Using Offline Media to Drive Online Sales

By Janet Holian, Chief Marketing Officer, VistaPrint

While it may sound counter intuitive with the relative cost of email vs. offline media, with the increase of email saturation offline media can in fact be a valuable tool to help drive high-ROI (Return on Investment) online sales.

Whether you are trying to acquire new customers or retain existing ones, there are several critical components to a direct marketing campaign that must be considered to ensure its success as an online traffic driver.

Cut Through the Clutter
It’s critical to design a program that cuts through the clutter. Consider using envelopes that stand out against today’s popular self mailers. Try hand written addresses or write personal and confidential on the outside. Add a yellow sticky note graphic to the outside of the package. Using very bright postcards with striking graphics are also effective. It’s important to stand out in order to ensure that your direct mail piece will be read.

Increase Response with a Strong Offer & a Clear Call to Action
The hardest part of any direct mail piece is getting the customer to act on the offer and when your focus is online sales, your goal should be to drive traffic to the site (more similar to a retail store than catalog). In order to accomplish this, lower the barriers to encourage a better response rate.

Be sure to create a really compelling offer to excite your target market. The type of offer is very dependent on the product or service you provide and what motivates your customers to buy. It’s essential there is a very strong call to action with a deadline to prompt your target market to act now!

Target the Right List
List selection will have more impact on the success of the campaign than the creative. Finding a list broker you can work with to ensure that you get the best possible list advice. Consider using hotline names, folks that recently purchased online or other list selects so you have a highly targeted prospect audience.

Do not forget to mail your current customers. Be sure to provide the best offer to the right slice of your database for the best results – evaluate elements like whether customers are opted-in for email, how often they visit your site (in addition to purchase frequency), and the channels they’ve shopped through in the past.

Create a More Tangible Relationship with Customers
Consider sending sample products to show the quality of what you offer – especially in a pure-play environment, offline channels can be used to create a more tangible relationship with your product and your company. Even giveaways such as magnets with your company name and contact information on them also can be effective since they help keep your company in the minds of your customers for a lot longer than a regular direct mail piece.

Test Test Test!
It is critical to test your mailings. Start with an audience by testing to see if they are the right target for your product or service. What works for you offline may be different in an online environment where you have customers who may just always shop through search, specific affiliates, or your email program. Once you have a good list to work with, test the offer to see if a discount works better than say a free product. Once you have the offer down, test the format of the piece to determine, for example, if envelopes work better than self mailers. Learn from every single mailing so each consecutive one becomes more effective.

Analyze Results Using a Control Group
Tying offline media to online sales can be trickier than you think. First, make sure you send customers to specific URLs or if you’re in a call center environment, ensure your agents are armed with the question, “How did you hear about us?” However, as with offline traffic drivers, many customers will just type your site in directly without taking advantage of the offer (think of this just like measuring coupon response vs. incremental revenue in an offline environment). Whenever possible, match back the list of people mailed to purchases on the site. This will help you determine who is going direct to your URL. Keep your metrics similar looking at not only offer response, but more importantly, incremental sales vs. a control group.

Create Continuity with Your Campaigns
While you want to stand out, it’s important that all of your direct mail campaigns have some continuity. Whether it is a coupon included in every piece or a layout that remains the same, the more your pieces carry similar characteristics, the more likely they will make an impact and ensure customers purchase from you whether they have your direct mail piece in front of them or not.

Align with Your Brand
First and foremost, it is important that your direct marketing campaign aligns with your brand. Are you friendly and helpful like Jet Blue, or consistently fast and efficient like McDonald’s? Are your products high-end like Nordstrom, or bargain basement like Wal-Mart? Do you offer something no one else does like Sharper Image or are you competing on price in a competitive market like Staples? Whatever your brand is, make sure your direct marketing materials effectively aligns with your brand promise.

If you consider these critical success factors, you too can have a successful direct marketing program that will drive sales for your organization and increase your bottom line.

Janet Holian is the chief marketing officer of VistaPrint, a leading online supplier of high-quality graphic design services and customized printed products to small businesses and consumers. She has been helping small business grow since joining the company in 2000. Please visit www.vistaprint.com for more information.

Who Is George Soros?

by Bruce Fenton

Born Soros György Budapest, Hungary on August 12, 1930, George Soros has risen to the top echelons of global superinvestors.

George Soros survived the Nazi occupation of Budapest and left communist Hungary in 1947 for England, where he graduated from the London School of Economics (LSE). While a student at LSE, George Soros became familiar with the work of the philosopher Karl Popper, who had a profound influence on George’s thinking and later on his professional and philanthropic activities. After selling souvenirs in Wales, Soros joined London stockbrokers Singer & Friendlander before moving to the United States in 1956.

Currently, George Soros is the chairman of Soros Fund Management, which had its beginnings in 1969 as the Quantum Fund. It returned more than 4000% during the next 10 years, and created the bulk of the Soros fortune.

Soros’ Quantum Fund was established in 1969 as one of the world's first hedge funds. With an initial investment of $1,000, the fund was registered in Curacao in the Caribbean, but was operated from Manhattan. Soros’ approach to investing was simple, yet controversial at the time. The fund took money from rich individuals and invested in risky, but potentially highly profitable international deals. According to the BBC, the fund profited hugely during the 1970s from the collapse of fixed exchange rates as well as the deregulation of global capital markets.
By 1980, George Soros was worth $25 million. His fund had grown the initial investment of $1,000 to approximately $100 million.

Today, Soros Fund Management LLC, is a privately held corporation that offers financial services and investment strategies for various funds, including some well known and often controversial hedge funds such as the Quantum Group of Funds. The company's investment strategies have usually been based on analysis of real or perceived macroeconomic trends in various countries.

Soros’ innovative wildly successful investment moves have a profound impact on the way investors view wealth management today. Drawing from strategic lessons learned from effectively managing and leveraging risk, investment and money management firms are able to provide a wide array of investment options and opportunities for individual and institutional investors alike. George Soros and the Quantum Fund have also been partly responsible for the wide growth of hedge funds of the last decade.

In addition to his contributions to the financial world, George Soros also has been making his mark on international policy and issues. He has been active as a philanthropist since 1979, when he began providing funds to help black students attend the University of Cape Town in apartheid South Africa. Currently, he is Chairman of the Open Society Institute (OSI), a former member of the Board of Directors of the Council on Foreign Relations, and the founder of a network of philanthropic organizations that are active in more than 50 countries. During the 2004 US Presidential Election, George Soros was an active critic of President George Bush and his policies. Soros provided funding to the political group MoveOn and other groups opposed to President Bush.

Based primarily in Central and Eastern Europe and the former Soviet Union—but also in Africa, Latin America, Asia, and the United States—Soros’s foundations seek to build and maintain the infrastructure and institutions of an open society. They work closely with the Open Society Institute to develop and implement a range of programs focusing on civil society, education, media, public health, and human rights as well as social, legal, and economic reform. In recent years, OSI and the Soros foundations network have spent more than $400 million annually to support projects in these and other focus areas.

Soros is the author of eight books, including The Bubble of America Supremacy: Correcting the Misuse of American Power (Public Affairs, January 2004); George Soros on Globalization (2002); The Alchemy of Finance (1987); Opening the Soviet System (1990); Underwriting Democracy (1991); Soros on Soros: Staying Ahead of the Curve (1995); The Crisis of Global Capitalism: Open Society Endangered (1998); and Open Society: Reforming Global Capitalism (2000).

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

Who is Warren Buffet?

by Bruce Fenton

Born in Omaha, Nebraska in 1930, Warren Buffett is a wealthy businessman and considered as the world’s most successful stock market investor. Through intelligently executed investments, Warren Buffett has amassed an enormous fortune. With an estimated net worth of $40 billion as of 2005, Warren Buffett is ranked by Forbes among the richest people in the world, often listed second only to Bill Gates.

Known as the “Oracle of Omaha,” Warren Buffett is the son of a stockbroker and Congressman. As a young child, he endeavored to make extra money by delivering Washington Post newspapers. At age 17, Warren Buffett has already earned $5,000: the equivalent of $47,320 in 2005. He attended the Wharton School at the University of Pennsylvania, and then transferred to the University of Nebraska. In 1951, he earned as Master's degree in economics at Columbia Business School, studying under Benjamin Graham, chairman of a small, still unknown insurance company named GEICO.

From 1954-56, Warren Buffett worked for Graham as an investment salesman and securities analyst. In 1956, he became a partner in the investment firm Buffett Partnership, Ltd. In 1965, he acquired the textile manufacturer Berkshire Hathaway and became chairman and CEO in 1970.

Warren Buffett’s prodigious gift as a stock market investor enabled him to identify prime investments led to successful acquisitions of insurance companies and manufacturing and service firms. For Berkshire Hathaway, his strategy is simple, yet genius: he purchased or built insurance or reinsurance companies and used them as “super margin” accounts to buy equities.

Today, Berkshire Hathaway is worth more than $75 billion, and oversees and manages a number of subsidiary companies. Warren Buffett has been known to stay away from high-tech investments, saying he prefers to invest in businesses he understands. Berkshire Hathaway owns a diverse mix of companies, including: Borsheim's Fine Jewelry, a large Omaha jewelry store; Dairy Queen; Nebraska Furniture Mart; The Pampered Chef; See's Candies; Helzberg Diamonds stores; H.H. Brown shoes; The Buffalo News; Benjamin Moore paints; clothing manufacturer Fruit of the Loom; vacuum cleaner manufacturer Kirby Corporation; and several insurance companies, including GEICO.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

Employee Stock Ownership

Any owner of a successful, privately held, small business will tell you that businesses are fun to build, but that the tax system does not provide many benefits to ownership. Short of selling the stock in their company, outright to a third party, they have few ways to derive tax benefits from ownership while operating the company.

Further, in this age of stock option incentives at public companies, privately held businesses can find themselves at a disadvantage when it comes to attracting qualified employees who are looking for incentives beyond a paycheck.

The answer to both problems may lie in a 1921 law, known as the Industrial Homestead Act, which was designed to broaden the ownership of capital by employees. Then it was called a Stock Bonus Plan, we know it today as an Employee Stock Ownership Plan, or “ESOP.”

The Homestead Act encouraged the development of the nation’s major natural resource—land—by providing that any person could homestead up to 160 acres per person. The law allowed any person who took possession of the land and assumed responsibility for making it productive for a certain period of years would acquire full ownership of this land at the end of that time.

As a result of this legislation, hundreds of thousands of people were able to acquire capital and to become financially independent. The ESOP is an extension of this logic into the industrialized economy we know today.

ESOPs have evolved from 1952 legislation that allowed them to be set up as tax-exempt trusts, designed to enable employees to own part or all of the company for which they work, without investing their own funds.

When a company establishes an ESOP, the company makes a tax-deductible contribution to the trust, which may purchase company stock from shareholders. The employee participants hold beneficial ownership interests in the assets of the trust and are the beneficiaries. Normally the employer, or major shareholders, are the trustee(s) of the trust, and retain all rights to vote the stock for company control purposes.

Each year the value of the stock must be determined by an independent appraisal of the business. If the business does well and appreciates, this appreciation increases the value of the stock held in the trust, and correspondingly increases the value of each participant’s share.

When an employee leaves the company, their ownership interest is distributed from the trust to them as cash. This distribution is treated as any other qualified plan distribution and may be rolled over into an IRA in order to defer further taxation.

Employees benefit because they can now participate in the appreciation in value of the company that results from their efforts. As with any other pension plan, an ESOP provides a store of future wealth for retirement.

Ownership benefits because stock they sell is taxed at capital gains rates instead of ordinary income rates. They have a ready market for their ownership interests, without giving up control of the company. Best of all, they have a way to reward the employees who make the business a success, in a tax-efficient fashion.

Life Insurance

by Bruce Fenton

Congress has been asked to consider cutting estate taxes as part of its annual quest to provide tax relief to the masses. To some, cutting estate taxes is not relief for the “masses”—rather it appeals to the “classes” of wealthy with large enough wealth to qualify for this highest tax in the land.

However, it is the family business or farm owner and his trade associations that are pushing the legislative effort. Since a good part of their wealth is tied up in their business or farm, these groups face the unenviable prospect of having their survivors sell the business upon their death to pay estate taxes.

The problem is liquidity. Businesses, farms, and real estate are not liquid; yet, they can be highly valued in the estate which causes the tax to increase. Survivors have nine months from the date of the owner’s death to raise the cash to pay the taxes. This may require a forced sale of property, shutting down the family business, or taking on a large mortgage to meet the tax obligation.

An efficient way to raise the cash necessary to pay the taxes is by correct use of life insurance. A well thought-out life insurance plan can make the cash available—tax-free—to cover that tax check.

Several types of life insurance policies are available for estate protection plans.

A “First to Die” policy can be used by two non-related business owners to allow the family of the first to die to take cash for their business interest, leaving the surviving owner to run the business or farm intact.

A “Second to Die” policy is more often used by a married couple. Since the transfer of assets to a surviving spouse at the time of death is estate tax free, there is no need to purchase insurance to cover estate taxes after the first of the couple dies. However, when the second spouse dies, the couple’s combined estate will be subject to the estate tax. This plan provides the cash to pay the taxes due at the second death.

To be used correctly in estate planning, life insurance must be owned by someone other than the estate owner. Here is where most life insurance mistakes are made. Improperly owned life insurance in a taxable estate can add to the tax bill, not solve it.

If any incident of ownership, such as rights to change beneficiary, rights to cash value, history of making premium payments directly to the policy, or right to surrender the policy is retained by the estate owner, the proceeds of the life insurance will be taxed in his estate. If the estate has no ownership interest, the beneficiaries will receive the proceeds free of income and estate taxes.

The best way to ensure that life insurance is owned properly is to set up an irrevocable life insurance trust. The trustee (not the estate owner) applies for the life insurance on the life of the estate owner who will make gifts of cash or property to the trust. The trustee will use this cash to pay the insurance premiums. Upon the insured’s death, the insurance proceeds are paid tax-free to the trust. The trustee then distributes the proceeds according to the directions of the trust maker.

It is not uncommon for estate owners to attempt to avoid the costs of setting up a life insurance trust by having an adult child or children own the policy. This can be risky, since the ownership interests in the policy can be attached by the child’s creditors should financial problems arise in the future.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

Business Insurance

by Bruce Fenton

The last thing a business owner/entrepreneur wants to do is spend a lot of time with an insurance agent. When I came into this business as an agent, I learned quickly that an entrepreneur has a short attention span when it comes to worrying about risks to his property or life.

However, an understanding of business insurance and risk management is an essential element in any business plan.

The principle behind insurance is the idea of transferring risk of catastrophic loss to a larger pool of risk takers . . . for a price or premium. Insurance is not for the frequent but small loss; rather, it is for the infrequent but expensive insurance loss that could put the viability of the enterprise at risk.

Small businesses have special needs that should be addressed in a risk management program.
The insurance industry recognizes this and offers a number of insurance plans designed just for the small business.

The most common plan is a packaged policy that combines protection from all major property and liability risks in one package. This plan is commonly called a business owner’s policy (BOP). Packages are created for businesses that generally face the same kind and degree of risk.

A BOP might include property insurance for buildings and their contents along with business interruption insurance, which covers the loss of income resulting from a fire or other catastrophe that disrupts the operation of the business. Liability protection, which covers a company’s legal responsibility for the harm it may cause to others, is also an important element.

A BOP does not generally cover professional liability, auto insurance, workers’ compensation or health and disability insurance. These coverages must be obtained in separate policies.

The property insurance portion of the package is designed to make you whole again in the event you sustain a loss to any business property, be it a truck, store fixtures, inventory, raw materials, work in progress, etc. An “all risks” plan covers all risks of loss except for those specifically excluded. A “named peril” policy covers only perils named and excludes all other originations of loss. The business owner is better off with the former than the latter, although the latter may cost less.

Business interruption insurance will pay claims resulting from loss of income and payroll because of an insured property loss. The operative word is “income,” and it is up to the business owner to substantiate the net income lost, not the gross income or sales. This insurance will not cover income and payroll loss emanating from a disaster not covered by property insurance. The most commonly excluded perils are losses due to floods, earthquakes and acts of terrorism. Most insurers will also provide insurance to protect from these losses; however, it will be part of a separate policy for an additional cost.

When considering the amount of property coverage, policies will stipulate reimbursement for loss in terms of “actual cash value” or “replacement cost.” The former is typically less expensive because the coverage will apply to the depreciated value of the property. Replacement cost is generally higher than the depreciated actual cash value; therefore, a policy stating replacement cost coverage will cost more.

Premiums are set by an industry organization called the Insurance Services Office (ISO) that provides insurers with basic premiums, incorporating a number of factors to determine risk. Each company may elect to modify these rates for competitive reasons, based on the presence or absence of protective safety measures or claims history.

Business owners who develop a good relationship with a competent business insurance agent can work with the agent’s guidance to reduce risks and keep premiums down by working to eliminate hazards and risks.

Bruce Fenton is a financial consultant, a writer, and the president and founder of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

Entrepreneurial Cycle

by Bruce Fenton

Joseph Schumpeter would have loved today’s stock market. Schumpeter (1883-1950), an Austrian economist who emigrated to the U.S. and taught the dismal science at Harvard, would have seen opportunity around the corner for those applying his theories on growth in today’s marketplace. Schumpeter focused his studies on the role of the entrepreneur in the economy. He believed that innovation driven by individual and business entrepreneurs created gales of “creative destruction” that spurred on economic growth.

In his book Capitalism, Socialism and Democracy (1942), Schumpeter stated, “The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, new goods, new markets and new forms of industrial organization that capitalist enterprise creates.”

He also believed that the entrepreneurial cycle began with the individual entrepreneur who could take advantage of new innovations and translate them into successful economic enterprises. Successful innovators reap large short-term profits that are soon bid away by new imitators. These new entrants create too much capacity and a natural shakeout occurs.

The entrepreneurial innovation then enters a second stage where the individual is replaced by a larger corporate structure, having more resources to drive innovation and growth in the economy.

That is where we are today, and that is why Schumpeter would see opportunity ahead. We have seen the individual entrepreneurial stage develop and mature. We have experienced the overcapacity and the natural shakeout that follows . . . just look at the telecom sector. Now, we are about to see an even stronger growth cycle kick in as the largest and strongest corporations survive and stand poised to take advantage of their strengths and entrepreneurial drive.

We are seeing the effects of a serious shakeout—falling prices, rising unemployment, little appetite for new ventures (witness the lack of new public offerings), and a universal pessimism that the economy will never recover. In short, the economy is shaking out the remaining companies that did not win the race for leadership in their industries. They are laying off workers and shutting plants.

Lurking in the background are the industry leaders, who are beginning to absorb market share left behind by their weaker brethren. These larger, growth-oriented companies have the resources, the money, and the entrepreneurial spirit to surge ahead once the economy begins to pick up.

When the “pick-up” begins is the $64 question. There are a few positive signs. Saddam’s statue coming to the ground and POWs coming home are positives. Oil prices have come off their highs, and gasoline prices are headed south. Low interest rates make corporate borrowing for investment again a possibility leading to potential rehiring. And consumers are still spending. For the month of March, the Census Bureau indicated that households were back buying big-ticket items like vehicles and furniture.

Pessimists continue to make persuasive arguments against this recovery. Like their counterparts in the late 1990s who predicted we would never see another recession, they have forgotten that the economy moves in cycles.

Sometimes we just need to step back and look at what really makes an economy move, and what really matters. It matters that we all need to eat. It matters that we get up every morning and go out to make a buck. It matters that we educate our children and teach them new skills that will allow them to feed themselves when they’re older.

Finally, it matters that we are an entrepreneurial society in a free market system with access to capital, personal freedom and plenty of incentive to create and be productive. There’s a lot to like about our situation today.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

Financial Planning for the Small Business Owner

by Bruce Fenton

The tech bubble burst and subsequent restructuring place in corporate America has cast talented workers out of jobs. Many of these talented workers, armed with a “can do” attitude and entrepreneurial talents honed in the past five years, can be expected to go off and start their own small businesses.

The success or failure of these new enterprises will hinge not only on their creative skills, the markets and economy, but also on how well they develop a financial plan for their business. The scope of a good plan should incorporate the traditional business plan, as well as the personal financial plan of the business founder/owners.

There are a few key elements of the business plan that are likely to impact the personal financial plan of the owners. For example, the form of business ownership should be coordinated with an owner’s estate plan.

If the business is incorporated, the stock held by the owner should be titled in the name of the owner’s living trust, if a trust exists. If not, upon the owner’s death, the stock interest could be held up in a probate court for months, or even years, as the court rules on a change of ownership.

If the owner held her stock in joint tenancy with her husband, for example, and then died, her surviving spouse would not have the advantage of inheriting the business interest with a 100% stepped-up basis. In other words, were he to sell the interest to the other owner/shareholders, he would be taxed on one-half of the gain. In this case, the parties would be better off holding the stock as community property which would allow the survivor to inherit the ownership interest with a full, stepped-up basis.

Cash is king in a small business startup…and as the business grows, cash needs will grow at a rate seemingly faster than the business. Notwithstanding winning the lottery, the founders may find themselves borrowing heavily to keep the business afloat.

If the business is mature enough to have developed a banking relationship, as an entity it may be able to borrow or set up a line of credit with a bank. Even though the business may be the borrower, and the form of business ownership is a corporation or a limited liability corporation, our founders will probably have to personally guarantee the business debt…even a Small Business Administration guaranteed loan. Banks always look for a secondary source of repayment!

Therefore founders should have a good feel for their personal cash needs and how they can be met if all the business cash resources are required to keep the enterprise afloat and the bankers happy. Founders who sign as personal guarantors should also be aware of what they stand to lose under the worse case scenario…their house for example.

Looking on the brighter side, a successful business can provide its founders/owners with many personal financial benefits that directly affect their personal financial plan.

Health insurance, certain forms of life insurance, disability income replacement, as well as nursing home insurance can be paid with company funds. Retirement plans, funded by the company for the benefit of the owners, offer a terrific tax-advantaged wealth creation benefit.

Finally, the business plan should provide for an exit strategy for the owners in the most tax efficient way in the event of disability, death, or retirement. What the owner or her heirs will receive should be part of the owner’s plan. How the company will fund these eventualities…insurance, deferred compensation, sinking fund, etc… is an integral part of any good business plan. The personal and the business plan should complement each other!

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

SEP Plans

by Bruce Fenton

Congress made it easy for the self-employed and small business owners to save for retirement with the Simplified Employee Pension (SEP—pronounced “sep”) plan. A SEP allows an individual to put up to $40,000 a year, tax deductible, into his or her retirement account.

When an economy is going through a shakeout like ours has these past three years, large businesses lay off talented employees who in turn start their own small businesses. Once covered by corporate retirement plans, these ex-employees must now fend for themselves when it comes to retirement savings.

With a SEP plan, the employer or the self-employed individual contributes directly to the employee’s IRA account. Participants do not need a separate SEP account if they already have an established IRA.

Unlike the more common profit sharing or 401k plans, the SEP does not require complicated documentation, administration or annual tax reporting, relieving the employer of the expenses of a normal pension plan.

SEPs are available for the self-employed (including anyone with a part-time business), sole proprietorships, S and C corporations and partnerships.

An employer can contribute up to 25% of an employee’s annual compensation, not to exceed $40,000. In the case of self-employed individuals, compensation is considered to be income reported on schedule C of their tax returns. Direct employer contributions to a SEP are not subject to Social Security (FICA) or Federal Unemployment (FUTA) taxes.

An employer-sponsored SEP plan cannot discriminate between employees. Contribution percentages must be uniform in their relationship to the compensation of each employee. In cases where there is a large disparity in compensation, a SEP plan may be integrated with a Social Security wage base. This will allow workers who make more than the wage base to end up with a larger contribution.

Annual contributions by an employer are not mandatory and can be made when desired. All of the contributions go into the participant’s IRA, and the participant is immediately 100% vested in the contribution. This allows participants complete control over the investments, just as they would have in a regular participant IRA.

A SEP participant may purchase any investment allowed in an IRA. Unlike qualified pension plans that limit in-service withdrawals, a SEP allows the owners the right to withdraw the money immediately, subject to taxes and early withdrawal penalties. They may also convert the IRA into a Roth IRA, paying taxes for the amount converted.

Withdrawals from a SEP are taxed just like an IRA, with participants paying ordinary income taxes plus a 10% penalty if distributions are taken before age 59 ½. While loans are not permitted from a SEP, the account owner may make a qualified 60-day withdrawal and rollover once each year without incurring taxation or interest charges.

Employers wishing to set up a SEP for this year do not have to complete paperwork or make the contribution until they file their 2003 taxes (plus any extensions). Another important feature for employers contemplating establishment of a SEP is that employees do not have to be covered by the plan until they have worked three years. Employees covered by collective bargaining agreements and non-resident aliens are also exempt from coverage.

SEPs are an ideal pension savings plan for smaller businesses (generally with around 10 or fewer employees) because of the flexibility afforded the employer in timing and amounts of contribution, ease of use, reduced administration expenses and the fact that there is no limit to the number of employees that a SEP plan may cover.

Note: Please visit Atlantic Financial's website for more information on SEP Plans.

Bruce Fenton is a financial consultant, a writer, and the president and founder of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.

We Can Learn A Lot From History

by Bruce Fenton

There was a time when a technology boom swept across the land. Entrepreneurs touted a new, improved life for everyone. The stock market marched up and up, with no limit in sight. Life was good…then came the crash.

The leading technology stock of the day lost 75% of it value. The Dow Jones Industrial Average (DJIA) plunged. Investors panicked, a depression swept across the land. Suddenly, the new technology did not matter.

A few years later, Americans expressed their revulsion against corporations across the land and cried out for an end to corporate greed and corruption. The President and Congress acted, and a host of new regulations sprang forth.

We can learn a lot from the way the crash occurred in 1920-21. The government regulatory efforts happened in 1932 when President Franklin D. Roosevelt and a newly elected Democratic Congress took control of the country.

The fact that much of this mirrors our situation today is important…we’ve “been there, done that.” But what is equally important today is understanding what happened between the crash and the government intervention 10 years later.

The Henry Ford generation was a generation of innovators and entrepreneurs. Born in the latter half of the 1800s, they invented the car, the airplane, the telephone, and harnessed electricity. Their numbers were greatly increased by a huge wave of immigrants who hit our shores in the latter part of the 19th century and the early part of the 20th Century.

They worked hard, bought houses, bought cars, educated their children, and spent money through the first two decades of the 20th century. They also benefited from a booming stock market. This generation was mirrored 80 years later by the baby boomers… innovators, entrepreneurs, and spenders.

The crash that occurred was caused by an overabundance of new technology coming to market. There were not enough buyers. The shakeout that ensued created a mini-depression as stock prices plummeted. But it only lasted for a few short years. From 1922 to 1929 the stock market resumed its march up and to the right.

The high tech companies of the time, such as General Motors and General Electric used their cash and muscle to gain market share and develop dominant positions within their industry. The strongest not only survived this shakeout, but they were able to consolidate their positions within their industry and became dominant forces on Wall Street and in the heartland.

During this period the Dow increased at a six-time multiple. General Motors saw its stock drop 75% before rebounding to a 22 times multiple before the crash of ’29.

That crash was the result of too much technology coming to market at one time…just like we are living with today. The crash did not kill technology…just allowed the strongest to survive and carry the technology of the day to into the mature industry stages.

The government intervention was not dissimilar to what we will see as a result of accounting scandals. It did not kill business, as business has thrived for 70 years in its wake. To say it needs some modernizing goes without question.

As investors, we can learn from the experiences of our parents and grandparents. History has a habit of repeating itself. If so, we may yet have our Roaring 2000s.

Bruce Fenton is a financial consultant, a writer, and the president and founder of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.