BizXperts

Part One: Are You “Personally Ready” to Sell?

The personal decision to sell your business is usually based upon some combination of the following:

Ø      A desire to “take the chips off the table.” Your tolerance for risk just isn’t what it used to be.

Ø      The joy of going to work each day is fading. Not only has the fire in your belly gone out, but it’s been replaced by the desire to do “something else,” known or unknown.

Ø      Your chosen “Successor” doesn’t work out. Neither child nor employee is able and/or willing to fill your shoes.

Ø      You realize that now is the time to sell because you can attain financial security.

Ø      There are a lot of activities other than running a company that you still want to experience.

Let’s look at the first two personal motives that can influence your timeline of cashing out of your business today and moving on to the next stage of your life.

Taking Chips Off the Table

As we age, our tolerance for risk diminishes and our desire for safety and security increases. Owning and operating a business places the majority of your assets at risk. These risks normally include:

Ø      Competitive Risks—from competitors with more money than you;

Ø      Financial Risks—the need to continuously invest money in the business to sustain growth;

Ø      Personal Health Risks—owners are not immune from health issues that can (and do) pop up without warning;

Ø      Liability Risks—there are hundreds of thousands of practicing lawyers in this country looking for someone to sue;

Ø      Business Conditions—key employees may leave or your industry may ultimately become irrelevant; and

Ø      The Economy—when it cycles down will it take your business with it?

For most owners, there is a point at which these risks become overly burdensome—especially when the business itself has become valuable. You no longer want to expose your most valuable asset to constant risk. When all of your eggs are in one basket and the basket is now worth a lot of money, it makes sense to lower the risk of losing that basket.

The only way to eliminate the risks inherent in owning a private business interest is to sell it—for cash, if at all possible. Doing so not only takes chips off the table by converting an “illiquid” asset to cash, but it also allows you to eliminate personal guarantees, reduce liability exposure and remove personal collateral (used for business purposes) that was at risk.

No Fire in the Belly

Few owners reading this article are as energetic and enthusiastic about their businesses as they were when they started. Owners tend to continue in business beyond an “optimum departure date” because they don’t know what else to do with their time. They continue on and spend months or years in their businesses long after the passion has died.

First, once lost, owners typically don’t regain their enthusiasm for and excitement about their businesses. The reason is pretty straightforward—entrepreneurs like to create. Once a business has a life of its own, it is left to wreak havoc or to succeed. Making money and all of the other byproducts of a successful business are nice, but it is the act of creating, of successfully meeting the challenges, that brings satisfaction to the entrepreneur.

The “fire in the belly” is the passion that gives birth to and nurtures your business. Once the business no longer needs you, it is time to move on to the next challenge, the next call for your passion and creativity. It is at this point that many owners begin searching for the exit door in order to find the next passion.

Second, one of the few solutions to the loss of fire is to sell the business and get out. Your business will move to the next level under new ownership for whom moving to the next level provides ample stimulation and challenge.

If one, or both, of these personal motives resonate with you, then the time may be NOW to discuss with your advisors the path that needs to be taken to prepare your business for your exit. Your advisors should have experience guiding business owners like yourself through the process of reviewing the factors associated with exiting a business and creating a comprehensive exit plan that addresses both personal and business objectives.

Article presented by Robert Norris, founder and managing partner of Wishart Norris law firm, a member of Business Enterprise Institute’s International Network of Exit Planning Professionals. © 2013 Business Enterprise Institute, Inc. Reprinted with permission. Wishart Norris law firm partners with owners of closely-held businesses to provide comprehensive legal services in all areas of business, tax, estate planning, exit planning, succession planning, purchases and sales of businesses, real estate, family law, and litigation. For more information, contact Robert Norris at 704-364-0010 or Robert.Norris@wnhplaw.com.

Cyberattacks are in the news every day. “Hackers,” operating as individuals and loosely-integrated teams, continually attack corporations and government agencies for reasons ranging from sport to financial gain. In October, Governor Nikki Haley announced that South Carolina’s servers were compromised and more than 3.6 million social security numbers and 387,000 credit card numbers were stolen.

Small and medium-size businesses are often very vulnerable, because they lack the sophistication, resources and infrastructure to protect their data and information and those of their customers. A recent poll showed that less than 15 percent of small business owners felt that they had adequate protection for their IT systems, but only 10 percent were planning to make major IT investments this year to reduce their risk and exposure.

In small businesses, a few people often do many different things. The company “IT guru” often maintains the web portals and sites, social media pages, email server, phone system, router, server, and firewall as a collateral responsibility—often with minimal or no formal instruction. In addition, a small business typically does not have a large IT budget, so the guru often uses whatever works to keep everyone up and running. This leaves dangerous gaps in the company’s digital armor and puts everything at-risk.

So what can a small business do to protect itself? Well, it’s a combination of educating the work force, making prudent investments in technology, and implementing a set of best practices for safeguarding data.

Over the next few issues, we will describe some simple things that you can do to reduce your risk of a catastrophic breach in your IT infrastructure. So let’s get started with the ubiquitous IT tool: email.

Hackers often use email to exploit their victims because it easy and effective, and there are many options available to dupe the unwitting email recipient. The hacker simply attaches a virus, trojan horse, key logger, or other malware to an email; disguises or embeds it in Adobe Acrobat, Microsoft Office or other common file type; and then makes it irresistible to open or launch—such as naming the file “Company Salaries and Bonuses for 2013 / HR Confidential / President Eyes Only”

Nearly everyone who receives such an email will open it. Once opened, the malware is uploaded and the hacker then owns that machine and assumes all the authorities assigned to that user. Company confidential information is immediately and continuously stolen with the malware running in the background and without the user’s knowledge.

Often, the hacker uses the compromised machine to then attack the system administrator from the inside, which is significantly easier than from outside a firewall. If the system administrator account is compromised, the small business is going to pay a significant price—in lost sales, damaged reputation, or capital expenditures to reclaim/replace most of its IT equipment or all of the above.

To reduce your vulnerability to email exploitation, there are a few simple things that every small business owner should consider:

• Subscribing and maintaining an annual service agreement for virus protection, anti-spyware and personal firewall and ensuring that the settings allow for automatic updates. Products such as Norton 360 provide a comprehensive protection for less than $100/year per user. This is very intuitive, but many companies do not subscribe after the trial period or unknowingly allow the agreements to expire.

• Transitioning to a cloud-based email service and re-routing your incoming and outgoing email traffic through a third-party service to scan for spam, viruses, phishing scams, directory-harvesting, and denial-of-service attacks. McAfee and Symantec are two of the leaders in email protection. Their solutions are very affordable, relatively easy to setup, and do not require new hardware. Once their service is active, it is a very effective for sanitizing emails and requires little or no continued maintenance or support.

• Require your employees to use a two-step login procedure. Email accounts are often exploited by a hacker that “guesses” a user’s password using available information. A two-step procedure requires the user to use a complex password and another means of digital identification such as a coded message sent via SMS to mobile phone or key fob.

• Lock and encrypt your mobile devices. Email user account and password information is readily accessible from a smartphone. Most people will enable the password feature on their mobile device, but if that device is lost or stolen, the password is easily bypassed within minutes. To protect your email account information and other data stored on the mobile device, it is highly recommended that you activate the option to encrypt all data—including that on the SD card. Consult your user guide for instructions on this simple procedure.

In the next edition, I will make some recommendations for protecting your identity while online.

As you are likely aware, Congress passed a new tax act on January 1, 2013 which has been signed by the President. First, here are a few changes, which were already signed into law and effective January 1, 2013.

1. The expiration of the 2% employee-side payroll tax cut. Effective January 1, employees and self-employed taxpayers return to paying 6.2% FICA tax rather than 4.2%
2. The 3.8% surtax on net investment income, including capital gains, for single filers with $200,000 AGI and joint filers with $250,000 AGI
3. The 0.9% surtax on wages or self-employment income exceeding $200,000 for single filers and $250,000 for joint filers

Following is a summary of the largest, most-impactful provisions of the new tax act.

Income Tax Rates

     The reduced tax rates enacted in 2001 and 2003 are made permanent for all taxpayers other than the highest earners. For the latter, a new income threshold of $450,000 for joint filers, $400,000 for single filers, and $425,000 for head of household will apply, and these individuals will now pay 39.6% income tax on taxable income exceeding these thresholds. Previously, this rate was 35%.

Long-term capital gains and qualified dividends continue to be taxed at 15%, unless a taxpayer’s income exceeds the thresholds shown above, in which case such income would be taxed at 20%. The 0% rate on such income for lower-income individuals will continue.

The phase-out of personal exemptions and itemized deductions is reinstated at thresholds of $300,000 for joint filers, $250,000 for single filers, and $275,000 for head of household.

AMT

Historically, the exemption amounts for the alternative minimum tax had not been indexed for inflation, requiring Congress to pass a “patch” every year or two to prevent taxpayers from being subject to AMT merely because of income inflation. The exemption amounts are recalibrated to $78,750 for joint filers and $50,600 for single filers for 2012, and these exemptions will be indexed for inflation each year beginning in 2013.

Estate and Gift Taxes

The $5 million estate and gift tax exemption (adjusted for inflation after 2011) is made permanent, and the tax rate is raised to 40%. The portability law that allows a spouse to transfer his or her estate tax exemption to a surviving spouse is also made permanent.

Permanent Extensions

Certain benefits that were enacted in 2001 that were scheduled to expire along with the reduced tax rates were made permanent. These benefits include the following:

1. Marriage penalty relief—increased size of 15% bracket and increased standard deduction for married joint filers
2. Child and dependent care credit of up to $3,000 for one dependent or $6,000 for more than one
3. Exclusion for employer-provided educational assistance
4. Enhanced rules related to the student loan interest deduction

Temporary Extensions

Other benefits are extended for a temporary period of time and may be renewed from time to time if Congress determines the benefit is worth the cost. Below are benefits that are extended with the new legislation for businesses.

1. 50% bonus depreciation (Section 168)—extended to include new property placed in service by December 31, 2013
2. The Section 179-dollar limitation is restored to $500,000 for taxable years beginning in 2012 and 2013, with reductions if total additions exceed $2 million. The $25,000 dollar limitation now returns in 2014
3. Section 179 deductions for qualified real property—retroactively extended for 2012 and 2013
4. 15-year depreciation for qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property—retroactively extended for property placed in service between January 1, 2012 and December 31, 2013
5. Reduction in S corporation recognition period for built-in gains tax to 5 years—retroactively extended to taxable years beginning in 2012 and 2013
6. 100% exclusion of gain from sale of small business stock under Sec. 1202—retroactively extended to qualified small business stock acquired between January 1, 2012 and December 31, 2012
7. Credit for increasing research and development activities—retroactively extended for 2012 and 2013
8. S corporation basis reduction for charitable contribution of property, reducing basis for adjusted basis of the property rather than for the deductible amount passed through—retroactively extended to contributions made between January 1, 2012 and December 31, 2013
9. Work Opportunity Tax Credit—retroactively extended to 2012 and 2013 (no longer applying only to qualified veterans in 2012)

Energy Tax Extensions

Several energy credits and provisions were extended, most of which had expired at the end of 2011. A couple of the most-used provisions are presented below.

1. Credit for energy-efficient improvements to existing homes (windows, doors, furnaces, water heaters, etc.) —retroactively extended for 2012 and 2013
2. New energy efficient home credit for contractors—retroactively extended for 2012 and 2013

One way to start the dreaded but necessary BUDGET discussion with my private business clients is by admitting that, “I hate budgets”. Most of them quickly agree and then add, “Budgets take too long; budgets do not generate income; budgets are too complicated; budgets are always wrong…”

A budget, however, is really just a plan or a blueprint for the future. So why do private business owners react negatively when budgets are mentioned?

The budget is usually NOT the problem. The problem is in building the budget. Instead of participants cooperating to build a reliable forecast, they become adversarial. Owners or managers demand a “best case” budget, and they push for unattainably high profits while the budget builders low-ball their estimates to try to guarantee that their later performance can beat the plan.

When the budgeting process is properly managed, it can produce a reliable plan that can be used to steer your business into the future.

There are different types of budgets: sales budgets may estimate the quantities and products that will be sold, payroll budgets might show how many employees a company will hire and the wages that will be paid, production budgets may forecast the quantities and costs of items to be produced, etc. The income budget, however, is an overall profitability plan for the company, and it combines revenue and expense information from across all departments.

The final result is an annual income statement forecast that shows revenue, expenses and net profits by month. Even if the budgeting process is difficult, time consuming and imperfect, all private companies should work to develop a realistic annual income budget.

Keys to building a successful income budget:

1. Take time to plan. Small and mid-size business owners and managers are often too busy running their business to stop and manage the business. Building a forecast requires company leaders to set aside time to think and plan for the future.

2. Look backwards. Historical performance can help predict the future. During the budgeting process there are opportunities to study past performance and talk about ways to improve. Time is spent trying to understand prior revenue and expenses, and this can lead to future changes and improvements.

3. Get participation from all departments. Your accounting staff might put the pieces together, but a successful budget requires participation from all departments. This allows opportunities for questions and suggestions across departments, and participants take some ownership because they help develop the plan.

4. Start with revenue. Your sales team should provide the sales estimate. Company leaders then need to agree upon a single revenue forecast that all other departments use to forecast their costs. If annual revenue is expected to double, then manufacturing and purchasing departments may need to increase expenses to hire more employees, buy more inventory, etc. If annual revenue is expected to drop by half, then departments need to focus on cost reductions. Deciding upon expected annual revenue helps every other department plan for the future.

5. Accept net profit levels. Once all the revenue and expense estimates are combined, the income budget shows anticipated profits. These are estimates, but company leaders should be willing to accept the calculated profits, if all goes as planned. If the estimated profits are negative or too low, then continue working to build a better, realistic and attainable plan.

6. Compare the budget to actuals. After you finalize the budget, actual company performance should be compared monthly to the plan during the following year. If actual performance is significantly different than the budget, research and address the problems. To be the most beneficial, your budget should be a working document that is continuously referenced and updated, if needed.

Developing an income budget gives owners and managers the opportunity to plan for their company’s future success. This process should include participation from key employees and cooperation across departments.

The final budget serves as a financial map that can be followed, and actual results can then be compared to the forecast each month in order to track company performance against the plan.

All private companies should take time to develop an income budget to help them be successful next year. They should then follow this plan to improve their chances of earning actual profits that closely match their forecast.

When we talk to business owners about the value of Exit Planning, we are talking about planning their exit from their business in a manner that fulfills their unique financial and personal goals. Since tackling a task of this magnitude can be daunting, owners sometimes ask whether devoting the necessary time and money to this project is really worthwhile.

In working everyday with owners of small and mid-sized companies, we have learned that failure to plan for the owner’s exit can mean the difference between a successful closing of the ultimate sale of their business and a complete derailment of the sale process.

According to Kevin Short, an investment banker who works with owners of small and mid-sized companies, “The element of Exit Planning that gives an owner the biggest bang for the buck is, without a doubt, Step 3 of The Exit Planning Process: Building and Preserving Value.”

One of the “Value Drivers” used to build and preserve value is called a Stay Bonus—a technique we use to motivate managers to remain with a company post-closing. An effective Stay Bonus accomplishes three tasks:

1. It gives the key managers a reason to stay.
2. It is structured so that it increases the value of the company.
3. It includes a penalty (usually in the form of a covenant not to compete and a non-solicitation of customers and employees) that prevents key managers from taking key clients, vendors, employees or trade secrets with them should they leave before or after the sale.

There are far too many horror stories about owners who, believing that their loyal employees were happy and already well compensated, have been held hostage by those same employees.

For example, we represented a business owner who was within a couple of weeks of closing on the sale of his company when the buyer met with each of his key employees to reassure them that they’d be retained by the new owners at their existing compensation levels.

At its meeting with one of the owner’s top salesman, the buyer was lavish about how important the salesman’s continued success was to the company’s future success. When the buyer then asked the salesman to sign a covenant not to compete before the closing date, the salesman asked for a break and headed straight to talk with the owner. He reminded the owner that he had helped build the company to its current value during his tenure, and ever so generously consented to wait until the closing date to collect his $1 million bonus.

Our client paid the ransom. He understood that if the salesman servicing one of his top clients left the company, the buyer would likely scrap the deal. If the buyer did come to the closing table, it would reduce its purchase offer by $3 million—far more than the $1 million the salesman demanded.

As a result of this and many similar experiences, we recommend that owners get very aggressive about implementing Stay Bonuses long before a sale is planned with anyone who has a significant impact on a company’s performance. In most cases, instead of $1 million, the Stay Bonus would be calculated at 50 percent to 200 percent of an employee’s annual compensation and should be tied to a covenant not to compete (or similar agreement).

As Exit Planning advisors, we also work with owners to protect business value. One method is to clean up shareholder agreements (again, well in advance of any contemplated sale or transfer of the business).

“If a shareholder agreement does not force a minority shareholder to sell when the majority shareholder does, majority owners can (and often do) find themselves unable to sell, or held hostage by minority shareholders,” Short observes.

“By and large,” adds Short, “entrepreneurs ignore both Stay Bonus plans and shareholder agreements because they believe that other shareholders or employees will ‘come along’ on closing day.” Short observes, “What owners forget is that every shareholder and every employee figures out leverage and most intend to use it.”

From these and many other examples from our practice, we believe that Exit Planning is indeed well worth the time and money owners devote to it as these and other issues which desperately need to be addressed are “flushed out” and fixed during the Exit Planning process—long before it costs the owner huge amounts of money.

Article presented by Robert Norris, founder and managing partner of Wishart Norris law firm, a member of Business Enterprise Institute’s International Network of Exit Planning Professionals. © 2013 Business Enterprise Institute, Inc. Reprinted with permission. Wishart Norris law firm partners with owners of closely-held businesses to provide comprehensive legal services in all areas of business, tax, estate planning, exit planning, succession planning, purchases and sales of businesses, real estate, family law, and litigation. For more information, contact Robert Norris at 704-364-0010 or Robert.Norris@wnhplaw.com.

In today’s digital marketplace, the photographs on your company’s website and social media are the equivalent of your firm handshake. They should be thoughtfully presented and represent you in the very best light. No matter how eye-catching your headline or snappy your copy, it is imagery that first attracts a viewer to an ad, article or website. It’s also the first and sometimes only thing later recalled by a viewer.

Photographs of your building, offices, executives and/or staff can begin humanizing your company long before a prospect actually meets or talks to a member of your team. If they make a favorable first impression, the viewer often experiences what psychologists call the “halo effect”—whereby the perception of positive qualities in one respect gives rise to the perception of similar qualities in other respects or in the whole.

Studies have shown, for example, how being physically attractive skews judgments favorably towards individuals in terms of likability, competency and trustworthiness, and advertising is predicated upon the effect of selecting attractive candidates to represent products and services. The more positive a viewer reacts to photographs of your business or executives, the more likely they are to favorably view your products and services.

And, according to a 2005 Princeton University study published in Psychological Science, people make those decisions about competency, trustworthiness, and likability in less than 1/10th of a second. Literally the blink of an eye. People will continue to use a website or read written material that makes a favorable first visual impression; if unfavorable, they will leave your site and toss your mailed pieces before they learn you may be offering more than your competition.

You can’t afford to risk your business’s reputation with poor-quality photos that will infer poor-quality on your services and products. But you don’t want to waste money either. So what is the best way to get your company represented in the best possible photos?

Sending company executives to an outside studio for portrait shots will require a great deal of time by all concerned and result in less than engaging photo formats. Oftentimes, in fact, environmental portraiture can tell more of a story than a traditional seamless background photo.

Attempting to use Jim from the mailroom for corporate photography because he also “does photography” could be equally foolhardy, especially considering the expenses of time spent and business interrupted whilst employees are diverted for less than professional results.

The best option is to outsource the project to a professional photographer that specializes in location studio work. Such an image-maker can set up backgrounds and lights in a meeting room or other space and/or can utilize visually evocative elements of the building or interior office for environmental portraiture.

Additionally, good photographers have a great deal of knowledge regarding different lenses and lighting to create different effects or evoke particular emotions; good frame visualization and selection of background effects; suggestions for scene layout, perspective and even posing and dress; and, frankly, experience assuaging even the grumpiest of executives.

In short, the professional can pose the company’s people and premises in the most favorable and engaging light possible while providing a continuum and consistency to the photography taken.

Equally important to obtaining a quality photo is the knowledge and skill in processing it post-production. Processing encompasses overall adjustments to the photo’s temperature, contrasts and saturation, and retouching. An experienced professional will want to get the photo right in the camera at the outset, with proper lens work, composition, exposure and lighting…i.e. not a lot of befores-and-afters.

A lot of the photos that people think are retouched actually aren’t—the colorful effects in the Firebird photo shown here, for example, were not created in Photoshop, but are mostly a product of the exposure time through a very small aperture and polarized lens. Likewise, the airplane shown here was shot using green gels over the lights and white balanced for fluorescent; it’s not a composite sky.

To avoid the appearance of fiction, good retouching in business photography is necessarily subtle and age-appropriate. Skin should never have a blurry or waxy appearance. To retain skin’s qualities, the retoucher should work at the pore-level with little brushes. Blemishes should probably be removed, unflattering shadows lightened and flattering ones darkened, and the appearance of wrinkles reduced. Ill-fitting collars and waistbands are often smoothed. Usually specific requests can be made between the processing and retouching stages.

When searching for the right professional, beware of faux-tographers. Anyone with a business card, a consumer-level camera, and a $50 website template can market themselves a professional photographer. The down economy has washed many green amateurs into the market hoping for a little under-the-table income. The web mixes the good and bad and makes it easy for the unscrupulous to misrepresent their abilities and experience.

Recently, a Texas-based image-maker charged that the portfolio of a Charlotte-based studio advertising on one of those daily deal coupon sites was full of images stolen from her site. Charlotte consumers have likewise been burned buying from photographers with fake portfolios on Etsy. Of course there are more Craigslist horror stories than can be recounted.

To ensure continuing confidence in the professionalism of the field of photography, many image-makers are choosing to undergo certification from the Professional Photographic Certification Commission. Certified Professional Photographers (CPP) must pass stringent standardized tests and a portfolio review by a panel of experts, and adhere to a stringent code of conduct. Certification must be renewed on a periodic basis, through further exams or continuing education.

Finally, in selecting a professional photographer, you’ll want to shop around and look at lots of portfolios. Look for range and a consistent quality and cohesive visual style across the artist’s portfolios. Determine how long they’ve been in operating as a professional and how much executive portrait work experience they have. Take a meeting to talk about your company’s brand and what emotions and messages the photos need to evoke.

When you find a photographer’s whose work you love and like and trust, book them. You won’t regret it.

Like many, I am optimistic that the worst of the downturn is behind us, and that brighter days are ahead. As a result, I’m seeing many people starting new businesses, and current business owners that are considering moving to a new location to accommodate anticipated future growth.

Regardless of whether a business requires office, retail, industrial/manufacturing or some other type of property (or all of the above), there is a threshold question: Should I lease or buy the real estate where I will be operating my business?

Here are a few considerations which most any business owner should consider when deciding whether to find real estate to lease or buy.

Cash Flow. Cash flow is always a concern for business owners. Often, leasing is appealing as it normally involves less upfront cost than buying, but can involve greater long-term cost, without the benefit of building equity in the property and realizing on any appreciation in the value of the property (depending on the market, of course).

If you need liquidity and cash to maintain the flexibility to build your business, the upfront costs of purchasing a property may not be the best move. As a practical matter, many small businesses and start-ups without a history of performance or current cash flow may have trouble finding the financing to purchase a property, which could make leasing the only viable option.

Flexibility to Move vs. Being “Stuck”. A lease provides the freedom to relocate when your lease expires. If you love your location and do not want to move, you could end up either overpaying to secure a renewal, or not coming to renewal terms and having to go through and undesired, disruptive moving process. For uses that rely heavily on location, the prospect of having to move is frightening. For more “fungible” uses, this may not be a big deal. If you buy a property and it doesn’t work out for some reason, moving can be a more complicated (and expensive) process.

Do You Need Room to Grow and Expand? If you are certain of your short- to mid-term needs, a lease of X square feet can suit you just fine. But what if there is a chance that next big line of business comes through, doubling your needs in the near future? You could buy a property that currently accommodates (or with some renovation/expansion, could accommodate) that growth potential, so you have the ability to meet current and future needs.

Typically, people do not want to lease (and pay for) more space than they know they will need, and subleasing excess space that you lease is often subject to landlord approval, whereas excess space that you own can be subleased as you see fit. In an office building, it may be the case that the landlord can offer you an expansion right on adjacent space, but that assumes that there is space available at your office property of choice, and that the expansion space of predetermined size/dimensions will suit expansion needs. However, if you purchased a 50,000-square-foot manufacturing facility with a current need for 30,000 square feet of that, you have space available to meet future needs as they arise.

Do You Need Control of the Property? Purchasing affords the owner more control over the use of the property than leasing the same property would, as landlords often want to restrict the extent to which a tenant can use, operate and renovate/improve the property.

Splitting the Difference—Making Real Estate Part of Your Personal Planning.Many business owners have realized the benefit of forming a limited liability company (LLC) for the purpose of owning their real estate, and leasing the real estate back to their operating company. There are tax and other advantages to this structure which may allow your operating company some of the benefits of leasing, while securing the longer-term economic advantage of ownership for yourself.

These are just a handful of the myriad issues that arise when a business owner is faced with a decision about where to set up shop. Be sure to consult with a qualified professional when evaluating what approach works best for you and your business.

Content contributed by Wishart, Norris, Henninger & Pittman, P.A., which partners with owners of closely-held businesses to provide comprehensive legal services in all areas of business, tax, estate planning, succession planning, purchases and sales of businesses, real estate, family law, and litigation. For more information, contact Andrew McCullough, J.D., at 704-364-0010 or Andrew.McCullough@wnhplaw.com.

As we begin the new year, most HR departments will be rolling out a menu of benefit choices. What is the purpose of these benefits, and what is the advantage or value of each? Let’s explore the most common choices offered by employers and ways these may benefit you.

Many of these options will allow you to contribute pre-tax dollars to an account, which will reduce your tax liability when you file your return by lowering taxable income. To fully appreciate the value of pre-tax dollars, let’s assume you are in the 25 percent tax bracket for federal taxes. For every dollar contributed, you will save a combined 40 cents on federal, state, and payroll taxes.

Flexible Spending Account (FSA)

A flexible spending account allows an employee to contribute up to $2,500 (for 2013) in pre-tax dollars to an account which can be used for doctor co-pays, prescriptions, insurance deductibles and other qualified medical expenses. Over-the-counter medications are no longer eligible for this program unless prescribed by a doctor. One important characteristic of these plans is any amount remaining in the account at the end of the year is lost, and this account cannot be taken with you if you leave your current employer.

Dependent Care Flexible Spending

A dependent care flexible spending account is a type of flexible spending account wherein employees can contribute up to $5,000 annually on a pre-tax basis. These accounts are used to pay for childcare services for children under age 13. Dependent care dollars can also be used for adult dependents (as long as they are claimed as a dependent on your tax return). The caveat of these accounts is that if you are married, both parents must have earned income to qualify for this benefit. As with FSAs, unused amounts do not roll over to future years.

Health Savings Account (HSA)

A health savings account is owned by the employee and used in conjunction with a high deductible health insurance plan. The purpose of these accounts is to allow the employee to accumulate dollars to pay for qualified medical expenses that are not covered by insurance. The types of medical expenses that qualify are very similar to those that qualify under an FSA.

Both employer and employee can contribute to an HSA account. A maximum of $6,450 for a family can be contributed per year. If you are over the age of 55, you can contribute an additional $1,000 per year. Employer contributions are tax deductible to the employer and the employee contributions are made pre-tax. These accounts grow tax-free similar to a 401(k) plan and unused dollars are rolled forward to next year.

Similar to an individual retirement account, you can use contributions to an HSA as a tax planning tool to reduce your tax liability. If you have not already reached your maximum contributions for the year, you can make contributions up to the due date of your tax return to count towards last year’s contribution. The account is portable unlike FSA accounts, which means that if you change employers the money in the account stays with you.

Health Reimbursement Arrangement (HRA)

Health reimbursement arrangements are becoming a popular way for employers to limit their health care costs. In an HRA account, only the employer contributes money. A maximum contribution per employee is set each year by the employer. Unused amounts are never spent and are saved by the employer. This allows the employer to limit its health care costs. As the employee spends money on medical expenses, the employer will write them a reimbursement check on a tax-free basis.

Disability Insurance

Many employers offer group long-term and short-term disability policies to employees. In most of these programs the employee contributes money on an after-tax basis; however, if a claim is made and benefits are collected, these benefits are tax-free to the employee. A good rule of thumb is to purchase a policy that provides two-thirds coverage of your salary in the case of disability.

The benefit options available for both employers and employees are many and can be a confusing choice of letters and acronyms. The items described here are some of the more popular choices available. With health care costs continuing to rise, employers who want to continue to offer their employees this benefit have to become creative to keep their costs manageable.

If you have any questions about the tax implications of the benefit choices offered to you or any other tax concern, you should contact a CPA.

With the approach of the holiday season, many of us begin making plans for overseas travel. While the world is becoming smaller, it is also becoming more dangerous, especially for Americans. Robberies have always been common, but kidnappings have increased significantly since 2009. Mexico is now averaging 49 kidnappings per day. International agencies report that many of those abductions are U.S. business persons and have involved organized crime assisted by taxi drivers and local police. This risk is also prevalent throughout most of the world and requires the American traveler to be better prepared.

A key element of safe, international travel is Situational Awareness. Before you travel, it is important to identify specific risks in a region or city. Travel agencies and online services are not a reliable source of information, often downplaying risks with statements such as, “You will be safe if you stay in the tourist areas,” or “Attacks against tourists are rare.”

While these statements might be generally true, more accurate information is available from the State Department which continuously monitors international crime and threats against Americans travelling abroad and publishes that information. Using Mexico as an example, the State Department issued the following warning on November 20, 2012:

The number of kidnappings and disappearances throughout Mexico is of particular concern. Both local and expatriate communities have been victimized. In addition, local police have been implicated in some of these incidents. We strongly advise you to lower your profile and avoid displaying any evidence of wealth that might draw attention. Carjacking and highway robbery are serious problems in many parts of the border region and U.S. citizens have been murdered in such incidents.

Travelers should also research the local area on their own, paying particular attention to crimes committed near the resort, hotel, airport, and tourist areas. Recently, a colleague travelling in Bogota, Colombia, sent me an email warning of a new threat to business travelers.

Local newspapers were reporting that women were welcoming businessmen to their country with an embrace and “Mi Amor.” Unfortunately, the embrace included a drug dispensed with lapel stick pin that caused confusion and disorientation. Once drugged, the victim was robbed or held for a ransom. This type of information is not widely available from the U.S. search engines, so it takes some digging to find it.

A large part of travelling safely is avoiding risks—don’t make yourself an easy target. Below is an abbreviated list of simple actions that will make you less of a target:

Ø        Arrange transportation. Arrange for an airport pickup before departing the U.S., which can be done through most hotels or vetted driving services. Avoid using taxis waiting at the airport and never use a “homeboy” that is trolling for business near the baggage claim. Be sure to get the name, cell phone number and a photo of your driver if possible. Never assume that the person holding the sign with your name is the right person. Avoid driving as it opens many opportunities for problems. When travelling from the hotel, use the concierge to arrange a driver. Avoid hailing a taxi from the street as freelance drivers often have questionable records.

Ø        Local currency. Obtain a small amount of local currency before leaving the U.S.—typically enough for the taxi and service gratuities, and use credit cards for everything else. Avoid using currency exchange counters and automated teller machines (ATMs) at foreign airports. Not only are they expensive, but they lure predators. Before travelling, I often buy a preloaded, debit card and then withdraw local currency from the hotel ATM.

Ø        Important documents. Make copies of important documents such driver’s license, passport, and health insurance card before you depart. Give a copy of each to your emergency contacts in the U.S. Carry copies with you as the originals should be locked in a hotel safe—not carried in a wallet, briefcase or backpack that can easily be stolen.

Ø        Itinerary. Enroll with the State Department’s Smart Traveler Enrollment Program and file your itinerary. In case of an emergency, enlist the help of the U.S. Government. Be sure to keep the Embassy contact numbers in your wallet or as a speed-dial number on your smartphone.

Ø        Smartphone. Smartphone service outside the U.S. is highly dependent on your service agreement and does not typically include international voice and data. Don’t assume that your iPhone or Android device will work overseas, and be sure to ask your service provider for a single-month global data plan—paying roaming data rates of $15 per megabyte could easily translate to into several hundred dollars.

Ø        Hotel security. Assume that anything in your hotel room can be stolen. Theft of electronics is especially problematic as they are easily exploited for personal, financial and corporate information within minutes.

International travel is always exciting. With just a few precautions, it can be done safely.

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There are a variety of reasons why people start a new business. In these recent times of layoffs, corporate downsizing and high unemployment rates, you may decide that working for yourself is the best alternative. To get a new business off the ground successfully, consider what resources you will need to develop a solid business plan and successfully carry out that plan. Fortunately, these resources are readily available in your community—you simply have to know where to start.

Nearly 65 percent of new businesses fail within the first five years of operation with the primary reason being lack of proper research. There are steps you can take to improve your chances of success. A good starting point is to seek counsel from reputable, established business owners in your industry. These individuals can offer important planning tips for your business’ early stages. These business owners with “boots on the ground” experience are a vital resource in helping you avoid pitfalls and may provide information that can lead to the development of a more solid industry-specific business plan.

Once you have a feel for the industry, contact your local Small Business Administration (SBA) office. The SBA will provide business research information free of charge in many aspects related to your business. One important aspect is the demographics of the area in which you will practice. A demographic study will help you understand your potential customer base and identify your existing competition.

Make certain that the location where you plan to open your business has both the age and income demographic that will provide the best opportunity for success. The SBA also will provide tips for writing a business plan if you are uncomfortable devising a plan on your own. The Service Corps of Retired Executives, or SCORE, is also a great resource and will help when needed.

The next step is to ensure you have enough capital to carry out your plan. You need to be sure you have access to sufficient funds not only to open your business but also to cover business and personal expenses should times get rough. A business lacking adequate back-up capital is virtually doomed from the start.

Develop a working relationship with a local banker and share your business plan with this person. Even if you do not need funds upon start-up, in lean times or times of expansion, an established relationship with your banker may provide you with funds needed for future plans.

Before you open your doors, hire a qualified certified public accountant (CPA). A successful business owner is organized. Poor organization leads to poor accounting, and poor accounting is one of the biggest reasons that businesses fail. Your CPA can help you provide details of revenues and expenses to solidify your business plan. The more detailed and well thought out the business plan, the better your chances of clinching the financial backing you will need to operate your business.

Understand that your costs and overhead will likely be far higher than you anticipate. The unexpected is to be expected, and may come in the form of anything from escalating equipment, lease or insurance payments to surprise taxes and fees on the local, state or federal levels. A CPA can assist you by working with you and your insurance agent (property insurance, workers’ compensation insurance, owner’s life insurance coverage), real estate agent (leasing property versus purchase of a business site), or payroll service to better understand and control the costs of your business. Your CPA can also help you execute your business plan, including adjusting the plan periodically and helping you to distinguish between long-term and short-term goals of the business.

Hire the services of a reputable attorney. Your attorney, along with your CPA, can advise you on the form of business you should establish, whether you should operate as a sole proprietorship, partnership, limited liability company, or corporation. Each structure offers advantages and disadvantages in the way of taxes and legal liability. If you choose a form of business other than a sole proprietorship, request assistance from your attorney to properly complete the appropriate registration forms for your business structure.The operating and reporting requirements and the tax consequences of each of these forms of business can vary greatly and your CPA can help you best choose the form most suited to your particular business and personal goals.

These trusted business advisors will ensure you are in compliance with licensing requirements, necessary fees, and applicable regulations, and may also assist you in handling other important issues such as tax payments and payroll. Reliance on those crucial business partners allow you to concentrate your energies on operating your business. The expense of obtaining the services of an attorney and a CPA will be recouped many times over.

Butcher, baker, candlestick maker? These villagers provided the essentials of life in the communities of old. In the present day, we all continue to rely on providers of essential services. A new business start-up requires the cooperation of a village of advisors to ensure the entrepreneur better understands the business and its operation in an ever complex economic, legal, and tax environment.