Now that the dust has settled on this new legislation and employers are waiting to see what else transpires between now and 2014, let me shed a little perspective on how small business owners and entrepreneurs are planning to comply with the reforms.  Interestingly, the people that will feel the brunt of this impact are the employees, not the employers.

OVER 50 EMPLOYEES

Businesses with over 50 employees will be subject to a penalty of over $2,000 per year for not covering their employees.  This is steep, and amounts to a 5% increase in labor costs for an employee that makes $40,000/year.  In a recession in which double-digit percent margins have almost become extinct, how will these businesses survive such an increase?

The answer is quite simple.  The objective is to render the increased health care costs neutral to the firm’s overall labor cost structure.  I have heard many employers that will be impacted by this explain that it will have to be the employees who pay for it, primarily through wage and other benefit decreases.  So, it ultimately comes out of the employee’s pocket, not the employer.

UNDER 50 EMPLOYEES

Although businesses with fewer than 50 employees will not be subject to a penalty in 2014, they will be eligible for significant tax credits for covering their employees with health insurance.  Certainly the tax credits pale in their monetary benefit when compared to the cost for small employers to cover their employees, which means the business owners and entrepreneurs will figure out how to make the employees pay for at least the difference.

ONE-SIDED EFFECT

My point is that the average hard-working American will pay for this health care reform, not businesses.  We will see wages and other benefits decrease to offset the costs of health care.  I doubt this is the result legislators wanted, but it will certainly be the reality.

WILL PUTTING THE BURDEN ON EMPLOYERS WORK?

There are two common reasons these employers are not offering health insurance.  First, their industry’s business model does not have enough room in it.  Second, the employees do not value health insurance offerings from their employers.

By forcing employers who have operated their businesses without offering health care to their employees, this legislation is trying to tinker with proven business models and employee compensation packages that were not broken.  As we approach 2014, most businesses will prepare for implementing health care reform by “tweaking” their overall compensation programs to create a zero-sum result for the company rather than trying to absorb the costs into their business model with no additional value perceived by their employees.

Then, when times get tough, they struggle to let people go because of this same sense of pride and responsibility.  These same entrepreneurs don’t hesitate to sell equipment, downsize their office, or cut other non-human expenses.  So why can’t they just look at their employees as an asset or a piece of equipment to sell or dispose of when they need to lean-up their operations?

I know, this question sounds silly.  Obviously we don’t build much of a real relationship with a piece of equipment, and we don’t personally know of a wife and five kids that the piece of equipment is trying to support.  So, what does this have to do with our ongoing high levels of unemployment in this country?

We have all heard the statistic from the SBA that that just over half of private employees are employed by small businesses.  And I would argue that the small businesses are those that have more of a tendency to view their employees as real people and real families – in fact, sometimes a good portion of their employees are family members.  In this context, I submit that owners and executives of the small businesses of America are still wounded from having to let people go during the recession.

Where a few years ago it was common to see entrepreneurs hire a new person at even the prospect of the need, these same entrepreneurs, still bruised from some tough times, are much more hesitant to pull the trigger on new hires.  Phrases like: “Let’s hold off on hiring until we are absolutely certain we need another person,” and “I’m fine to authorize overtime until we can really justify adding to the staff,” have become the new norm.

Even though the Business Outlook Survey published in CFO Magazine is predicting double-digit rates of growth in both earnings and capital spending over the next 12 months, it is also predicting much slower employment growth.  When asked why employment would lag behind other positive trends, two of the top three responses highlighted the reliance on :

- 44% plan to increase productivity per employee

- 37% will increase production efficiency

Entrepreneurs are simply asking for more from their current employees and looking to technology and automation to grow.  They learned their lesson and, as a result, are accelerating our economy’s change to a more efficient playing field, relying on people to add high-level value than fulfill lower-level tasks.

So, as the economy rebounds, it only makes sense that employment will lag behind.

1.   TOP TEN 2010 TRENDS FOR ENTREPRENEURS - We received a lot of very positive feedback on this blog post as well as a radio interview request.  Listen to Ken Kaufman’s radio interview HERE.

2.   CFOs ON TWITTER - This blog post was updated throughout the year as we met more CFOs on Twitter.  Yes, there are some CFOs that have not only engaged in social media, but who are also pretty good at it.

3.   STAFFING THE ACCOUNTING/FINANCE DEPARTMENT IN START-UPS - This post offers insight into how a start-up should scale into its accounting/finance department.

4.   I CANNOT PREDICT THE FUTURE – BUDGETING IS WORTHLESS! - Predicting the future is actually easier than most think, and what you learn in the process makes the whole experience invaluable.

5.   WORKING CAPITAL – LESS IS OFTEN MORE - A different twist on cash flow management and liquidity improvement techniques.

6.   KEY BUSINESS METRICS EVERY ENTREPRENEUR MUST KNOW - Dashboards and business intelligence are becoming more critical for entrepreneurs.  Here is a roadmap for how to get started.

7.   HOW TO SPEND $195 INSTEAD OF $30,000 TO FILL A NEED - We received a lot of personal attention to this blog post – This gives us some insight into one business lesson learned from a family vacation.

8.   THE PROBLEM IS… - Be a problem solver, not just a problem finder.

9.   3 REASONS YOUR QUICKBOOKS STATEMENT OF CASH FLOW IS WRONG - Some technical information, but very necessary to understand if you are using QuickBooks.

10.  DOES TOO MUCH CAPITAL & SUCCESS TOO EARLY HURT START-UPS? - Interesting thoughts on what each business learns in its early bootstrapping days!

All the best for a prosperous 2010!

PLEASANT GROVE, Utah, June 6, 2009 - CFOwise is proud to announce that its Founder & CEO, Ken Kaufman, was quoted several times in a recent article published in the Utah CEO Magazine and written by Heather King.

CFOwise founder Ken Kaufman commented on this great exposure by stating the following, “The Utah CEO Magazine is a great resource for CEO’s operating in the Utah area. The information provided in this article and throughout the magazine is valuable and indispensable to CEO’s.”

This article in particular provides Owners and CEO’s the information that they need in order to effectively price their goods and services during the recession we are in. Ken Kaufman was quoted in the article saying, ” If a company is going to change their pricing, they have to recognize that it is a business model change and they have to go through and figure out what the impacts are going to be from a profitability standpoint, a cash flow standpoint and then from a competitive standpoint.”

About CFOwise

With over two centuries of senior-level executive experience, CFOwise is the premier provider of permanent part-time CFO services to start-up, emerging, and medium-sized companies in the United States. For more information, please visit: www.cfowise.com or contact Kim Waldron at 801-380-5615.

About Utah CEO Magazine

The Utah CEO Magazine can be summarized in their Editorial Philosophy, “Robust business is good for everyone, and creating that environment starts with our readers – Utah’s business elite. Our purpose is to provide information to help those business leaders navigate through challenges and seize opportunities. By consistently offering superior content, Utah CEO supports the immediate goals of Utah’s businesses while encouraging forward thinking to sustain the momentum. Outstanding ideas are at the core of a viable business culture, and Utah CEO keeps an ear to the ground for those outstanding ideas.” The content in Utah CEO is designed to serve a business purpose first, not just entertain. For more information please visit: www.UtahCEOmagazine.com .