put together a written survey for exit interviews and ask outgoing employees to fill them out ahead of time. By giving employees time to think about your questions early, you’ll almost always get better thought-out answers.

In the actual interview itself, do everything you can to drop feelings of interrogation in exchange for conversation. Avoid targeted questions and make absolutely no reference to specific employees. If the conversation suddenly turns to bashing another employee, listen without directly agreeing. Your job is to get authentic feedback about what your outgoing employee liked and disliked about your office. Use their feedback to fuel future changes in yourself and the office.

After several exit interviews, see if you can find a trend among former employees and their feelings about the office. Like in the results of an anonymous survey, be certain to act on all feedback to further foster a culture where everybody’s voice matters.

Public OKRs and Regular Meetings

Be upfront with your employees about the company’s objectives and key results (OKR). Explain to each employee how their work fits into the company’s goals and plans. Make sure key changes in the company are communicated clearly and to everyone.

The best way to get all of a company’s information on the table is to host regular meetings both with your entire team as well as semi frequent one-on-one meetings. Find a flow for these meetings that lands between professional and informal. With the prevalence of remote work and Zoom meetings, it can be doubly difficult to find time for watercooler informal chats, but as the boss, take the first step in setting the tone for your meetings.

Open communication means open communication, so good and bad updates must be shared equally. The quickest ways for employees to feel left in the dark is for them to learn negative updates are being sheltered from them while positive ones are being celebrated. It’s not enough for just the boss to share news and OKRs. Employees must be a real part of the conversation. Get your team in the habit of sharing what projects they are working on as well. Since company OKRs are public, reenforce that everyone’s projects are pieces of the company’s overall goals.

Own Your Mistakes

In the world of tough-guy-isms and old-world corporate boys’ clubs, bosses who own up to their mistakes were weak and seen as weaker by their employees. This is absolutely not true. If a boss is willing to admit when they missed the mark, employees may feel empowered to do the same. Use your mistakes and shortcomings as a learning experience and be just as open about them as your successes.

Talking about mistakes with your team is another great way to break down the vicious us-versus-them mentality between employees and bosses. Trust is essential in an open communication workplace. Don’t betray your employees’ trust by withholding information out of fear of losing face, as the negative impact of suppressing information is almost always greater.

Open communication culture lives and dies by those “in charge”. If change isn’t authentically accepted by higher-ups, employees will never feel comfortable enough to speak openly. 

Are You Effectively Using Open Communication Practices?

Many workplaces may be quick to claim their offices believe in “open communication,” but rarely do those claims come with concrete changes. Every business owner and employee can benefit from learning more about, and embracing an open communication office culture. So, if your workplace can use some improvements is to take small gradual steps, ensuring you include your employees along the way, and culture will follow.

 

SMBs Should Expect and Prepare for Employment Changes Under Biden 

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The policy differences between the Trump and Biden administrations may be night and day, and if President Joseph Biden has his way – especially with Democrats holding a slim majority in Congress for roughly the next year – small businesses may have to make significant changes in the way they manage employees. 

As if running a small business wasn’t complicated enough – if you own and operate a small business, whether you also serve as the human resources manager or have an on-staff HR executive, you can expect legislative change in areas such as wages, diversity training, dealing with unionized employees and offering more paid time off. 

Tracking and implementing potential changes may seem like an overwhelming task as debate continues on the American Infrastructure and Jobs Act and the American Families Plan (AFP), which will usher in sweeping changes if passed. If you don’t have an internal HR executive, you may want to consider hiring an outside HR consultant or business attorney to make sure you are in compliance with upcoming potential changes.

Some HR issues to consider under the Biden administration are: 

An Expansion of the Family and Medical Leave Act (FMLA)

Under the current FMLA, employers must provide workers with up to 12 weeks of unpaid leave per year for illness or injury, or to care for a sick family member. Employees must be allowed to return to their same or an equivalent job at the end of their leave.

According to the fact sheet for the AFP, if Biden’s plan is enacted, you should expect to be required to give your employees paid time off for family matters and medical leave. The proposed changes would essentially create a sweeping increased paid family and medical leave program.

In short, the Biden administration is proposing that, over a 10-year period, employers guarantee 12 weeks of paid parental, family illness, personal illness or safety-related leave. Workers would receive three days of bereavement leave per year starting in year one. Congress is still debating the bill, but it is expected to be voted upon before the end of the year. 

Protecting the Right to Organize (PRO) Bill

The PRO bill narrowly passed the US House of Representatives on March 9 and is currently being debated in the Senate. If passed, the PRO Act would present a potentially significant disadvantage to small business owners in that it would expand workers’ rights to organize and form unions. 

The PRO Act, which would be enforced by the National Labor Relations Board, would also:

  • Prohibit mandatory arbitration agreements in employment contracts. An arbitration agreement is typically a clause in an employment contract which obligates employees to arbitrate all disputes with his/her employee and prevents an employee from organizing a class action suit against an employer. Historically, such a process has favored large corporations, but prohibiting such clauses could work against a small business in that it would make small businesses susceptible to frivolous lawsuits. 
  • The Act would reverse the US Supreme Court’s previous decision that mandatory arbitration agreements were enforceable.
  • It would also potentially change the ABC Test – a test used in some states to determine whether a person is an independent contractor or full-time employee – by imposing stricter requirements for an employer on how to classify a worker. This is important because, unlike a contractor, a full-time employee is entitled to overtime pay, collective bargaining power and health insurance benefits. The Senate is still hashing out what the line will be that separates an independent contractor from a full-time employee.
  • Create new civil penalties and make SMB owners vulnerable to personal legal liability.

An Increase to the Minimum Wage

As we continue to navigate the ups and downs of the COVID-19 pandemic. labor groups and unions have been adamant about raising the current $7.25/hour federal minimum wage, which Democratic Vermont Senator Bernie Sanders has repeatedly referred to as a “starvation wage.” 

 

A national increase to minimum wage is one of the sweeping labor proposals from the Biden Administration.

Biden has spoken about raising the wage a number of times since his 2020 campaign, and ordered the minimum for federal contractors to be raised to $15/hour in April. Various states and private corporations such as Amazon and Target have already raised hourly wages to $15 to $20/hour. 

While Congress has yet to hash out a plan to raise the wage, small businesses should already be considering a raise in pay to their hourly employees due to another concern: the current worker shortage. 

People who were furloughed or laid off during the pandemic and are now re-entering the workforce are demanding more than the minimum wage and better working conditions. Small businesses need to comply with that despite the hit to their bottom lines.

The Incorporation of a Diversity, Equity and Inclusion (DEI) Policies

One of Biden’s first acts as president was to reverse President Trump’s executive order 13950 forbidding diversity-inclusion training and education in federal agencies, the military, federally-contracted companies (a large percentage of which are small businesses), and for federal grant recipients. 

The revocation of the order affects small businesses – even ones that have 10 or less employees – in that it makes them more susceptible to legal action for discrimination, especially if they do not have a DEI training plan in place. The intent of the revocation was to encourage companies to put DEI training programs in place, but with such a policy in place, it may be possible for employees to prove unconscious bias or systemic racism in a lawsuit against an employer. 

“A company’s unilateral decision to enforce DEI policies regarding bias/systemic racism is an employee’s only protection while at work,” said Andrew Lacy, founding Attorney of The Lacy Employment Law Firm, a labor rights and employment firm, in an interview with HR consulting firm Zenefits. 

An Increase in Immigrants and Foreign Visa Workers

The US workforce, on average, relies on 1 million foreign temporary workers and 8 million undocumented immigrants. Under the Trump administration, most new temporary work visas were suspended under the decree that those temporary workers competed with Americans for jobs. 

Additionally, Trump rejected new applications for the President Obama-era program of Deferred Action for Childhood Arrivals (DACA), a program that provided a 2-year period of deferred action from deportation and granted a work permit, among other protections, and temporarily suspended a variety of work visas in his attempt to limit immigration. Trump’s attempts to limit immigration arguably disrupted the workforce in the US, since undocumented immigrants often fill low-paying jobs and are always in need by both big and small businesses alike.

Under Biden’s proposed U.S. Citizenship Act of 2021, roughly 11 million undocumented immigrants will have extended legal rights as well as an eight-year pathway to citizenship. Additionally, the act will limit workplace raids by the Immigration and Customs Enforcement (ICE), thus presenting less disruption to small businesses. 

Anyway You Slice it, Change is Likely Coming

Whether you call yourself liberal or conservative, the fact is that now is the first time Democrats have controlled the executive and legislative branches of the federal government since 2015, and this will be the case until after the midterm elections in January 2023. 

With a little more than a year to go, you can bet Democrats will push for as much of the Biden Administration’s agenda as possible, so if you’re an SMB owner or an HR executive at an SMB, you can most definitely expect change between now and 2022, and now is the time to start preparing for it.

What you Need to Know About QR Code and SMS Payment Options

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It is now easier than ever to accept contactless payment from Visa, Mastercard, Discover and even American Express. Some new payment options, however, have emerged that your business may want to capitalize on. Not counting services like Apple Pay, Google Pay, and Samsung Pay which all work as NFC-enabled versions of customers’ existing credit cards, there are several new and re-emerging payment options that businesses may be missing out on. Services like Venmo and its parent company PayPal are P2P (person to person), meaning that customers can transfer money between each other, and more importantly, hold a balance similar to a bank account. More and more companies have also been accepting payment via SMS, leading several small businesses to wonder if they, too, should adopt the young technology.

PayPal, and more recently Venmo, have become massive money-moving tools and recently announced that their users can pay with their account balances via contactless payment. Accepting contactless payment beyond the big four card companies can be a big win for your small business but there are some additional steps and caveats you should know about adopting QR code contactless payment before you sign the dotted line. This article will explain the key details of up-and-coming payment methods including Venmo for business, PayPal contactless, and pay by SMS via Everyware so business owners can make a more informed decision as to whether or not these payment options will work for their business.

Paying by QR Code

While an exceedingly popular payment option in Japan, Taiwan, and South Korea, QR Codes are just taking off in the United States and Canada. Paying by SMS exploded in the countries it did largely because merchants took advantage of near-universally used messenger apps that doubled as virtual wallets. In recent years, two companies, which quickly merged into one company, have become the de facto kings of QR payment in the west; those being Venmo and PayPal.

QR Code payment functions through an intermediary app like Venmo or PayPal where merchants set the price on a tablet, terminal, or phone and have the customer scan the code with their phone. The customer will then be prompted to pay on their own device. PayPal and Venmo, however, do not operate equally and it is important to know the differences between the two apps’ rates and terms.

PayPal by QR Code

In order to take advantage of PayPal’s contactless QR checkout, merchants need a merchant PayPal QR code. Business owners can download their own QR code for free from this link. Once you have your unique QR code, either print out the code or set up a tablet at your point of sale that customers can scan when checking out.

Terms: PayPal offers rather competitive terms even compared to NFC-enabled contactless payment. Both guest and PayPal user transactions have a fixed fee for commercial transactions that is determined based on currency. The chart below lays out PayPal’s terms for USD.

  Rate Fixed Fee (Per Transaction)
QR Code Transactions $10.00 USD and Below 2.40% $0.05 USD
QR Code Transactions $10.01 USD and Above 1.90% $0.10 USD

 

Bottom Line: Adding PayPal contactless payment is a mostly harmless addition to your business that lacks an annual or monthly fee and offers competitive rates. One problem brick-and-mortar retailers may see is that customers must manually type the amount of money they are sending to merchants. Unlike NFC payment where the merchant inputs their price and customers scan their card, QR code payment via PayPal may cause slowdowns in long queues because of a need to double-check if customers have paid the proper amount. PayPal QR payment is likely a great choice for small businesses that are one-person operations like barbers or businesses in environments like outdoor markets. If you are a business with a brick-and-mortar facility, do your research to see if QR code payment may be more hassle than it is worth.

Venmo by QR Code

Venmo is actually owned by PayPal, but Venmo’s commercial transaction rates and payment options are slightly different from its parent company. To accept Venmo contactless payment at your business, you’ll need a free Venmo business profile. You can set up a Venmo business profile through this link. Once you have an account and have set up your QR code, if you’re interested in stepping up your Venmo presence at your point of sale, look into Venmo’s several QR kits with official QR code lanyards, tabletop displays, and stickers.

Small businesses that don’t have a dedicated point of sale can use their Venmo business profile as a virtual POS, great for contactless payment. Similar to personal Venmo accounts, merchants can set prices and charge customers as well as let customers initiate a payment. The Venmo QR code system allows merchants to manually select a price, show the customer their unique QR code, and have that price show up on the customer’s Venmo account. Once the charge is complete, the merchant will be immediately notified.

Terms: Even though PayPal owns Venmo, business profiles on Venmo have somewhat different transaction fees. Venmo’s rate is flat, unlike PayPal’s which splits its rate above and below $10 USD. Also, unlike PayPal which can use several international currencies, Venmo specifically deals in USD.

  Rate Fixed Fee (Per Transaction)
Venmo QR Code Transaction 1.90% $0.10 USD

 

Bottom line: Accepting Venmo QR contactless transactions is functionally similar to accepting PayPal QR, but Venmo still has unique advantages over its parent company. Venmo sits squarely in between P2P payment mediator and social media. Venmo transactions are broadcast on the app like status updates on Facebook or Instagram. Accepting Venmo at small businesses is a great way to increase brand awareness and generate some free marketing.

 

 

While PayPal is most popular for online retailers and small businesses, Venmo truly puts the “person” into P2P as the app is commonly known for friends splitting bills and other social occasions. If your business is frequented by younger consumers or is too small to support a full-scale POS with the big four credit card providers, Venmo QR payment is likely a great way to make payment even easier for your customers.

Paying by SMS

Even though SMS predates even the QR code, using SMS for payment is still a relatively young option. While most SMS payment services offer a full suite of features including marketing and customer support options, today we will focus specifically on payment and whether implementing the system is worthwhile for your business.

Paying by SMS means that a merchant must send a message to a customer with an imbedded link that redirects them to a webpage where they can pay for a service. Many pay by SMS services also double as customer service platforms and can just as easily distribute refunds when necessary.

Everyware by SMS

Everyware is an all-in-one eCommerce tool with a payment system that functions more like invoicing than retail sales. Since payment is done via SMS it may be time-consuming to coordinate getting a customer’s phone number at a POS. If you run a business through Facebook, Twitter or websites that use Stripe for e-sales, Everyware is likely a dream tool. Even brick-and-mortar locations have begun adopting SMS payment parallel to traditional ordering by phone.

Terms: Compared to paying by QR code, paying by SMS has a slightly higher rate and fixed fee. This rate difference is likely due to the several other services that SMS payment tools include like message automation and marketing tools.

  Rate Fixed Fee (Per Transaction)
Relay SMS Transaction 2.90% $0.30 USD

 

Bottom Line: A big hit to pay by SMS services like Everyware is that they have monthly or annual fees. Once again, this is because of the several services offered at once by companies like Everyware. Everyware does not disclose individual pricing deals on their websites and asks that interested merchants contact their sales team to set up a free trial.

Everyware is likely a useful tool for near-all ecommerce companies, but it is a harder sell for stores with a physical POS. SMS payment would likely be much more helpful in brick-and-mortar stores as an additional option for calling ahead or ordering early. As long as you can spare a staff member to quickly answer messages from customers the same way as you would treat a customer phone call, Everyware may be a helpful tool to increase sales.

The Future of Payment

The COVID-19 pandemic massively increased demand for alternative, contactless payment options like SMS and QR codes. Even as the pandemic wanes and customers are going back to their pre-2020 habits, these new payment systems have shown no sign of slowing down. Businesses that meaningfully adopt QR code or SMS payment systems into their business will likely find that it will only go to increase sales. If that comes in the form of customers who would text their order rather than call, or customers that share their visit to your business on their Venmo timeline, new payment systems are reflective of the world’s new consumers. Businesses that adapt first have the most to gain.

Fostering the Customer Experience Without Breaking the Bank

Best Low Cost Methods for Creating a Stellar Customer Experience

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Before a customer makes even one purchase from you, their customer experience has already started. The customer experience is the culmination of every moment a customer spends with your business until they are no longer your customer. A good customer experience creates an emotional bond between your business and that customer, keeping them coming back again and again. Cultivating a stellar customer experience takes time and care but does not have to break the bank. Many strategies that strengthen the customer experience are cost-free and those with a price tag have the potential to produce great ROI through satisfied return customers and increasing the life-time value of a customer.  

Don’t Confuse Customer Experience with Customer Service

All of the most basic interactions your business and staff have with a customer account for customer service. Customer service is the most baseline expectation for customer interaction that businesses must meet to avoid bad online reviews and word of mouth. Answering the phone, making eye contact, saying ‘thank you,’ and listening to customer requests are all examples of customer service; all good things, but in no way memorable. Customer experience, on the other hand,  accounts for all of the unique, personal touches your business can make to emotionally connect with your client base. If done correctly, your customer experience should both raise your reviews from average to great as well as increase the number of sales you make through word of mouth and advocacy marketing.

The customer experience is what people remember about your business. Think about the small businesses that have made an impression on you. All of those elements that may have impressed you or made you laugh are a part of your own customer experience; it should be your business’s goal to get those same emotions from your customers.

Building a Brand

The first step to strengthening your customer experience is making sure you have a strong brand. While your small business may not be able to match the variety of Amazon or the low prices of Wal-Mart, small businesses have every opportunity to make their own brand, or business personality, compelling, targeted, and identifiable. Building a compelling brand for your business often begins with keeping all aspects of your brand like colors, tone, font consistent. If you don’t know what aspects work best for your business, do some light research to find out the median age and interests of your customers. Having a business with a distinct personality is the first step to making customers feel like their interactions with your company feel special.

Focusing your businesses’ brand to be more appealing to your customers is the best way to make those customers feel even better about visiting your business. Keep in mind these key pieces of a business’s brand when assessing your own.

Brand History and Story: Customers will feel even more connected to your business if they know how you started out. Small businesses with grassroots or individual histories should actively tell those stories on their website and social media pages. Businesses with start-up stories will likely resonate even more with customers, strengthening their customer experience.

Brand Personality: Establishing a brand personality means giving traits to your business that customers can then associate with. The first step to finding or refining your brand personality is choosing some adjectives that you think define your business. Get your staff into the conversation as well and try to get a list of words like “laidback, friendly, sophisticated, professional,” or anything that fits your business. A brand personality is essential for cultivating the customer experience, as customers more easily establish an emotional bond with a business that has perceived human traits.

Brand Values: Being upfront about what your business stands for is increasingly important to the customer experience. Bind your brand to memorable and compelling values like diversity, accessibility, or whatever values you think apply to your business. Then, draft a concise mission statement for your business that encompasses those values. Make sure your customers can easily access your mission statement from your website, social media and especially in your actual place of business.

Handwriting Goes a Long Way

This tip may seem basic, but handwriting is often overlooked for the sake of digital convenience. How often does your staff use pen and paper when communicating with customers? Think back to any time you’ve received a thank you card with genuine handwriting and how that made you feel. Clever use of handwritten notes reminds customers that your business is run by people and not robots and algorithms. Even further, use writing by hand as an opportunity to further your brand personality. Here are a few places your staff can implement handwriting to go the distance and make a personal connection with your customers.

Receipts: When appropriate, encourage staff to add a personal touch to customer receipts. Even a smiley-face or “thanks” is a quick way into a customer’s memory.

Special Notices: Even the most mundane notices like restroom closures or your business’ mask guidelines are ripe for handwriting as well as brand personality. Instead of simply writing “restroom closed,” consider your brand personality and make a sign another way to display your business’s unique traits.

Marketing Materials: Marketing doesn’t have to mean expensive postal and email campaigns. Marketing to cultivate the customer experience can be as simple as making changes inside and out of your store. If your storefront is along a street or busy walkway, consider getting a chalk board and writing something clever about your business beyond your hours. Once again, if your business is on a walkway, consider getting a water bowl for pets during the warmer months. Write a witty, cute note above the bowl inviting pets to take a drink. While the pet partakes, the owner is then much more likely to take a second look at your store.

Get Your Staff Involved

Direct interactions with staff are the basis of making customer experiences memorable. If you run a business with outward facing staff, be certain that your training encourages staff to interact with customers when appropriate. If you have in-house customer service, be certain they are trained to be both effective and infectiously friendly. For businesses who sell products from a brick-and-mortar location, round up your staff and either cultivate a ‘Staffs’ Picks’ collection of products or encourage your staff to select their favorite products and write up endorsements; double points if those endorsements are hand-written!

When getting your staff involved, be sure they are just as aware of your company’s brand and personality as you are. When your business’s brand is strong enough, you can even use your brand to attract staff that already represent your preferred tone and outward appearance.

Dynamic and meaningful staff interactions account for the most important piece of a customer experience. If customers are meant to resonate with your business’s brand and perceived traits, those traits ought to come through strongest via your employees who embody those same traits.

Follow-up After Visits

Following-up with your clients is one of the most certain ways to both improve their customer experience as well as increase the chances they will return to your business. There are several ways a business can follow-up with clients eg: email, SMS, letters, social media; it is essential your business finds out which medium resonates most with your customer base.

Follow-ups with clients absolutely must be timely. Be certain that any kind of follow up message is sent either the same day the customer interacted with your store, or as soon as possible. By sending a follow-up message close to the client’s visit, it’s clear to the customer that they are a priority to you, the business.

In order for your follow-up messages to avoid a quick send to the digital trash bin, think of creative ways to add value to your correspondence. Some examples are to give avenues for direct feedback and places for customers to give suggestions. If a customer fills out a feedback or suggestion form, that is another great place for a personalized follow-up! Be receptive and respectful if customers have meaningful complaints or thought-out criticism in their responses, as addressing those complaints thoughtfully can massively rebound a poor customer experience.

Social Media, Blogs, and Keeping Customers Engaged

Customers who are already wowed by your company and want to keep up with your brand even further will often use social media and your company website to keep in touch with your business until their next visit. Make sure that your web presence is sharp and up to date with content that reflects your established brand. Use your social media channels to advertise events in your store or to highlight new products in fun and charming ways. Your goal with social media outreach is to stay in the conversation; whatever that conversation is will be up to your target audience and existing customers.

The most sure-fire way to positively influence the customer experience on social media is to actively engage with customers. When people comment on your posts or “@” your business, it is imperative that your official account responds and engages with those posts in a timely manner. Keep a close eye on posts from people who tag your business after visiting; just a simple ‘thanks for stopping by’ can make a huge impact on that customer’s experience.

A great way to make social media part of the customer experience is responding to comments or posts that mention your business. Even engaging customers on social media is part of the customer experience. Get creative! If you have some regular customers who are big fans of your business, maybe feature them on your social media page along with a quote from that customer. Make sure to always get clear consent from customers before taking their picture or uploading pictures of them to the Internet.

An new strategy for keeping social media costs low is to work with interns. Large companies searching for social media managers often ask that applicants have several years’ experience to even apply. By making your company an entry-level opportunity, you can both grow your brand and business personality while giving young professionals the experience they need to pursue social media management as a career.

Final Considerations on Brand and Customer Experience

The basis of a memorable customer experience is one that breaks the mold of mundane daily tasks. Your aim should be to genuinely surprise customers with your business’s humanity and attention to detail. Good staff are an undeniable necessity when building a memorable customer experience; be certain they are as aware of this as you are. Find ways to both engage your customers as well as your outward-facing staff and those stellar experiences emblematic of small businesses will often happen naturally.

Inflation combatting tactics from real small business owners

Inventive Ways Small Businesses are Tackling Inflation

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No small business is spared from the almighty equalizer that is inflation. Small businesses often find themselves helpless, toughing out the consequences from decisions on high that drip like dominoes until finally reaching their own bottom line. Small businesses, however, are known for their resiliency. Even in the face of unstoppable forces like inflation, small business owners have proven to be flexible and resourceful in ways that their large corporate counterparts can never emulate. This article is a showcase of some small business owner’s unique methods for combating inflation. These business owners come from a wide range of industries and even countries, but their grit and determination is universal.

 

Taking Advantage of Alternative Materials

“We saw a huge surge in sales when Covid shut down all the local pet stores, so we needed to expand our grow capabilities. Lumber prices and other material prices were becoming more and more expensive. So, we went looking in other places for material we could use for constructing breeding racks and packaging tables. Salvation Army and Habitat for Humanity stores were a great resource because of their used furniture. We ended up buying used pieces of dining sets and wooden bed frames, broke them down, and built the racking and tables we needed. This was a great way to get the material we needed to expand our operation. Of course, the racking looks a little odd, but no one can deny their utility.”

Jeff Neal, Ops Manager, Critter Depot, Lancaster, PA

Tactical Financing

“When it comes to our business, during periods of high inflation, we often prefer to take advantage of the situation to increase our business’s rate of growth and expansion by applying for a small business loan from banks/lenders that offer fixed interest rates. The reason why is because inflation tends to generally lower borrowing costs, which means that when it is time to pay back the loan, we can do so with cheaper money than we initially borrowed, thereby effectively giving us a good discount on what we need to repay. This then gives us the chance to effectively invest our loan proceeds into beneficial investment opportunities that allow us to better strengthen and differentiate our business, which ultimately allows us to further build our pricing power in the long run.”

Eden Cheng, Co-Founder, PeopleFinderFree, Singapore

Creative Stockpiling and DIY

“I use a lot of chemicals in my business, so the best way that I have found to help beat inflation is to keep as large an amount of stock as possible. With bulk chemicals that I keep by the barrel full, I constantly check on alternative pricing options and suppliers, taking advantage of specials and renegotiating with current suppliers, even so far as trading services for better prices. For the more specialized, smaller products that I do not use daily, I keep limited stock but will specifically buy extra when there is a special running. I aim always to have stock available, purchased at lower prices so that inflation does not have an immediate, negative effect on my Business. 

I also have my own range of DIY products, which are essentially exactly what I use every day; it is just repackaged as a DIY product which I then sell to my customers. 

This allows me to bring in extra money by selling what I would use anyway,except at a higher price.”

Jack Miller, Exterminator & Pest Infestation Specialist, HowDoIGetRidOf.com

Customer Attraction at all Costs

“To limit the effects of inflation, you can raise the prices of your commodities but make sure that they are still in comparison to brands offering similar products. This method will allow you to earn more profit and give a way to offset the effects of inflation. Aside from that, you can also give out some discounts in order to attract more customers. 

But the best-tested method to combat the effects of inflation is the use of social media for promotions in order to increase customers. You can deploy a mini-competition in social media where customers can post videos or pictures about how they use your products. They just have to use hashtags related to your products and to your company. Additionally, you can hire an influencer to promote the competition in order for it to gain traction. This is a sure way to increase customer retention as well as profits even during an inflation period. Nowadays, social media can really save a business from inflation. A business owner just has to know how to leverage it in order to gain something from it.”

Scott Hastings, Co-Founder, Betworthy, Darien, CT

Stamps, Stamps, Stamps

“I run two history-related brands, History By Mail and Historic Cartoons. Inflation directly impacts the daily operations of our businesses. One way we have combated inflation is to purchase large quantities of USPS Forever stamps. We mail out thousands of historic replicas to subscribers every month using USPS First Class stamps. The cost of stamps is rising by 3 cents at the end of August. By purchasing large quantities of stamps before the price hike, we can lessen the immediate financial impact of the rise in cost. We have also had to slightly raise the cost of our products, which poses unique challenges for our subscription customers who are auto-subscribed and are used to being charged the prior lower rate. New customers are charged the new, higher rate, and prior customers are grandfathered in at the lower rate. We thought long and hard about raising our prices, but with the cost of supplies and labor rising, we needed to cover some of the extra expenses.”

Ari Siegel, Founder and CEO, History By Mail & Historic Cartoons, Chicago, IL

 

Running a small business is a balancing act on a never-ending tightrope; inflation is just one more spinning plate added to the business owner’s routine. In learning more about how small businesses combat inflation, we at Kapitus hope to spark the same creativity for our readers. Not every business solution is bound by rule books. And sometimes the answer to inflation lies in the Salvation Army furniture section.

 

How (and Why) to Choose an LLC Attorney

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Forming a limited liability company (LLC) can bring you a host of benefits – it will establish a legal identity for your small business, separate you from your business’ legal and financial liabilities and simplify your taxes at year’s end. 

Whether you are creating a new LLC or converting to an LLC from a sole proprietorship, the process requires knowledge of your state’s rules on how to form and operate an LLC, a lot of paperwork and legal agreements between you and the members of your LLC, if you do not intend to be the sole member. 

Your best bet in forming an LLC is to consult with an attorney who has experience in forming LLCs in your particular state and municipality. Of course, you can try forming an LLC yourself, but mistakes on any of the required paperwork can leave you prone to significant delays in or, worse yet, legal liability and fines. 

Your LLC attorney can help you:

  • Determine if an LLC status is right for your business as opposed to sole proprietorship or an L or C corporation structure;
  • Draft and file your articles of incorporation, and make sure that they comply with your state’s regulations;
  • Negotiate funding agreements with your investors, if you have any other than yourself;
  • Draft and file the most important document of all – your LLC operating agreement, which specifies how you will operate your business, which includes how to invite or replace members of your LLC and bind the company to business loans. Without an attorney representing the interests of all of the LLC members, you are vulnerable to drafting an operating agreement that could present future conflicts and financial risks for your business, as well as potential future legal disputes between you and your partners, and 
  • Ensure that your LLC is compliant with business laws specific to your state and municipality. 

How to Choose an LLC Lawyer

Of course, attorneys can be expensive, and if you’re just starting a business, you may not have the budget for one. If that’s the case, you may consider using one of the various online legal services out there such as LegalZoom and Rocket Lawyer. These types of services offer you legal advice as well as an on-call attorney for a low monthly fee. 

However, if you are using one of these services, chances are you’re setting up an LLC yourself, which can still make you prone to errors in your paperwork. Additionally, you don’t know the experience level of the attorney you will be in contact with when using one of these services. 

If you choose to hire an attorney and have the budget to do so but don’t know where to begin, you can always look in your local Yellow Pages, put out a request for local referrals to the community via social media platforms, or you may wish to use online services such as LegalMatch and UpCounsel – both of which can match you with a qualified local attorney after you answer an online questionnaire.

Another inexpensive way to go could be to consult with a law school near you. Most law schools such as Columbia University in New York and Northwestern University near Chicago have programs in which law students assist entrepreneurs with starting their businesses, and the services these students render typically are free. Note however, you will be getting advice from law students who are seeking experience, and not licensed attorneys. 

Questions You Should Ask

If you have a list of attorneys that you are considering but don’t wish to end up inadvertently hiring the slick-talking title character from “Better Call Saul,” here are some questions you should ask:

  • How many years of experience do you have in helping to form an LLC?
  • Are you familiar with business law in my state and the state in which my LLC will conduct the most business?
  • How much experience do you have with my specific industry?
  • How much do you charge and what is your fee structure?
  • How long will it take to finish setting up my LLC (this affects how much you’re going to pay)?
  • Will paralegals or legal assistants handle part of my case? (This will also affect how much you pay)?
  • Do you have experience with funding agreements for an LLC?
  • Are you knowledgeable about tax options for LLCs?
  • How much experience do you have in drafting articles of incorporation and operating agreements?

While all entrepreneurs have dreams and are determined to operate for themselves, if you’re forming an LLC, you would be well-advised not to go it alone. While state agencies can provide you with the necessary templates and forms to fill out to create an LLC, the law prevents them from giving you any sort of legal advice. Mistakes in drafting complex documents such as operating agreements, articles of incorporation and funding agreements can cost you in the long run, so you should at least use an online legal service, depending on your budget.

Why You Want to be an LLC and How to Create One

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If you are the sole proprietor of your small business, and – heaven forbid – your business gets sued or must file for bankruptcy, are your personal assets, such as your house or your car, at risk? If this question keeps you up at night, now may be the time to consider converting your business into a limited liability company (LLC). 

An LLC literally does what its name implies – limits your personal liability in the event that creditors or the IRS comes after your company, plus it simplifies taxes. It is a relatively new type of business entity that provides the legal protections of a corporation with fewer tax and financial hurdles. You can form an LLC for nearly any business. 

What is an LLC?

An LLC gives your business its own legal identity. It is a legal status granted to a business that relieves owners of personal responsibility for the company’s debts and liabilities and establishes the business as an official legal entity. In a sole proprietorship, you must file your business’ net income or losses on your personal balance sheet. This makes you personally liable if your company is sued or must file for bankruptcy. In such a case, creditors or the government can – and most likely will – come after your personal assets such as your home, car and personal bank accounts. 

Take note, however, that you can still be sued personally with an LLC, depending on the circumstances. For example, if you’re a masseuse and you accidentally hurt a customer’s back, that customer can still sue you personally. You should still consider taking out a business insurance policy for this reason. 

Unlike a sole proprietorship, you and your business would be separate under a LLC. Once you’ve established your business as a LLC, you can open a checking and savings account in the name of your business. Also, LLCs can be taxed as either a sole proprietorship or as an LLC, and can take on business partners or be a single member LLC.

What are the Benefits of an LLC?

There are distinct advantages and disadvantages to converting to a LLC as opposed to a sole proprietorship. The first advantage is that single member LLCs are typically taxed as sole proprietorships, and the tax liability passes through to the owner’s personal tax return (hence the term, “pass-through” business). 

Second, since a single member LLC is treated as a pass-through business, that means that the single member can still qualify for the 20% qualified business income tax deduction, created by the 2018 Tax Cuts and Jobs Act, and yet, as previously mentioned, enjoy limited personal liability from lawsuits filed against the business and bankruptcy. You can choose to be taxed either once or twice (both as a corporation and a sole proprietor) – whichever option minimizes taxes. 

While an LLC itself doesn’t pay taxes, co-owned LLCs (LLCs that have more than one owner) must file the U.S. Return of Partnership Income  Form 1065 with the IRS each year. Each partner in the LLC must file this form separately, which the IRS reviews to make sure each LLC partner correctly reports their income. Single members must fill out form 1040 Schedule C with the IRS that will report your operating results, including profits or losses. You also have the flexibility to be taxed as a corporation, which, in some cases, can mean even more tax savings. You should speak with your accountant to determine which is best for tax reasons. 

Third is that you don’t have to deal with the red tape and bureaucracy of an S or a C corporation. For example, in an LLC, you don’t have to form a board of directors or have attorneys make sure you are in compliance with federal securities regulations and keep track of board meetings. 

Potential Drawbacks

The biggest drawbacks of an LLC is that you cannot sell shares of your company or go public – the company is solely owned by you and/or your members. You also will not be recognized globally, which means that if you operate or gain sales in another country, you may be taxed as a corporation. 

Other potential disadvantages are that LLCs differ from corporations in that they do not have specific roles, such as directors, managers, etc., which could lead to confusion as to who among the members is in charge. Additionally, in some states, LLCs may legally cease to exist if a member drops out. 

Forming an LLC

There are distinctive steps to forming or converting your existing business into an LLC, but the first thing you may want to do before doing so is to hire an attorney that is familiar with the laws in your state, because each state has different rules and fees when it comes to creating an LLC. Regardless of the state you are in, the basic process is:

Choose a Name for Your LLC

This sounds very straightforward, but the advantage of choosing a name for your LLC is that it will be unique to your business, as no other business will be able to use your name. Most states require your business’ name to end in LLC, and in most states you can reserve your name for 6-12 months for a small fee. Some states, such as New York, will not allow you to use certain words in your LLC’s name, such as “bank,” “Academy” or “Assurance.”

File Articles of Organization

Articles of organization is a document that outlines the initial statements required to form an LLC. Some states, such as New Hampshire and New Jersey, call them “Certificate of Formation.” While creating such a document sounds complicated, most states do make it easy – a form is available on the websites of most states’ Secretary of State that is typically simple to fill out. These forms will require you to name the members of your LLC, the physical address of your company and how it will be managed. All states charge a small fee, usually around $100, to file this document. 

Choose a Registered Agent

Every state requires an LLC to have a registered agent – an individual or company that agrees to accept legal papers on behalf of the LLC in the event that it is sued. The registered agent must have a physical address in the state in which the LLC is registered, and most states, such as California, provide a list of commercial registered agents that will act as an agent for an annual fee. In most states, an LLC member can also act as a the registered agent. You may want to hire an attorney to advise in choosing an agent.

Create an LLC Operating Agreement

Some states – but not most – require that you file an operating agreement. This is an internal document establishing how your LLC will be managed. While most states do not require one, you should create one in the event that one of the LLC’s members takes legal action against the LLC. You should work with an attorney when creating an operating agreement. Additionally, if you do not have an operating agreement, your state may dictate how your LLC operates. 

Comply with Your States’ Tax and Regulatory Requirements

This will require several steps that you should do in consultation with your attorney and/or accountant. 

  • First, you must create an Employer Identification Number (EIN) with the IRS if your LLC has more than one member. If the only managing member is you, you can elect to have your business taxed as a corporation rather than a sole proprietorship. As previously mentioned, your business will be able to keep its pass-through status in the event that you do. 
  • Second, you will need a business license depending on what type of business you are running. Depending on the specific rules of your local and state governments, you may even need to obtain additional licenses in order to do business in your local community. 
  • Third, your LLC must register with the appropriate state taxing authority in order to collect sales taxes and withhold state and local taxes from your employees’ paychecks. 

Get Ready to File Annual Reports

Some states will require your LLC to file an annual report every year – a document stating the yearly, detailed financial results of your business. While the task may sound daunting, you should work with your accountant or attorney on creating one.

While creating an LLC may be an arduous process, it will go a long way in legitimizing your business and cutting down on legal liability. Your business will have its own identity and be more organized for future growth.

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