Welcome back to our 3-part blog series where we discuss 12 Deadly Sins that could potentially kill profit and lifelong success for auto shops. Read on for the final Sins: 9 – 12. If you missed last week’s blog, click here.
You Aren’t Paying Your Kids
Did you know that the standard deduction is now $12,000/year? That means that if someone earns less than $12,000 they pay no federal income taxes. This creates a great tax planning opportunity to think about putting your kids on payroll. Paying your kids needs to still pass the “fair and reasonable” test like all business expenses, but there are a lot of ways our clients use this to their advantage. Say your kid is in college and you are paying them to be there (housing, food, etc). You are using after-tax dollars to pay all of this. What if you hired them to be your social media manager, which plenty of people do remotely. Now by paying them $1000/month, you are giving your business a full write off, and this is income tax free for the child. What you have done is made their college expenses a business tax write off. There are some other factors to look into, but you can see the potential tax savings.
You Aren’t Funding Your HSA
In the new age of health insurance plans, a popular option is what is called a “high deductible health care plan.” The general idea is that the deductible (money that you pay out of pocket before insurance kicks in), is high so that the monthly premiums are lower. This is okay if you do not have a lot of healthcare costs, but if you do it can quickly get expensive. What a lot of plans offer is a HSA, or Health Savings Account, to go along with these high deductible plans. A HSA allows you to contribute pre-tax dollars to the account to use for healthcare related costs. Medicine, doctor visits, surgery, and even sometimes things like therapeutic massage, chiropractic, and saunas are acceptable costs if the doctor recommends. For example if you want to pay a $75 doctor bill without an HSA you would have to make $100 in wages to get the $75 in after tax dollars. However, if you are using your HSA you could just contribute the $75 pre-tax and save the $25 that you would have spent on payroll and income taxes. You can imagine the savings for larger expenses. I recommend that all my clients check with their insurance agent to see if their plan is eligible and set one up. Even if you put $100 in it right now, you can decide to contribute more later if you have a medical expense come up. However, if you suddenly have an unexpected large medical bill, and then choose to open the HSA, it is too late because the account has to be open before the medical expense is incurred. The annual limit is $3,500 for individuals and $7,000 for families. Any amount unused can be carried forward for years and used later for future medical expenses or converted into a retirement account as well. This is a great deduction that a lot of people overlook and could be costing you money right now.
You Have No Emergency Plan
No one likes to think about it, but something can happen to you at any time. Is your business setup properly to handle something like this? A lot of our clients have life insurance (if you don’t, you really should get some asap), but what about an accident that leaves you unable to go to the shop, sign checks, etc? You need to have procedures in place so that if something does happen to you, there is someone that can step up and continue operations. Who is going to sign the paychecks? Who is going to run the payroll? Who is going to pay the sales tax? All of these things that you are assuming responsibility for just stop if you are the only one with the access or ability to do so. Keep in mind that these all must be in place before something happens, or it becomes very difficult. We had a client that was out of town for vacation and had a stroke. He was not able to communicate and there was no one else at the shop that had permission to sign the checks. His nephew went to the bank to tell them the situation and ask that he be added as a temporary signee, but the bank froze all the accounts in fear of fraud. They were eventually able to get it straightened out, but not before a couple weeks of complete confusion and frustration. So how can this be done? You can talk to your bank about adding an emergency signee in case an unexpected situation arises. You can save all your access codes and instructions somewhere so that they are written down in one place, and someone could step in and continue operations. You can leave all this information with your lawyer so that they could act on your behalf in the interim. There are a lot of choices to be made, but you need to do it before you need it. Hopefully it never comes to fruition, but wouldn’t you like to be prepared if something does happen?
You Don’t Have Proper Employment Insurance
This is a severely overlooked area for a lot of small businesses. When we talk about employment insurance, we don’t mean health or disability insurance We mean insurance related to liability from hiring and firing issues. Have you ever had to fire an employee? What if that employee felt that he or she was not terminated for just cause? What happens if he or she felt that they were discriminated against? A shop is a very different environment than most other businesses and incidents do happen. Female service advisors that have issues with male technicians and hire a lawyer because they felt they were in a workplace with harassment. Technicians with drug or alcohol problems that felt they were discriminated against because they had a disease and are a protected group. It all can happen, and if they decide to sue you, you could be in a very bad position. This is something that you need to talk with your insurance agent to see if you are covered for these situations. In most cases, $1m of liability coverage for employment related suits will cost you about $1,000/year. A very small price to pay for peace of mind that you are covered from something like this.
So there you have it! Our 12 Deadly Sins that could potentially be keeping your shop from thriving. If you have any questions, please contact us at email@example.com. We’d love to help you and your shop increase profits, and be as successful as possible!