Does the new Payroll Tax Forgiveness for Hiring Unemployment Workers add up to much?

The new programs are not expected to have a significant impact on hiring but it is important that employers are aware of the benefits and how they can obtain them.

On March 18, President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act. It provides an immediate increase in cash flow and also provides employers with a Retained Worker Business Credit, (a retention bonus) for individuals hired after February 3, 2010 who have remained on the employer’s payroll for at least 52 consecutive weeks.

Qualified new hires through to January 2011, cannot be employed in the 60 days prior to starting, not employed to replace a terminated employee unless the former employee voluntarily separated or was separated for cause and cannot be related to the employer. Previously laid off workers now rehired qualify for the tax forgiveness provision.

Under the new law, employers will be exempt from paying the 6.2 percent Old-Age, Survivors, and Disability Insurance (OASDI) portion of Social Security tax on wages paid to qualified individuals. The tax will not apply on wages paid to qualified individuals for employment after March 18, 2010, and prior to January 1, 2011.

In addition, the HIRE Act says employers can earn a tax credit equal to 6.2% of the new hire’s salary, up to $1,000, for each new hire that remains on the payroll for 52 consecutive weeks. Employers can take this new credit on their 2011 tax return.

To qualify for this retention tax credit, employers must pay at least 80% of the wages during the second half of the 52-week period that were paid during the first half (26 weeks) of that period.

Why do so many business owners have no cash flow plan (Even when the business owner has negative cash flow in at least one month of the business year)

If it is a simple business with a single distribution channel serving a homogeneous customer group, the owner most likely runs the business from a required monthly target of cash receipts and a cushion of cash or credit card or line of credit available borrowings.

The owner has usually been in the business a number of years, the revenues are stable and there is no perceived need to invest in growth.

What is wrong here?

Well, somewhere down the road this business will face competition of increasing intensity and probably enough to dislodge its footings. Such an event will deplete profit margins and cash reserves very quickly leaving no time and no money to weather the rebuilding period.

In some cases the business has already entered a competitive zone and still the business owner has no cash flow plan. For example, the owner fully realizes the return on the financial investment and hours worked in the business are not matching what was expected let alone what similar businesses are earning.

In summary, a cash flow plan forces an owner to confront the reality of competitive forces, to build a cash reserve and to survive rebuilding periods.

If you and your business have survived this far THIS IS WHAT YOU MUST DO.

It’s about intensity and customer traction in a very short time period!

Quickly build a small war-chest of funds/people resources without hurting your base business and use this war-chest to fund a plan to sell:
1. existing products and services to new customer groups or,
2. New products and services to existing customers.

Here are the project rules.

1. Individual project budgets must not exceed $5,000 in total including staff time,
2. take no more than 6 weeks to complete.
3. The project must require at least 75% of the project time in face-to-face contact with the targeted customers.
4. Have a project objective that is measurable. The objective has to be measured in terms of a NUMBER OF CUSTOMER ACCEPTANCES.
5. Make sure the steps to achieve the objective are broken down into daily deliverables that are very measurable and then measure them.
6. Don’t get started too soon. Wait until you have a detailed plan that is really understood by everybody and you get the sense that there is a high degree of confidence in meeting the objective.
7. Get a daily report with a RED or GREEN sticker depending on whether the daily and project miles stones are met or not. If RED, stop the project until a corrective action is agreed upon and implemented.
8. Make sure that there is a 6 week intensive concentrated effort from yourself and other those on the team.
9. Finally, get a partner to share the project costs. This could be a vender, a service provider, another business, a non-profit even an employee!
After 6 weeks or before stop the project and decide how many immediate paying customers you have and how committed they are to doing repeat business. If you have no paying customers stop the project and move on.
It is about a measurable customer based project objective, intensity, short cycle times, very detailed daily plans, critical tracking of progress daily, honest evaluation and immediate correcting actions.