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How Net Promoter Score Can Improve Your Business's Customer Satisfaction

Posted: 12 Feb 2020 04:00 PM PST

If you think Net Promoter Score (NPS) is about simply collecting a metric, tracking its growth and hoping things change, then allow me to set you straight: This customer satisfaction survey is anything but basic. When wielded correctly, Net Promoter Score can become a powerful tool that will change the way you run your business, treat your customer base, and improve your retention rate.

What is NPS?

Net Promoter Score (NPS) is a customer satisfaction metric first developed by business strategist Fred Reichheld, who wanted to generate a number that would accurately predict customer behavior. 

Reichheld knew that customer satisfaction alone wasn't a sufficient predictor. After all, a customer might be satisfied with your product or service, but quickly churn after one negative experience. A satisfied customer might be poached by a competitor. A satisfied customer might never refer your product or service to a friend or family member, or respond to an upsell.

But a loyal customer will behave differently. A loyal customer will enthusiastically refer your brand to a friend or family member. A loyal customer will be less sensitive to price changes. A loyal customer will buy more, give more feedback, and complain less. A loyal customer will be unlikely to churn. 

Ultimately, Reichheld discovered that one powerful question was most accurate in predicting customer behavior: How likely are you to recommend this product or service to a friend, family member, or colleague? 

Implementing a NPS survey

If you want to predict customer loyalty — and in turn the likelihood of retention, profit growth, and organic referrals — then you would ask the above question with a 0-10 scale for the response, 0 being extremely unlikely and 10 being extremely likely. 

The resulting number assigns survey takers to one of three categories: promoters, passives, and detractors.

Promoters rated you a 9 or 10 on the survey. These enthusiastic brand evangelists are more likely to spend, make referrals, and provide constructive feedback. Maybe best of all, they are least likely to churn.

Passives gave a 7 or 8 on the survey. They are neither thrilled nor dissatisfied, and they won't factor into your Net Promoter Score.

Detractors chose a 6 or below. For one reason or another, these customers have been disappointed — and they're likely to tell you why (which we'll get to in just a moment).

To calculate your Net Promoter Score, you'll use the following equation:

[(# of promoters/total # of survey takers) x 100] – [(# of detractors/total # of survey takers) x 100] = NPS

The resulting score should be tracked and monitored continually using NPS software; this will help you understand how specific changes are impacting your rating, and how successful you have been at improving your score.

But maybe just as important as tracking this metric is the feedback generated from the follow-up question: Can you explain your rating?

The open-ended follow-up question gives your customers — and specifically your detractors — a much-needed opportunity to share their perspectives with you. More importantly, this is your moment to hear critical feedback that could transform the way you run your business.  Most NPS software will also track these open-ended questions providing a single source of truth for your customer satisfaction data.

Using NPS to improve company processes

Although it's never encouraging to see that you have dissatisfied, disappointed customers, your detractors may be your most valuable source of feedback.

How so?

Your detractors will let you know what's going wrong with your product or service. They'll tell you if they're frustrated with a particular process, or if your customer support team is performing poorly. Your detractors will be brutally honest… and inestimably helpful.

"Closing the loop" means that you actually follow through on feedback from your NPS surveys. You're taking action to address common themes of discontent and dissatisfaction, all the while improving and creating processes that create a better customer experience.

Here are a few real stories from companies that have transformed internal processes to boost NPS, and most importantly, to improve overall customer loyalty:

Progressive Insurance

At Progressive Insurance, support phone calls are recorded so that they can later be sent to the relevant employee if they generate NPS feedback. For example, if the phone call left the customer feeling unhappy or dissatisfied, the employee has the opportunity to listen to the call again and note any emotional response in the customer.

Allianz

Allianz is a multinational financial services company that also happens to be exceptionally NPS-forward. In one of their health insurance sectors, Net Promoter Score feedback showed that unexpected delays were causing significant customer dissatisfaction. Claims representatives also learned that customers had to call again and again to ask about the status of payments, and had to describe medical conditions repeatedly. 

In response, Allianz created a solution: Case managers were assigned to all client calls to help prevent delays and repetitive questions. If there was a delay in reimbursement, policyholders would receive a call or text message informing them about the status of their claim. 

American Express

When American Express tried to identify the processes that generated the most NPS detractors, they found a significant issue with card replacement. Requests to replace a lost or stolen card often went unresolved, leaving members frustrated. Notably, they also saw that their highest value customers more frequently experienced a need to replace their cards — and gave a lower-than-average NPS rating after going through the replacement process.

To address this critical issue, AmEx made it a priority to improve their card replacement process, with the company increasing their resolution rates by a whopping 20%. Unsurprisingly, they also noticed an improvement in the NPS scores of cardholders who had requested replacements.

In all of these cases, these major corporations took actionable steps to improve their processes, and they saw success. But if they hadn't engaged their customers to request an NPS score, they might have never discovered the source of discontent… and their bottom lines would have continued to suffer from the generation of more and more detractors.

Improved processes means greater retention

A high retention rate is a powerful indicator. It reveals how effective your business is at keeping customers happy at every stage of the customer lifecycle. It helps predict organic growth through referral marketing. And it's a great indicator of future revenue growth. 

Ultimately, your goal with implementing Net Promoter Score is to generate loyal customers and clients who stay longer. In other words, your goal is to increase retention.

By assessing and acting on Net Promoter Score feedback to improve processes, you'll ultimately increase your retention rate. If your NPS feedback reveals that your customer support staff handles payment issues poorly, you might want to consider creating a firm protocol for dealing with payments. Alternatively, you might learn that customers are confused by the set-up required for your software service. In this scenario, you might consider creating a process where new clients are assigned a customer agent to help walk them through the set-up.

In any case, taking steps that specifically address customer complaints will help prevent churn, and it may even convert existing detractors into loyal promoters. You'll see an increase in retention — setting you up for steady, consistent growth.

Letting customers drive key decisions


The belief that what customers think matters is at the heart of Net Promoter Score. Collecting, assessing, and acting on NPS means that you allow customer feedback and customer relationships to influence key processes and policies within your business. Ultimately, it's about generating loyal, high-value customers who want to invest in your brand and will stay with you for the long haul.

 

A Guide to Create Winning Enterprise Mobility Strategy for 2020

Posted: 12 Feb 2020 06:00 AM PST

Mobility solutions are a huge part of our everyday lives. In the U.S. alone, consumers are spending 5 hours per day on mobile devices. In 2010, a fourth of internet traffic was from mobile devices. Today, over 70% of internet traffic comes from mobile devices.

Growing investments and advancements in mobile technology make it the preferred platform for accessing and sharing information. Regardless of industry and business, the opportunities mobile solutions can create are infinite. This presents new opportunities and challenges for business leaders.

The long-term success of modern enterprise depends on developing mobility solutions. Today, more than 77% CIOs are considering a mobile-first approach for their digital transformation strategy. However, few businesses are prepared to create and implement their strategy.

The idea of incorporating mobility into your company's digital roadmap can feel daunting without the right expertise. In this comprehensive guide, I will show you how to develop an effective enterprise mobility strategy, for success during your digital transformation journey.

So what is Enterprise Mobility?

Enterprise mobility is the deployment of mobile solutions across an organization. It leverages mobile tech to connect people, processes, and data. Enterprise mobility improves how consumers interact with products and services of an enterprise.

An effective enterprise mobility strategy is not about determining pros and cons, rather embracing the overall impact that new mobile technology will have on the future of your business."

Enterprise mobility solutions can:

  • Provide customers with the ability to self-provision services

  • Create new user experiences that are simple, personal and smart

  • Remove complexities from internal processes

  • Build new revenue systems around data

Of course, enterprise mobility is ineffective in a silo. Enterprise mobility is part of an overall tech narrative. It works with other digital initiatives within your business.

Benefits of an enterprise mobility strategy

Consumers will benefit from a mobility strategy. But what about your business and employees? Businesses centered on mobile apps can reap greater benefits.

An enterprise mobility strategy will:

  • Improve security

  • Increase productivity

  • Reduce operational costs

  • Make Informed Business Decisions

  • Prevent Data Loss

  • Improve employee retention

Recent Enterprise Mobility Solutions Trends

Enterprise mobility solutions vary widely by industry. However, every business must have an enterprise mobility strategy that is:

  • Unique to its own industry

  • Addressing its specific business needs

  • Based on its current stage of mobile adoption

Below are some examples of mobility solutions that have disrupted several industries:

FinTech

Mobile payment solutions are advancing quickly. They offer consumers easier ways to pay with their mobile device. Only 3% of payments being made via smartphone in the U.S. As a result, tremendous opportunities exist in FinTech.

Construction

Mobile is transforming the real estate and construction industries. For example, augmented reality for mobile devices allows anyone to visualize a space. Builders can overlay BIM models on the construction site. Architects can present architectural models in 3D. Home buyers can "walk" into their new home miles away without leaving their living room. 

Retail

Mobile apps are capable of providing a richer in-store customer experience. Consumers can receive notifications about sales as they walk through store aisles. Regular customers can enjoy the benefits of a loyalty program. A perfect example of this concept in action is the Target mobile app. Users can access the Target app to locate products at their preferred store. Users can plan grocery lists in advance and purchase items for pick-up. Users can also scan in-store items for additional savings and rewards.

Logistics

Enterprise mobility solutions are moving the supply chain with apps for fleet tracking, inventory management, and order fulfillment. In logistics, the advantages of working smarter with mobile apps are apparent.

Healthcare

Mobile is making an impact on telehealth and telemedicine. Healthcare providers can provide remote digital healthcare services. They offer their patients convenience, choice, personalization, and control. According to the American Telemedicine Association, more than 15 million Americans received remote medical care last year. In contrast, almost 40% of tech-savvy consumers still don't know about telemedicine. Over the next few years, we can expect more consumers to utilize remote medical care services. The benefits of mobile solutions are infinite. With all these opportunities, you might ask, "why isn't every business focusing on enterprise mobility or have an enterprise mobile strategy?".

In our years of experience, we've discovered the same pain point. Most businesses don't know where to begin. Implementing a mobility strategy can be a daunting task. Below we show you how to develop an effective enterprise mobility strategy.

Key Steps for Your Enterprise Mobility Strategy

An enterprise mobility strategy is a part of your digital transformation strategy. Drafting a strategy for any organization can be overwhelming. However, if done right, your enterprise mobility strategy can scale business growth. You can evolve with the changing tech landscape and growing business needs.

An enterprise mobility strategy can:

  • Increase market share

  • Improve staff productivity

  • Reduce operational costs

  • Provide real-time access to data

  • Enable multi-channel collaboration

  • Identify the unique selling proposition (USP)

  • Level the competitive landscape

There are six steps to create any successful enterprise mobility strategy. 

Defining Your Business Needs

Enterprise mobile initiatives can solve your business problems, find you new customers, and help create innovative solutions to grow your business. Before you start, you need to establish your business needs.

Ask yourself:

  • What are the enterprise mobility trends in your industry?
  • What are the core products & services of your business? 
  • Where do you see your business in the next 3, 5 and 10 years? 

Conducting Competitive Research

Search competitor websites and online mentions. If they have applications, you can learn more about them on the app store. Once you identify mobile solutions based on your competitive research, answer these questions to fine-tune your enterprise mobility strategy:

  • What mobility solutions have your competitors built for their employees and customers?
  • Will this app solve any business problems or create value?
  • What impact new mobile apps will have on your business processes?

Setting Strategic Goals And Objectives

The first two steps in our strategy guide help you identify your needs. Next, we want to prioritize your needs with goals and objectives.

Important questions to ask:

  • Which apps will have the most impact on your business, employees, and users?

  • Is your business ready to support this app?

  • Is mobility the right channel to deliver the solutions your business needs?

Take as much time as you need to drill down into your goals and objectives. Outline your desired business outcomes carefully. This will make it easier to measure key metrics for future success.

Choosing The Right Mobile Experience And Platform

There are two recommended approaches for delivering mobility solutions:

Native Mobile Apps

Native mobile apps are built specifically for iOS or Android. Users must download them from the app store to a mobile phone or tablet.

Mobile Web Apps

Mobile web apps are websites accessed from a mobile browser. Mobile web apps are responsive and can look like a mobile app. 

Choosing the right mobile platform is essential to the success of your enterprise mobility strategy. Once you make this decision, it can be difficult and costly to reverse it.

These questions will guide you in the right direction:

  • What mobile platform will your app support: iOS, Android or both?

  • How do users interact with your applications?

  • Will your app need access to a device feature like camera, speaker, GPS, accelerometer or Bluetooth? 

Creating A Plan For Continuous Delivery

In mobile app development, you will need to continue supporting your apps to address bugs, new features, and security vulnerabilities.

These questions will help you create your agile development plan:

  • What apps and features will be of most value to users?

  • Can you prioritize your app features in high, medium, and low categories?

  • What new services will your business be introducing in the coming years?

Outlining A Security Strategy & Incorporating Governance Policy

Last and certainly not least, you must outline your security strategy and internal governance policy.

Your governance policy should address:

  • The development processes

  • Device provisioning

  • Data access and security

  • Interruption coverage / disaster recovery

  • Mobile application management

  • Ongoing infrastructure improvement needs.

The following questions will help you establish a good governance policy:

  • Who are the different stakeholders/personnel involved with your mobile initiatives?

  • What BYOD, CYOD and COPE device policy will you need?

  • How will you secure your APIs?

  • What security solution will you use to ensure data security?

Conclusion

A successful enterprise mobility strategy needs sufficient planning and coordination within your business. But, it can become a cornerstone of your company's digital transformation journey.

13 Facts You Need to Understand About SBA Default

Posted: 12 Feb 2020 05:45 AM PST

Over the years I've had people call me and say, "I don't believe I gave a personal guarantee on this. I think it was non-recourse. I think they only took the guarantee from my business."

Sometimes they'll be confused and say, "I have a corporation or an LLC, so I didn't think it would have required a personal guarantee." Unfortunately, that's incorrect, and they did not understand what they were signing. It's a shame that whoever was advising them at the time that they were signing these closing documents didn't fully explain they were personally liable.

In the 10 years that I've been doing this, I can count on one hand the number of people who didn't give unlimited guarantees. And those were situations where there were many partners who all guaranteed, say, 20% or something like that. The only other way that somebody wouldn't sign a personal guarantee – and it would be limited – would be if it were a spouse that had nothing to do with a business, and they signed a personal guarantee that was limited to their interest in their personal residence. That's required so that somebody can actually pledge their home as collateral. Essentially, it's the spouse acknowledging that the house is being pledged as collateral so they can't protest it later.

When you take an SBA loan, you will be giving a personal guarantee. What that means to you is that if the business defaults, the bank will look for you to pay back the loan out of personal assets. If you have equity in your home, they're going to look for you to borrow against it.

If you have cash savings, they're going to want it. If you had investments, they're going to want you to liquidate them. So if you don't fully understand what you're signing, you should stop and ask. You might ask an attorney. You could ask the banker, but keep in mind that they work for the bank. Whatever you do, make sure you find somebody who has your best interests at heart and who won't let you sign anything until you fully understand it. Because otherwise when you default on your loan, it's going to fall on deaf ears when you claim that you don't remember signing it or that you didn't understand it.

Personal bankruptcy is not a perfect solution.

People will often say, "If the bank doesn't want to settle, forget them. I'm just going to file for bankruptcy." That's great in theory, but not everybody qualifies for personal bankruptcy, and there's more than one type of personal bankruptcy. With chapter seven, yes, maybe you can wipe the slate clean and you won't owe a thing. But if you have too many assets or you have too much income, you're going to have to do a different type of bankruptcy. Just to pay the bankruptcy attorneys can be expensive, since the process can drag on for months or even years. And then at the end of it, you may end up having a repayment plan anyway, so that's not a perfect solution. The other thing that people don't realize is that if your home has been pledged as collateral and you file for personal bankruptcy and get a chapter seven, even if you're no longer personally liable, the lien on your home is still going to remain there.

This means that even if you do the personal bankruptcy, you're very likely going to have to go back to the bank and negotiate a release of the lien that's on the property. I know this firsthand because the negotiation of lien releases for SBA-backed loans is a service that I offer, and I've done a number of them over the years.

There is a difference between a personal guarantee and a lien on your home.

These are not the same thing. A personal guarantee is all-encompassing. It doesn't take a lien on anything in particular. It's just saying, "All of your stuff – we're going to expect you to liquidate that and pay us." But it's not like the bank is specifically saying, "We're going to take your couch or your motorcycle or your TV."

It's just a general pledge. Now, a lien on your home is a very specific pledge, and it means that they're actually going to put up your mortgage or a deed of trust on the property, which means that if you ever go to sell it and that lien sits there, the lien would need to be satisfied.

Just because you give a personal guarantee, it doesn't mean you're actually giving them a lien on your home. But be aware that when you sign a mortgage, that is much stronger because a personal bankruptcy is not going to get you out of it. That's why it's important that you understand the difference between a personal guarantee and a lien on your home.

To settle your SBA loan, your business does need to close.

Even though the SBA rules and the standard operating procedures do state that they can settle a business when it's still open assuming you meet certain criteria, I can tell you that in practice, the SBA is unwilling to do that. I've had situations where we sent them an offer and said, "The business is open. We are willing to close it, pending approval of the settlement."

They rejected it out of hand every time; they wouldn't even consider the offer because the business was still open. So even if you find this language in the SOP, know that in practice, that's now how things work. I've had people read me the policy and argue that I'm wrong when I tell them this. Believe me, I've read the policies, too. I understand them well. And I can tell you that I have not seen the SBA honor that policy. Maybe they did at some point, but in the last five to ten years, I have not seen it.

In addition to the business being closed, the assets need to be liquidated.

Your business doesn't have to be sold as a whole. You can do that if you have a buyer that will bring more value, and it will obviously improve the paydown on the loan. But it's not a requirement. So if you have a pizzeria and you can sell the equipment for $25,000, great. You can go ahead and do that. If you have a buyer who wants to buy the entire shop and take it over for $50,000, that's great, too. The important thing is that the assets get sold.

Keep in mind that there is a time component to the sale. Lenders are not going to give you forever to try to sell your business. At some point they're going to say, "Look, we need to liquidate, and it seems unlikely that you're ever going to sell it."

One other point to make regarding the liquidation of assets is that you must get your bank's permission. You cannot sell without telling your bank and then just pocket the money. I've seen that before. What happens? The bank can accuse you of fraudulent conveyance if you've sold their collateral. That's going to cause a couple of problems for you. One, the bank can still go after that collateral.

That means your buyer is going to have the bank knocking at the door and saying, "We want our stuff back." The other problem is that this can potentially disqualify you for a settlement. If you fraudulently sell those assets, the bank isn't going to lift a finger in terms of a settlement.

In sum, the bank isn't going to negotiate until the liquidation of the assets is complete. And if you sell those assets and then spend the money on something else, it'll completely blow up your chances of settling.

You need to prove financial hardship and lack of ability to pay.

The SBA does not negotiate for the sake of negotiating. In other words, if you owe them $25,000 and you clearly have $25,000, they're not going to negotiate with you. If you have the money you owe them, they want it. The only time that they're going to negotiate is if you show them that doing so is their best option, that taking a settlement is the best business decision that they can make. That's why they ask for so much financial information from you: to verify whether or not you have the ability to pay.

They're going to look at tax returns, bank statements, and pay stubs. They're going to look at all of your assets and say, "Does this person have the ability to pay us?"

Additionally, to reach a settlement with the SBA, you need to prove financial hardship. That's a pretty subjective concept, but essentially, they're looking at all of your financial documents and saying, "Does this look like somebody who's experiencing hardship?"

How do they do that? For one, they're going to look at your bank accounts. What kind of balances do you keep? Are you living paycheck to paycheck? They're also going to look at your credit report. Are you paying other creditors? Is the SBA the only one you're not paying? Because if the SBA is the only creditor you're not paying, maybe things aren't so bad, and you're just trying to get out of paying your loan.

All of which is to say that proving hardship can be very difficult. I've had people who had retirement accounts that were really well funded, with several hundreds of thousands of dollars. Those clients were working, they were making ends meet, and their credit was perfect. And even though we were able to prove they couldn't pay back their SBA loan, the SBA rejected their offer because they didn't think the clients met the criteria for financial hardship.

The OIC paperwork is more than just filling out some forms.

You have to be accurate, and you have to be pretty deliberate about what you're doing. In other words, it's not just taking a few minutes to write down the offer and saying, "Okay, I think I've done my best. Whatever happens, happens." The SBA is looking for you to tell them a story, and the story needs to be accurate. They need the narrative that you give them to be backed up with all of your paperwork.

There are a number of sections on the personal financial statement that all tie together. If they aren't completed accurately, all of a sudden you've got a disjointed story. In addition to that, you really want to provide evidence that backs up the information you give on your personal financial statement. So again, it's more than just jotting down your bank account balance and what you make and hoping for the best.

There really is a method to doing it, and it's not about misdirection. It's about clarity. It's about showing them in a very clear way exactly what your situation is. You give them the rationale for your offer, and they base their decision on whether or not your rationale makes sense. They make a decision by comparing the narrative that we're giving them to your personal financial statement and all of your supporting documents.

So understand that filling out those forms requires a certain level of accuracy and attention. Because there's a lot of money on the line.

The focus of our OIC narrative should not be on your misfortune.

Instead, it should be on why you can't pay. This is one of the biggest mistakes that I see people make when they come to me after they've tried to do their offer in compromise on their own. They've written several pages about all the terrible things that happened to them, why the business went bad, why they don't have any assets left. Everyone that screwed them, every bad thing that happened. The SBA does ask about the circumstances, but at the end of the day, they really don't care. Their job here is to collect as much as they can from you. So the focus of your narrative should be really explaining A) what you can afford, and B) why that's the most you can afford.

If you want to write a hardship letter, feel free. But you really want to make sure that they fully understand where your offer came from and why you believe that's the most you can afford. That's what they really care about. If you write a seven-page letter and those facts are buried somewhere in that letter, they're going to have a lot of trouble figuring out if your offer makes sense. My advice is to always be concise, and to focus on the right thing.

The SBA and your bank are not afraid of bankruptcy.

People threaten bankruptcy all the time. Almost every client that I have at least asks about bankruptcy. You need to know that the SBA and the bank don't frighten easily. You can go to them with an unreasonable offer and say, "Well, if you don't take it, I'm just going to just file for bankruptcy, and then you'll get nothing." It doesn't scare them.

They won't say, "Oh no – if they file for bankruptcy, we get nothing. Anything we get at this point is better." Not at all. Rather, they look at it and ask, "What do we get if we sue you, get a judgment, and go after your stuff?" For that reason, the threat of bankruptcy is not going to get you off the hook.

Which office you deal with at the SBA actually does matter.

The three most common SBA loans are 7a, 504, and Express Loans, and they all work differently. When you submit an offer in compromise, which office it goes to is going to depend on what type of loan you have.

And even though the SBA is one uniform organization, they do not treat offers in compromise the same in every office. Yes, they have the same rules, but they're interpreted differently. If you have a 7a loan, it's going to go to Herndon, Virginia. If you've got a 504 loan, it's going to go to Little Rock, Arkansas. On top of that, if you get a 60-day letter, depending on how much you owe, it's going to go to a different office. Understanding which office you're dealing with is actually a pretty big advantage. I've seen over the years that dealing with each one requires different strategies because each office reacts and communicates differently.

There is subjectivity in this process. The reason I mention this is that people always ask me, "What's the bottom line here? How much do you think I can settle for?" And I usually tell them that it's a range, because the process is subjective. What one person sees as financial hardship. somebody else may say, "Eh, I think it's borderline."

The other thing is that people negotiate differently. I used to work for a lender, and if I thought somebody was making a very reasonable, supported offer, I would send it to the SBA. But I worked with people who wanted to nail clients for every single penny. That's two very different assessments – in one bank – of what constituted a reasonable offer.

If you settle, you will not get another SBA loan.

Here's an important distinction: the fact that you settle is not actually the thing that triggers you not getting an SBA loan; it's the fact that you didn't pay the loan back in full. That's important because some people want to base their decision about trying to settle on whether or not they'll get another SBA loan. If you do settle, you need to know that it's the act of not paying back the SBA that gets you put on the CAIVRS list.

Regardless of whether or not you settle, if you don't pay the SBA back in full, you will be on that list.

An SBA offer in compromise may hurt your credit.

This is something that's changed over the years. Historically, most banks didn't report personal guarantors to the credit bureaus, so if you signed a personal guarantee for your business, that generally would not appear on your credit report. That said, in the last couple of years I have seen settlements with the SBA that have been reported to the credit bureaus. In those circumstances, my clients went to the credit bureaus and challenged the addition, and the credit bureaus took it off.

But the reason that they were taken off was that the SBA forgot to give contact information. Lacking the ability to hear their side of the story, the credit bureau just removed the item. This means that it's possible that at some point, the SBA will wise up, and personal guarantees will reliably show up on credit reports.

There may be tax consequences if you settle your SBA loan.

I'm not a tax guy. I'm not giving you tax advice. That's my disclaimer. But I do know that there are some exceptions to this point. Based on my understanding of the IRS rules for 1099 reporting, if you have a negative net worth at the time of the debt forgiveness, including the debt that's being forgiven, then it may not taxable.

The only other way that it may not be taxable would be if you have your business that's got huge losses. Let's say you paid $1 million for the business and then you liquidate for $10,000. I've had clients tell me, "My attorney said they're just going to basically write off any 1099 against the fact that I've got a $990,000 loss on this business asset that I purchased." I always tell people that they should walk into it with their eyes wide open, understanding what the possible tax consequences are.

I realize that everything I've covered above can be overwhelming, and it's not surprising that people don't fully understand every aspect of an SBA settlement. While it can be tempting to throw your hands up and walk away from the whole situation, or to bury your head in the sand, don't do that.  There's too much money at stake.  SBA loans can be settled for reasonable amounts, but you'll have to play by the SBA's rules if you hope to successfully navigate the SBA offer in compromise gauntlet.

The Complete List of Small Business Tax Deductions

Posted: 12 Feb 2020 05:15 AM PST

  • A small business tax deduction is an allowable expense that you use to lower your business's taxable income. These deductible business expenses are often referred to as tax write-offs.
  • The Internal Revenue Service (IRS) taxes businesses on their net income, which is calculated by subtracting your business expenses from gross income. Business expenses are often tax deductible, but it's important to note that some are not.
  • Some of the most common tax-deductible business expenses are for home office and startup costs, with deductions also available for vehicles driven for business and various other business-related costs.

Most business owners try to save money anywhere they can. One area they should pay close attention to is tax deductions.

Figuring out which business expenses you can deduct from your taxable income can save you money. This is why it's important for small businesses to consult accountants and other experts to ensure they're maximizing their financial options.

New tax changes have included some changes to what expenses are tax deductible. You'll need to understand these changes if you wish to save money on your taxes. Look no further – we've gathered a list of the top small business tax deductions of 2020. [Read related article: Small Business Taxes: Changes in 2020]

What are small business tax deductions?

Small business tax deductions are allowable expenses that you use to lower your business's taxable income. These deductible business expenses are often referred to as tax write-offs.

The IRS taxes businesses on their net income, which subtracts your business expenses from your gross income. Operating expenses are often tax deductible, but it's important to note that some are not.

How do small business tax deductions work?

Most small businesses operate as a sole proprietorship, partnership or limited liability company (LLC). These entities are required to file a separate tax return unless the company operates as a single-member LLC. Small business tax deductions are reported on the business tax return, reducing the amount of taxes the business has to pay.  

According to the IRS, to be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that's common and accepted in your trade or business, while a necessary expense is helpful and appropriate for your trade or business. If your business expenses align with IRS requirements, you can claim them on the business tax return and lower your business's taxable income.

How can small businesses maximize tax deductions?

It's important for small businesses to find out which tax deductions are acceptable in their industry. Tax codes and laws can be challenging to understand, so you'll want to consult a tax professional who can provide expert insight into which deductions your business can and cannot claim. Remember, what was allowed in a previous tax year may not be deductible in the current tax year.

Many small businesses hire a bookkeeper or an accountant to help them stay up to date with federal, state and local taxes. By storing receipts, using debit or credit cards, and separating your business bank account from your personal bank accounts, you can help maximize your tax deductions and keep good records of all your business expenses.

What do new tax laws mean for small businesses?

Here are three of the main new tax changes for small businesses.

  • Many sole proprietors, partnerships, LLCs and other pass-through businesses may be eligible for a qualified business income deduction, also known as Section 199A. This provides a deduction equal to 20% of a business owner's qualified business income. There are numerous limitations and rules for this deduction, however.
  • Under the Tax Cuts and Jobs Act, bonus depreciation has increased to 100% (previously 50%), and Section 179 expensing has also increased. This allows you to make significant purchases of equipment, machinery, and furniture and write off up to the total value.

What small business expenses are deductible?

Many business expenses are deductible, but as every company operates differently, available deductions for one industry may not be considered necessary expenses in another. It's far easier to speak about deductible expenses in terms of what isn't deductible – but let's start from the beginning.

One of the starting points for figuring out what is deductible is to determine what legal structure your business will operate under, according to Bret Scholl, a certified public accountant and chartered global management accountant at Scholl & Company LLP.

"There are some expenses that a business owner can deduct on their corporate tax return that they may not be able to deduct as an unincorporated business," Scholl told business.com. "Therefore, one question that must first be answered is what's the best legal form for operating the business – corporation (regular or S corporation), sole proprietorship, partnership, limited partnership, limited liability company, etc."

Once you've chosen the best legal structure for your business, it's important to know what deductibles most businesses take advantage of. Here are a few commonly deducted business expenses, according to Jessica Smith, an enrolled agent at DuFord Law.

  • Home office: If you use a portion of your home exclusively and regularly for business, you can deduct certain expenses for the business use of your home. These expenses may include rent or mortgage interest, insurance, utilities, repairs, and depreciation. You must know the square footage of the space that you use exclusively and regularly for business as well as the total square footage of your home to calculate the office deduction.
  • Startup costs: If you paid expenses related to the creation of an active trade or business, you can deduct up to $5,000 in startup costs for your first year of business. Startup costs include advertising, employee training, supplies, and other expenses you paid in the process of creating a new active trade or business. This deduction is limited in the event that you paid more than $5,000 in startup costs. Costs over this0 threshold must be capitalized over a 15-year period.  
  • Organizational costs: The same rules used to determine the deduction for startup costs can be used to deduct up to $5,000 in organizational costs in your first year of business. This amount is in addition to the $5,000 deduction available for startup costs. Organizational costs include the expenses of forming your business structure, such as fees for forming a legal entity.
  • Interest: If you borrowed money to cover your startup costs and/or to operate your business, the interest you paid is deductible.

More small business tax deductions you need to know about

Don't worry, there are many more deductibles – we've already done the research for you. This complete list of small business tax deductions will make filing your tax return much simpler. [For more information on small business taxes, read our review of the best online tax software for 2020 on our sister site, Business News Daily.]

Vehicle expenses

This deductible is for businesses that require the use of a motor vehicle in order to function properly. It's best to check your vehicle owner's manual to know which maintenance services your warranty covers. Some reimbursements are null and void if a lack of vehicle maintenance is found. There are two general methods for deducting vehicle expenses:

  1. The expense method requires you to track all the costs of operating your company vehicle for the year, including gasoline, oil, repairs, new tires, insurance and registration fees. Then, multiply these business expenses by the percentage of miles driven for business.
  1. The standard mileage deduction is a simpler method. Just multiply the number of miles driven for business for the year by the standard mileage rate. The IRS says that the standard mileage rate for the use of a vehicle (cars, vans, pickups or panel trucks) in 2019 was 58 cents per mile driven for business use, 20 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.

Salaries and wages

If your business operates as an LLC, you may not be able to deduct income you take from your business; however, the salaries and wages you pay to your employees are deductible.

Work opportunity tax credit

The federal work opportunity tax credit is available to employers for hiring target groups that have faced barriers to employment, such as ex-felons, qualified veterans and Supplemental Security Income (SSI) recipients.

Office supplies and expenses

This office deduction covers small business expenses ranging from desks and chairs to paper and ink. Even if your business doesn't have a traditional office space, you can still deduct office supplies and expenses so long as the supplies are used within the year of purchase. In many cases, you can deduct the cost of postage, shipping and delivery services as well.

Contract labor

Many small businesses use freelancers, independent contractors and self-employed individuals to support their workforce. The cost of this contract labor is deductible. Form 1099-MISC is an IRS form that taxpayers use to report non-employee compensation. The form is also used to report miscellaneous compensation, such as prizes, awards, healthcare payments and attorney fees.

Travel expenses

The cost of transportation and lodging is fully deductible. However, you must meet IRS requirements as listed in Publication 463 to claim any travel deductions.

Taxes

You can deduct numerous taxes and licenses related to your small business. Here are some examples:

  • Business licenses
  • Fuel taxes
  • Sales tax
  • Real estate taxes paid on business property
  • Payroll taxes
  • Personal property taxes
  • State income taxes

Child and dependent care expenses

You can claim the child and dependent care expense credit if you pay someone to care for your dependent (a child under the age of 13 or a spouse or other dependent who isn't able to care for himself or herself). The credit can cover up to 35% of your expenses. To qualify, you'll have to file Form 2441 along with Form 1040. For more information, refer to Publication 503.

Computer software deduction

Under the IRS Section 179 deduction, you can deduct the full cost of business software as a small business tax deduction, rather than depreciating it as in previous years. This includes POS software and any other software used to operate your business.

Retirement plan contributions

You can deduct contributions to employee retirement plans as business expenses; however, small business owners who contribute only to their own retirement funds claim the deduction on Schedule 1 attached to their Form 1040.

If you're a self-employed individual calculating your retirement plan compensation, you must calculate self-employment tax by the amount of your net earnings. You can learn more about calculating your own retirement plan contribution and deduction here.

Insurance

Each insurance premium you pay for coverage on your small business is potentially tax deductible. To qualify, your insurance must provide coverage that's "ordinary and necessary." This could include the following:

Education

Many work-related educational expenses can be deductible, especially if they're required to keep a professional license. According to the IRS (Publication 970), there are several new deductions and tax benefits for education.

  • Tuition and fees deduction: This deduction has been extended to cover qualified education expenses paid in 2018, 2019 and 2020.
  • Qualified tuition program: For distributions made from QTPs after 2018, qualified higher education expenses may include certain expenses required for a beneficiary's participation in apprenticeship programs, and no more than $10,000 can be paid as principal or interest on a qualified student loan of the designated beneficiary.
  • Standard mileage rate: If you claim a business deduction for work-related education and you drive your car to and from school, you can deduct 58 cents per mile driven from Jan. 1 to Dec. 31, 2019.

Meals

The Tax Cuts and Jobs Act eliminated most small business tax deductions for entertainment purposes in 2018 under Section 274. Recently, the IRS issued a notice clarifying that taxpayers can continue to deduct 50% of eligible business meal expenses. Meals and entertainment expenses can be 100% deductible if they're considered compensation to employees or income to non-employees.

Rent

If you rent office space for your business, the cost is fully deductible.

Utilities

Costs for electricity, phone, internet, water, gas, heating and other utilities for your office or place of business are fully deductible.

Legal and professional fees

Accountant, attorney and licensing fees are some of the many legal and professional fees that are fully deductible.

Bad debts

If you have business debt, you can deduct the interest paid on the loan. According to the IRS, there are two types of bad debts – business and nonbusiness.

Business bad debts are deductibles on the business tax return of the taxpayer as an ordinary loss and can generate a net operating loss. Nonbusiness bad debts are considered short-term capital losses. These may include personal investments, activities or personal loans that are in default.
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