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The HBS Blog

The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.

HBS Acquires Sabre Compliance Services
By Rick Bell Wednesday, July 25, 2012

Rick Bell, Chairman and CEO of Harvard Business Services, Inc. announced today the acquisition of Sabre Compliance Services of California. “Our two companies have had a long-term relationship serving the entity compliance needs of Real Estate Developers, so it was a natural fit for us to combine our efforts,” Said Bell. “The result will be faster and lower cost services for our clients.”

Sabre Compliance Services was formed seven years ago by four partners. The team of partners was very successful in gaining the compliance contracts with many large developers. After one of the partners sold out to the other three, the company experienced the same fate many companies did in the real estate services industry, business “contracted” as it was called.

From the start, Sabre used Harvard Business Services to provide the 50-State entity formation and maintenance services for Sabre. Since Harvard has a team of 23 corporate specialists all working with the latest technology, Sabre won several key contracts against giant competitors based on better service at a greatly reduced price.

Sabre will continue under the day-to-day direction of Paul A.Teves, Managing Director, who has been in that position for 4 years. Clients won’t notice a difference communicating with Sabre, the phone numbers, email addresses and Orange, California location remain the same.

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The 101 on a 401K
By Gregg Schoenberg Monday, July 23, 2012

We’ve been talking a lot about employee benefits recently in our HBS posts, and this week we’re going to focus on the 401(k), which is easily the second-most-popular benefit after health insurance.

While a lot of people think of 401(k)s as solely the province of large companies, the reality is that the IRS allows any company, be it an S Corp, a C Corp, a partnership or even a sole proprietorship, to set up a 401(k), and there are some distinct tax advantages for companies that offer the plans. Each dollar that your employees contribute to the plan reduces your firm’s overall employee taxable income, which should help to lower your tax bill. In addition, there is a provision in the Economic Growth and Tax Relief and Reconciliation Act that allows employers to take a tax credit to offset some of the costs of setting up a qualified 401(k) plan.

While there is no hard-and-fast rule to determine when a small business should launch a 401(k), a good rule of thumb is that once company’s annual payroll reaches about $500,000 a plan probably makes sense. If the time is right for your company, then you’re definitely going to need some help from a professional investment advisor to get started. Fortunately there are a number of firms that specialize in helping small businesses establish 401(k)s, and some of the big boys in the 401(k) world like Vanguard—the low-fee index-fund giant—have special programs geared to entrepreneurs. You may want to speak with several firms to find the one that suits you best. During your due diligence process, you should spend a good deal of time focusing on the two most important characteristics of a 401(k) plan: the fee structure and the choice of investment options.

The fee structure of a 401(k) plan can be pretty complicated, which is one reason why it’s so important to find an advisor that you can trust and who will be straightforward with you about costs. The total cost of a plan can vary tremendously once you account for the various investment management, administrative, and advisor fees. Even a 1% annual difference in fees has a huge impact on the returns that participants will earn on their investments. For example, if you contribute $5,000 annually for 30 years and earn 7% a year with fees of 0.50%, you’ll wind up with $460,000 in retirement savings. But if those fees are 1.50% you’ll have only $382,000, a difference of $78,000. The moral of this story is that fees matter.

One great way to reduce the fees in your 401(k) is to make sure that the plan offers participants the ability to invest in index funds, which attempt to track an overall market average like the S&P 500 rather than trying to outperform it. The fees on index funds are much lower than on actively managed funds. The majority of professional managers that try to beat the market fail anyway, yet they charge much higher fees for their “services”.

You’ll also need to give participants the opportunity to gain exposure to the major asset classes: domestic and international stocks, government and corporate bonds, inflation-protected securities, and a low-risk cash alternative like T-Bills or money-market funds. Resist the temptation to add too many choices as they tend to lead to confusion among participants. And definitely consider adding a target-date fund (TDF), which can greatly simplify the investment process. With TDFs, participants just have to choose an approximate retirement date and the fund automatically invests in an age-appropriate portfolio that decreases in risk as participants approach retirement.

Finally, you might consider having employees automatically in the plan, unless they opt out, instead of requiring them to opt-in. This will help to ensure that the maximum number of people participate, so that all of your hard work and good intentions in setting up a company 401(k) have the maximum effect on everyone.

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Health Insurance for Your Employees
By Gregg Schoenberg Monday, July 16, 2012

In a previous post we took a look at which benefits rank the highest with employees and determined that there is a clear number one: health insurance. While offering a health-insurance plan will not come cheaply, the cost is tax-deductible and can provide a strong incentive to the best job candidates at any given time.  Whether you’re just starting out and looking to hire your first employees, or have been in business for some time and would like to review your health plan, try following these five steps to help get your employees the coverage they need at a price that your business can afford.

1.)   Talk to your employees, or survey them, before choosing a plan. There are dozens of options when it comes to health plans, getting input from your employees not only gives them a chance to voice their desires, but it gives you an opportunity to encourage them to use their benefits wisely and to remind them to think of their health insurance coverage not as a gift from their employer, but as part of their overall compensation package.

2.)   Get help. Choosing a policy and a provider is a big deal and the process can be laborious and confusing. That’s why most entrepreneurs utilize the services of a health-insurance broker who can offer a range of plans from a number of different insurers. Try to find a broker with experience dealing with firms of your size in your industry, and make sure to get some references so that you feel confident you’re dealing with a reputable person. In addition to brokers, your state’s insurance department can be a good source of information on options for small businesses.

3.)   Consider giving employees multiple options. If you’ve got a diverse workforce, you’re going to need a health plan with some diversity too. What works for the twenty-five-year-old single guy is not going to work for the forty-year-old mother of four. Offering both a high- and a low-deductible plan combined with a health savings account should cover most of the bases. Health Reimbursement Arrangements are another increasingly popular option, for more on those see this article from the HBS archive.

4.)   Invest in a healthy workforce. Many insurance plans offer the option of adding a wellness program that helps to promote a healthy lifestyle through benefits like discounted gym memberships. While the exact perks may vary, the idea is always the same: a healthy workforce that requires less medical care results in lower premiums for your company, not to mention decreased absenteeism and increased productivity.

5.)   Be creative. If you’ve got a very small company or not all of your employees are interested in health coverage, you may not have enough people to qualify for a group plan, but that doesn’t mean you’re out of options. If you have just a few employees who need insurance, consider reimbursing them for part of the cost of an individual policy, or join a larger health group, such as the state Chamber of Commerce. As I pointed out in our previous post, employees actually place a higher value on their benefits than they do on the cash component of their compensation, so helping them purchase health insurance actually gives you a better return on your dollar compared to increasing their salary and leaving them to fend for themselves.

While there is no doubt that you’ll need to spend some time and money setting up and maintaining a health plan, it can result in positive returns for you, your employees and your business.

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The Benefits of Benefits
By Gregg Schoenberg Wednesday, July 11, 2012

As you build a business and hire employees, you are often faced with decisions about which benefits to provide for your staff. With so many options to choose from—from health insurance to retirement savings to profit-sharing and stock-option plans—picking the right package of benefits to keep your employees happy and your business profitable can seem like a daunting task. But a few recent studies help to shed some light on which benefits employees value most, and some of the results might surprise you.

While we’re all familiar with the maxim, “cash is king” but when it comes to employee benefits it seems that this old adage does not ring true. A study conducted by Sun Life Financial found that employees valued their total benefits package more than the cash component of their salaries. And MetLife’s annual Study of Employee Benefits Trends revealed that employees place more value than ever on their benefits, even if they have to fully pay for those benefits themselves.

These findings could have a profound impact on the way that entrepreneurs think about compensating their employees. While many of us may eschew providing a generous benefits package because it is too expensive, and choose to pay employees a more competitive salary instead, this appears to be the wrong approach. Instead, it may make more sense to offer staff a lower salary, in addition to a suite of benefits, while having the employees contribute to some, or even all, of the cost of the benefits package.

As far as which benefits employees value the most, the results of both studies—as well as a survey conducted by the Principal Financial Group—point to a clear winner: health insurance. (Did you notice all three surveys were done by insurance companies?) Given the peace of mind that comes from being insured, and the high cost of obtaining insurance on your own, this shouldn’t come as a great surprise. But what many of us may not have expected are the two categories that ranked at the bottom of employees’ wish lists: profit sharing/bonus plans and stock options. These results show once again that the vast majority of people prefer to receive benefits that increase their sense of security, as opposed to those that could increase their purchasing power and the balance in their bank account.

When it comes to financial benefits, “Defined Contribution Plans” such as 401(k)s, where employees contribute their own money (sometimes matched by employers), actually rank much higher than “Defined Benefit Plans”, where the employer shoulders the cost.

While we’d all like to provide our loyal employees with an extremely generous set of benefits, in the world of small business that’s not always fiscally possible, or financially responsible. But by understanding which benefits your employees are most likely to find valuable, you can provide them with the satisfaction and security they are looking for, and maybe even improve your company’s bottom line at the same time.

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Learn to Use Twitter in a Flash
By Gregg Schoenberg Monday, July 2, 2012

In a recent HBS blog post we gave small-business owners some tips on successfully using Facebook as a marketing tool.  Because Internet users view it as an entertainment destination, Facebook is a great platform for videos, photographs, and other engaging materials that help to tell the story of your business. Using Twitter, one of Silicon Valley’s hottest social-networking companies, can also be a valuable way to engage with current customers and acquire new ones.

In order to build your Twitter following you’ll want to follow some of the same practices that you do with your company’s Facebook page—like starting out by getting friends and family to follow you, sending out regular updates, and asking for and responding to feedback—but Twitter’s unique format requires a special approach to connect with your audience.

Twitter users broadcast short messages—called tweets—of 140 characters or less to their followers, who typically receive them on their mobile phones.  So you have to be brief, and enticing, in order to craft winning tweets.

Because your tweets reach your followers instantaneously and while they have an Internet-connected mobile device in their hands, Twitter is an ideal tool for conducting flash sales—time-sensitive promotions broadcast only to those who follow your tweets.  A typical Twitter flash sale lasts about 24 hours and offers customers a significant discount on one or more products or services.

If you’re going to hold a flash sale, you’ll increase your likelihood for success by promoting the sale for a few days before it goes live.  Luckily, this is as easy as sending out a daily tweet along the lines of: “Just three days to go before our once-a-year half-off sale!”.  Teasing the special offer in this fashion helps to get your followers excited—and ready to hit the buy button when the sale starts.

In addition to helping you sell merchandise that you may be looking to get rid of, flash sales also offer your business an opportunity to increase its social-media reach. Once you’ve conducted a successful flash sale or two, you might consider requiring users to pass on, or “retweet”, your message in order to gain access to the special deal.  This requires your followers to take an extra step, albeit an extremely easy one, in order to realize the savings, so you probably want to wait to try it until you’ve built a loyal group of Twitter followers. But once you have, this can be an effective tool for getting new followers and driving greater uptake of flash sales.

Like Facebook, Twitter offers entrepreneurs the ability to promote their companies free of charge—tweeting about your business and using Twitter to promote flash sales won’t cost you a thing.  And, as you might expect, Twitter is now following Facebook’s lead in the world of paid advertising: On March 26, the company announced details of its advertising platform for small businesses.  While it will only be available to a limited number of businesses initially, Twitter plans to steadily grow the offering in the near future. If you want to keep up with the latest details, you might consider following Twitter Advertising.

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