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What I remember most about the economic meltdown that struck in the fall of 2008 was how many people held on to the belief that it was just another Wall Street dip that would self-correct in a few months…a year, tops.
In the final months of 2008, as I spoke and wrote about my perception that this was a deep structural shift that would take years—maybe even a generation—to turn around, I sometimes felt like a voice crying out in the wilderness.
At some point, others began writing and talking about the “new normal.” But in the beginning, people didn’t want to hear what I was saying. Believing this economic tsunami could lay us low for as long as five years and that it was something permanent—that was my early prediction—was way too scary for most people, especially the business owners who were my main concern.
And here we are, five years later.
When the news isn’t good, nobody likes hearing what prophets have to say. So I want to start by saying my prophecy (my mother would say that seems a bit lofty) for the next five years reflects hope for and confidence in private enterprise.
In a nutshell, here’s my take on business ownership, five years after the meltdown: We have become more valuable owners with every hard-earned lesson. Businesses that have adapted and survived will grow in health and value as assets, because they are driven by seasoned survivors in the owners’ seats. Wiser owners will mean a healthier economy in the years ahead.
Over the last five years, I’ve walked with business owners through the harshest conditions I’ve seen in my 20 years with private enterprise. The challenges are far from over. On a recent morning, I was in deep conversation with seven owners before 8 a.m.—and that’s typical. I am with them all day, often until late in the evening. That’s the reality of this economy that lives with the tension of the promise of Wall Street versus the daily volatility of Main Street.
What’s different today is that mature owners are less likely to react to the issues of their enterprises from a place of fear. Today, wise owners face their challenges proactively, from a place of clarity and determination. They have a healthier respect for calculating the lifeblood resources of their enterprises, a keen sense of priorities, and a deep appreciation for the relationships that have held up to the test of these times.
Here are the lessons every business owner should take to heart as we continue our march to the new reality:
Equity knowledge. Wise owners treat their equity as if it were an investment and are committed to the practices and structures that protect equity health. Ask yourself: Am I a wise steward of the equity of this business I own?
Structure strategy. Owners who have survived have developed innovative structures. The focus is on new structures that spawn creativity and collaboration, build trust, reach across boundaries to tap resources, and meet the needs of players who are its best thinkers and executers.
Self-knowledge. If there’s one thing owners have in common, it is blind spots. From my vantage point, the greatest leaks in business wealth opportunity occur at these owner blind spots. Survivors have examined themselves for their strengths, their weaknesses, their gifts, and their calling.
Adaptability. From being open to joyful discoveries in these uncertain times—to the very practical aspects of recalibrating not only our business models, our margins and our procedures, but ourselves—adaptability must be integrated into the DNA of every enterprise and its owner. Part of being adaptable is to recognize that when it comes to change, everything is on the table. Everything. Adaptation must be a continuous discipline, integrated into the rhythm of the business.
My prediction? The next five years offer a significant wealth opportunity for owners who have captured the lessons of humility and tenacity and continuous learning as valuable equity for their businesses. We’re stronger at our core than we were five years ago and we’ll need every bit of that strength to sustain healthy adaptation in an era of continuous disruption.
Yes, it’s time to celebrate. We’ve survived. But this is not a recovery. This is a new era.
Overcoming Common Objections: Part Two
As we introduced in the last article, the common objections that tend to hold back owners from selling their businesses are usually based upon some combination of the following:
· “The business isn’t worth enough to meet my financial needs.”
· “The employees (or customers) will leave when they discover I’m trying to sell.”
· “I will be required to work years for a new owner.”
· “The sale process will take too long and cost too much.”
· “Given the tax bite on sale proceeds, it makes more sense to stay, enjoy the cash flow and get paid over time.”
· “What will I do after I sell and leave the business? This business is my life!”
Now we will discuss the last four common objections that can affect your decision to cash out of your business and move on to the next stage of your life.
I Will Be Required To Work Years For A New Owner
If one of your exit objectives is to leave the business as soon as possible, it is important to make that objective known to your exit planning professional and it will be a prerequisite of any sale. That objective will determine which type of buyer you should seek. There are categories of buyers (“strategic buyers”) who typically do not require the former owner to remain with the company beyond a short transition period—usually no more than a few months—provided your management team is strong and is “tied” to the company by incentive arrangements (“stay bonus”) and non-competition agreements.
The Sale Process Will Take Too Long And Cost Too Much
Cost, of course, is a matter of perspective. But the only way for you to make the determination whether the sale process is too expensive or not is to discuss costs and expenses with your advisors before you hire them. It usually takes from six to 18 months to sell a business. The more you know, the better prepared your company can be for sale. Better preparation on your part can mean less time and expense on the part of your advisors.
Given The Tax Bite On Sale Proceeds, It Makes More Sense To Stay, Enjoy The Cash Flow And Get Paid Over Time
With proper tax planning, Uncle Sam’s cut of the sale proceeds can be minimized so that you are in a better position to meet your financial and personal objectives upon your exit from the business. But planning— and implementation—can take years to be fully effective. Delays in beginning to plan works to reduce time available and can increase taxes.
As an example, if your company is currently taxed as a C corporation, built in gains are effectively double-taxed upon the sale of your company in the event you sell assets instead of stock. You can avoid this double taxation by converting your C corporation to an S corporation, as long as you wait at least 10 years after the conversion to sell the assets of the S corporation. However, if you are considering selling in 2013, and you converted your C corporation to an S corporation at least 5 years ago, you can avoid the built in gains tax if you sell before year-end.
What Will I Do After I Sell And Leave The Business? This Business Is My Life!
For many business owners, the old “fire in the belly” is gone, but there is nothing to replace it. Many, therefore, hang on to their businesses, willing to accept what they know because they fear that the unknown may be even worse. Yet, many owners don’t know what they will do when they exit. However, exiting a business can end up uncovering new and exciting opportunities for owners to pursue after the sale— some of which may be provided by the chosen buyer.
Certainly, the decision to sell the business you created and nurtured is an intensely personal decision. No one is more qualified to know what to do with the rest of your life than yourself, especially when it comes to the decision to sell your business. The fear of the unknown is natural, but you do not have to venture on this journey alone. Seek out a professional experienced in exit planning to help guide you through the process of preparing for the biggest financial event of your life—the sale of your business.
The Kaiser Family Foundation has put together a brief history of health care reform efforts in the U.S. that is quite interesting and in large part excerpted here.
The country has been on the verge of national health reform many times before. In the early 1900s, smaller proposals began to pave the way. In 1912, Roosevelt’s Bull Moose Party campaigned on a platform calling for health insurance for industry; and as early as 1915, Progressive reformers ineffectively campaigned for a state-based system of compulsory health insurance.
The prominent reformers of the 1920s, the Committee on the Costs of Medical Care, proposed group medicine and voluntary insurance—modest ideas, but enough to raise opposition, and the term “socialized medicine” was born.
Over the years the American public, as measured in opinion polls as far back as the 1930s, has generally been supportive of the goals of guaranteed access to health care and health insurance for all, as well as a government role in health financing. However, support typically tapered off when reforms were conditioned on individuals needing to contribute more to the costs.
Historians debate the many reasons national health insurance proposals have failed, including the complexity of the issues, ideological differences, the lobbying strength of special interest groups, a weakened Presidency, and the decentralization of Congressional power. However, major health reforms have been enacted in the latter half of the 1900s that have proven to be broadly popular and effective in improving access to health care for millions through Medicare, Medicaid and the Children’s Health Insurance Program.
Important lessons can be gleaned from how these major reforms were accomplished. As the nation prepares for the rollout of marketplace exchanges under the Affordable Care Act (ACA), it is helpful to understand the economic and political context in which prior reforms were enacted and the key reasons they fell short of universal coverage.
1934 – 1939: The Depression and the New Deal
The Great Depression (1929-1939) had been preceded by a period of growing income inequality and a shrinking middle class. The worst years were 1933-34 with unemployment as high as 25 percent. Income disparities in access to health care had grown much worse, medical costs were rising, and sickness became a leading cause of poverty. More physician and hospital care went unpaid and welfare agencies began to help pay for medical costs for the poor.
The Social Security Act was introduced and passed in both houses with a wide margin in 1935. By 1938, southern Democrats aligned with Republicans to oppose further government expansion, in part to protect segregation, making additional New Deal social reforms nearly impossible to pass.
World War II and After
During World War II, The War Labor Board ruled in 1943 that certain work benefits, including health insurance coverage, should be excluded from the period’s wage and price controls. Using generous health benefits then to draw workers, employers began to bolster group health insurance plans.
The economy expanded greatly following WW II, building and responding to the needs of growing families, in an era when American capitalism flourished. Large American businesses (e.g., U.S. Steel, GM, AT&T) faced little competition and were sufficiently profitable that unions could successfully negotiate for greater fringe benefits, including health insurance.
1960 – 1965: The Great Society: Medicare and Medicaid
Productivity swelled in the 1960s as did the middle class, with a well-educated workforce financed by the G.I. bill and following the peak of labor union membership in the 1950s. President Kennedy sought to accelerate economic growth through increased government spending and decreased taxes. From this base, Johnson followed and began to build his “Great Society.”
When the House Ways and Means Committee began its work on the Medicare proposal from the White House in 1965, there were two other proposals on the table as well: an expansion of Kerr-Mills (“Eldercare” supported by AMA) and a proposal for federal subsidies to purchase private coverage (“Bettercare” from the insurer Aetna).
Elements of each were eventually merged into a single bill with three layers: Medicare Part A to pay for hospital care and limited skilled nursing and home health care, optional Medicare Part B (paid in part by premiums) to help pay for physician care, and Medicaid, a totally separate program to assist states in covering not only long-term care for the poor but also to provide health insurance coverage for certain classes of the poor and disabled.
After Johnson’s landslide election in 1964, he made Medicare his highest legislative priority and acted quickly. Both Medicare and Medicaid were incorporated in the Social Security Act as it was signed by President Johnson in July 1965. The confluence of presidential leadership and urgency, Johnson’s political skills in working with a large Congressional Democratic majority, growing civil rights awareness, public support, and the support of hospitals and the insurance industry contributed to the achievement of the most significant health reform of the century.
1970 – 1992
In 1971, President Nixon instituted wage and price freezes in an effort to curb inflation. With the implementation of Medicare and Medicaid, health care costs had grown rapidly from 4 percent of the federal budget in 1965 to 11 percent by 1973, while millions of those under age 65 still had no health coverage. An era of health care regulation began, leading to certificate-of-need programs, state hospital rate-setting, requirements on HMOs (in return for support to help them expand) and health planning to control growth.
In 1974, President Nixon expanded upon his own proposal. His Comprehensive Health Insurance Plan (CHIP) called for universal coverage, voluntary employer participation, and a separate program for the working poor and the unemployed, replacing Medicaid. Requiring employers to contribute 65 percent of the premium cost was controversial, but fundamental to the plan’s financing. This package failed.
Senator Ted Kennedy proposed that private insurance plans compete for customers who would receive a card to use for hospital and physicians’ care. The cost of the card would vary by income and employers would bear the bulk of the cost for their workers, with the government picking up costs for the poor. Insurers would be paid based on actuarial risk, and payments to providers set through negotiated rates.
President Carter released his own plan one month after Kennedy’s plan, proposing that businesses provide a minimum package of benefits, public coverage for the poor and aged be expanded, and a new public corporation created to sell coverage to everyone else. Neither the Kennedy nor Carter proposals had much of a chance.
Debate on hospital cost-containment during this period however laid the foundation for the Medicare Prospective Payment System enacted in 1983 which changed the way the government paid for hospital care in a major way—from a charge-based system to a predetermined, set rate based on the patient’s diagnosis.
Under the Reagan administration’s policies in the 1980s—that included substantial tax cuts, large increases in defense spending and moderate cuts in domestic programs—federal debt reached record levels. Health care costs continued to escalate rapidly up to and through this period. Even some in the business sector came to accept that fundamental health reform was needed as the health care sector grew to comprise 12 percent of the nation’s GDP in 1990.
A large and varied mix of proposals surfaced: market-oriented reforms expanding the private system, public single-payer plans, employer mandates (play-or-pay), and from President Bush, health care tax credits and purchasing pools.
The Clinton Years
Newly elected President Clinton initially hoped to send Congress a health reform plan within one hundred days of taking office. Clinton’s plan, the Health Security Act, called for universal coverage, employer and individual mandates, competition between private insurers, and was to be regulated by government to keep costs down. Under managed competition private insurers and providers would compete for the business of groups of businesses and individuals in what were called “health-purchasing alliances”. Every American would have a “health security card.”
Support for the complex Clinton plan from key stakeholders was often conditional and eventually waned. Some labor unions and other public health advocacy groups did not want to be seen as opposed to Clinton’s plan, yet backed the single-payer bill.
In 1997, with a Republican Congress and bipartisan support, the Children’s Health Insurance Program was enacted, building on the Medicaid program to provide health coverage to more low-income children
The 21st Century Begins
The Medicare Modernization Act (MMA) passes, creating a voluntary, subsidized prescription drug benefit under Medicare, administered exclusively through private plans, both stand-alone prescription drug plans and Medicare Advantage plans.
Medicare legislation creates Health Savings Accounts which allow individuals to set aside pre-tax dollars to pay for current and future medical expenses. The plans must be used in conjunction with a high deductible health plan.
Medicare Part D Drug benefit goes into effect in January 2006.
Massachusetts passes and implements legislation to provide health care coverage to nearly all state residents. Legislation requires residents to obtain health insurance coverage and calls for shared responsibility among individuals, employers, and the government in financing the expanded coverage. Within two years of implementation the state’s uninsured rate is cut in half.
Census Bureau estimates 45.6 million uninsured (15.3 percent of the population) in 2007.
Mental Health Parity Act is amended to require full parity. Insurance companies must treat mental health conditions, including substance abuse disorders, on an equal basis with physical conditions when health policies cover both.
The House of Representatives passes the Senate bill, the Patient Protection and Affordable Care Act (voting 219-212) and sends it to the President for signature. House also passes the Health Care and Education Reconciliation Act of 2010 that amends the Senate bill to reflect House and Senate negotiations and also includes reform of the nation’s student loan system.
March 23, 2010
President Obama signs the landmark legislation, the Patient Protection and Affordable Care Act, into law. The historic health reform legislation requires that all individuals have health insurance beginning in 2014. The poorest will be covered under a Medicaid expansion. Those with low and middle incomes who do not have access to affordable coverage through their jobs will be able to purchase coverage with federal subsidies through new American Health Benefit Exchanges. Health plans will not be allowed to deny coverage to people for any reason, including their health status, nor can they charge more because of a person’s health or gender. Young adults will now have the option of being covered under their parents’ plan up to age 26.
It is expected that many more changes will be implemented as voters instruct and the government responds over time.
Source: Kaiser Family Foundation, National Health Insurance—A Brief History of Reform Efforts in the U.S. (March 2009), http://kaiserfamilyfoundation.files.wordpress.com/2013/01/7871.pdf
If you have lost a wallet, misplaced a purse, or had your briefcase stolen, you quickly realize your vulnerability when an unauthorized person has access to your smartphone, laptop or tablet. Information such as business and personal contacts, financial records, emails, intellectual property, and electronic account credentials are just the tip of the iceberg for a thief or hacker that can gain physical access to your mobile device.
In addition, physical access to your Internet-enabled device allows someone to gain administrative control of your social media sites, Wi-Fi network, home security system, and other Internet services. What is not readily evident is that the data stored on your mobile device provides all the information necessary to build a profile of you, your colleagues, family and friends.
What would such a profile include? Well, that depends on how you use your mobile device. Let’s consider one source of information stored within your mobile device—Internet/wireless access points. If you leave your Wi-Fi enabled or use social media frequently on your mobile device, a significant amount of information can be retrieved including the places you visit, how often you visit, and the routes you use.
This data is easily retrieved from the history of wireless routers that automatically associate to your mobile device when you come in proximity to them. Your mobile device continuously scans for available Wi-Fi signals in the same manner that your smart phone continuously “looks” for the strongest signal from local cell towers. When the mobile device finds a stronger signal, it “hops” to it and re-associates by exchanging credentials—including specifics about the device and its owner.
To see this in-action, go to your settings and watch the names of the wireless networks that associate to your device. If you can see a name of a network, your device has exchanged “handshake” information, which is stored in the device memory. These wireless access points are then readily located using cloud-based databases such as wiggle.net, and now the person with access to your mobile device knows a lot about where you travel, work and visit.
It is also very simple to isolate dates and times that you visit various places. Photos and videos retrieved from your mobile device provide complementary information to that retrieved from wireless access logs. Metadata is the information embedded in the image file that includes the date, time, location, etc. of the photograph. So when you take a picture or record a video clip and then upload it to a social media site, you are creating a “digital exhaust” that does not dissipate.
Beyond privacy, there are safety issues related to having someone know a lot about you, your habits and lifestyle. When you loose a purse or wallet, the locks on a front door, garage codes, and ATM PINs can all be easily replaced or changed. Lose positive control of your mobile device with your digital ID, and it is not as straightforward. It is far easier to protect information from an unauthorized user than it is to deny use of that information. The following is a list of simple methods for securing your mobile device:
1. Encrypt the Data. Most Android, Windows and iOS devices now come with the ability to encrypt data that is stored on the device and its SD card. A strong encryption method using AES256 will prevent most people from exploiting the device data. It is easy to setup and transparent when you use the device—a simple search of the Help menu will walk you through the setup process.
2. Register your Mobile Device with your Service Provider. Unless your mobile device is unlocked and roams on multiple networks, your service provider can locate it by its IMEI or MEID. More important is the ability for the service provider to verify your identity without using the mobile device, which allows them to remotely disable it and wipe its memory.
3. Employ anti-phone theft software. The software enables you to remotely contact your mobile device and control many of the functions—there are several of these applications available via search engine query.
4. Activate Remote Wipe. This service is very effective. Google, for example, provides Google Apps customers with the capability to remotely access their mobile device using a Web browser; deny access to enterprise applications and data, and wipe all data and settings.
With convenience comes vulnerability. Mobile computing provides significant capability for the owner of the device as well as an unauthorized user. Protecting the information contained within that device is critical.
Content contributed by Advanced Mission Systems, LLC, a company specializing in technical surveillance and physical, electronic and cyber security for military, law enforcement, commercial and individual use, including technical support for small business owners in securing mobile computing devices and systems. For more information, contact Jerry Snyder at 980-819-2600 or visit www.amsdv.com.
Overcoming Common Objections: Part One
One of the biggest obstacles in exiting your business is overcoming your objections, many of which tend to be based on misunderstanding the “facts.”
The objections that tend to hold back owners from selling their businesses are usually based upon some combination of the following perspectives:
Ø “The business isn’t worth enough to meet my financial needs.”
Ø “The employees (or customers) will leave when they discover I’m trying to sell.”
Ø “I will be required to work years for a new owner.”
Ø “The sale process will take too long and cost too much.”
Ø “Given the tax bite on sale proceeds, it makes more sense to stay, enjoy the cash flow and get paid over time.”
Ø “What will I do after I sell and leave the business? This business is my life!”
Today, let’s look at the first two objections that can create roadblocks for your timeline of cashing out of your business today and moving on to the next stage of your life.
The Business Isn’t Worth Enough To Meet My Financial Needs
You can’t know whether your business is “worth enough” unless you know what it is worth in the current marketplace and what value is needed in order to meet your financial needs. That’s why obtaining a valuation range for your company based upon current market conditions can be very important.
Use a transaction advisor, preferably an investment banker (for companies with a likely value of more than $5 million), or other transaction intermediary (for smaller businesses) familiar with what your business can fetch in the merger and acquisition (M&A) marketplace.
It is important to not simply depend on the historical valuation performed by your accountant or the “rule of thumb” used in your industry, both of which tend to rely on what has happened, not on what businesses are selling for in today’s market, and tend to overlook the importance of current deal activity levels.
To illustrate this point, let’s look at Sam Reed (not his “real” name), a business owner who was thinking about selling his business a number of years ago—near the last peak in the M&A cycle.
When Sam Reed started thinking about selling his business, he asked his CPA for an estimate of value. After some investigation of “historical” valuation multiples, the CPA ventured an estimate of $16 million. The owner needed significantly more than that just to pay off business debt.
Although inclined to give up the idea of selling, at least temporarily, Sam asked his attorney what he thought his business was worth. The attorney’s response was, “I have no idea. You need to work with someone who knows what your type of business is selling for in today’s marketplace.”
At that point, Sam hired an investment banking firm to answer the question of what his business was worth in the current market. The firm returned with a baseline (or minimum value) sale price estimate of almost $25 million for Sam’s business.
With that information, Sam chose to proceed with a sale and eventually sold his company for more than $34 million. The final purchase price reflected the additional “promoted value” which was the result of back and forth negotiations with three different strategic buyers.
The point of this story is that to determine the value of your business, in today’s marketplace, ask an experienced professional who makes a living working in that market.
The Employees (Or Customers) Will Leave When They Discover I’m Trying To Sell
While this is a legitimate concern, when properly handled, no one should find out about the sale process until you inform them, especially given the required Confidentiality Agreement. Typically, a potential buyer does not even set foot in your business until you have made a tentative decision to sell the business to that buyer.
When conducted by experienced professionals, the sale of a business is highly confidential, and the likelihood of anyone discovering you are selling your business before you inform the public is minimal.
If either of these common perspectives resonates with you, then it may be time to contact an experienced exit planning professional for a further explanation of how to overcome these objections. He or she can help guide you through the process of reviewing all of the factors associated with exiting your business, while addressing all of your 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 or visit www.WNHPLaw.com.
If this is true (and it is), why doesn’t every business make delivering amazing service a top priority? The answer is simple but, if a company has been sinking resources in the wrong areas, potentially costly. To grow business exponentially, the chief investment must be in the company culture and the people—the right people—we hire to support it.
Emphasis on Culture
Dream of the perfect work environment. How do you feel throughout your workday? What are your coworkers like? How’s the environment? Structured or more relaxed? Whatever the answer to these questions, this is what culture is about.
The concept and importance of corporate culture is something that many companies are just now grasping. We spend so much time at work, shouldn’t it be enjoyable? Meaningful? Rewarding? We are more productive when we are happy, and business leaders are seeing the light. Providing a fulfilling work environment is not just for trail-blazing entrepreneurial companies; it’s for every company.
Once the corporate culture has been established, the next step is ensuring the right people are in place to support the vision—from the top slice of the organizational chart to the very last layer. This is critical.
Customer Service is Passionate
When hiring, how much significance should be placed on work experience versus personality? Would it be fair to suggest that passionate people are hungry to learn and to please both their employers and customers? If greater emphasis were placed on personality first and experience a close second, the work environment—and bottom line—would shift in a positive direction.
Consider Mark Sanborn’s viewpoint in his book The Fred Factor: “Uninspired people rarely do inspired work. Passionate people in an organization are different. They do ordinary things extraordinarily well.” Sanborn emphasizes that “Customers don’t have relationships with organizations; they form relationships with individuals. Passionate employees, whether they are salespeople, technicians or service reps, constantly show their commitment to customers. They do this by demonstrating their passion about what they do.”
To illustrate how this theory works in practice, let’s take a look at the Zappos.com business model.
Zappos.com, the online shoe store, saw over a billion dollars in gross sales in 2009. How does a company that practices nontraditional marketing methods move so much product? Their secret to success is no secret at all; they proudly and openly share their ideas. In fact, the company annually holds a multi-day conference called Zappos Insights focused on culture and customer service training.
Their corporate culture and hiring practices are so intentional and specific, it is said that it is easier to get into Harvard than to work in the Zappos call center. They would prefer a position to remain open for months than to hire the wrong person.
Skill set takes a secondary role to personality and how it will affect and complement the company’s culture. When walking through the halls of Zappos, employee enthusiasm and energy is palpable because the right people are working together with a common purpose—“delivering wow through service.”
Their dedication to extraordinary service has allowed Zappos to set a wave in motion. The Zappos customer is delighted, amazed and inspired and willingly becomes part of a word-of-mouth machine.
Consistently delivering stellar service requires a strategy. The heart of a company must beat for the people, not the bottom line. The focus must be on treating all stakeholders well, customers and employees. Establish and foster a vision-based culture, hire and nurture the right people and customers will feel it. They will be amazed, and your business will grow.
Content contributed by Beyond Marketing, a company bringing success to its clients by combining five-star service systems with powerful marketing. Services offered include Web design, brand development, service workshops and public speaking engagements. For more information contact James La Barrie at 704-268-9338 or visit www.amazethecustomer.com.
It appears there could be some political compromise on additional tax revenues after all. In April 2013, the Senate passed the Border Security, Economic Opportunity, and Immigration Modernization Act, which most notably would increase the number of people who are granted legal status. If enacted into law, this bill is estimated to save the federal government nearly $900 billion over the next two decades and also generate an additional $2 billion a year in state revenues.
No matter which side of immigration policy you stand on, the recently released Institute on Taxation and Economic Policy’s (ITEP) Undocumented Immigrants’ State and Local Tax Contributions and the Joint Committee on Taxation/Congressional Budget Office’s (JCT/CBO) Immigration Bill Expected to Boost Tax Collections helps clarify the budgetary impact of this proposed legislation.
It was widely held that overarching reform would have a great impact on our nation’s economy, as undocumented immigrants currently number 11.2 million and comprise 5 percent of our labor force.
From a dollars-and-cents perspective, the question has been: Is this good or bad change? Will its isolated effects put us in the black or the red? More specifically, will the population’s boost in direct spending for federal benefits (i.e., Social Security, Medicare, Medicaid, refundable tax credits [Earned Income Tax Credit and Child Tax Credit], health care, etc.) outweigh the revenues generated from additional income and payroll taxes?
Although we may not know the answer until such change has occurred, we now have some figures to go on.
Federal Revenue Impact
The report from the JCT/CBO estimates the Senate’s bill would decrease the deficit by $197 billion over the next decade and then balloon to an additional $700 billion in savings over the following decade. Although the second decade will see more of the previously undocumented immigrants qualifying for health care and retirement benefits at that point, the projected population rise and related increased revenues will far outweigh them. The JCT/CBO did not provide any projections for years after 2033 (their standard practice is to only go out 10 years but made an exception due to this bill’s magnitude on these future years).
North and South Carolina Revenue Impact
The ITEP’s report extends the proposed immigration reform projections onto the local and state governments. The report projects that states, in aggregate, will generate an additional $2 billion in revenues annually. States that assess individual income taxes, like North and South Carolina, will clearly benefit the most.
Before we proceed, it is important to keep in mind that undocumented immigrants in the United States already pay taxes—$10.6 billion in 2010 alone. This tax revenue is comprised of: sales and excise taxes (just over $8 billion) on goods and services like clothing, utilities and gasoline; property taxes ($1.2 billion) either directly as homeowners or indirectly as renters; and income taxes ($1.2 billion—half of undocumented immigrants are already compliant with income taxes).
What do these findings mean to our states? In North Carolina, undocumented immigrants paid an estimated $253,127,000 in state and local taxes for 2010. Under the Senate bill, this figure is projected to become $336,607,000 (a 33 percent increase). In South Carolina, undocumented immigrants paid an estimated $33,445,000 for 2010 and are projected to pay $40,717,000 (a 22 percent increase) as a result of the proposed reform.
It is necessary to highlight that unlike the JCT/CBO’s federal report, ITEP’s state report focuses on revenues without netting them against additional costs. However, much of state and local government’s costs associated with these undocumented immigrants are already being incurred through public education and population-based services such as police, fire, highways, parks, etc.
A final note is that the ITEP’s reported figures have already taken into account the partial offset by immigrants who would now be eligible for states who have permanent Earned Income tax Credits (EITC) in place. The EITC is a refundable tax credit for working taxpayers with low income. As North Carolina’s EITC expires in 2013 and South Carolina does not provide for such a credit, their revenues are shown at gross proceeds.
At the time of publication, it is uncertain what provisions will become law, if any. However, based on these two reports, it appears that proposed immigration reform’s feared prognosis of becoming a system ‘drain’ is in error. In fact, reform as currently proposed, would shrink deficits and provide additional resources to governmental units. Skeptics caution how accurate these figures are, whether there will be compliance problems, and how these changes will ripple 20 years down the road. Time will tell.
Content contributed by Potter & Company, a local certified public accounting firm offering core services of audit, tax, business consulting and financial analysis. Content written by Dan Huskes, CPA. For more information, contact him or John Kapelar, CPA, Partner, at 704-283-8189 or visit www.GoToPotter.com.
If you simply are not emotionally ready to sell, if there is still fire in your belly—enough fire to fuel your continued investment in the company—or if you ultimately want to leave the business to family members or employees, then you may not be in a position to sell your business—yet. If you and the business are ready to sell, but you still hesitate, let’s look at typical reasons for that hesitation and what you may be able to do about it.
The premise of this article is that owners typically don’t sell when they should because they procrastinate, or they fear the unknown and, perhaps more specifically, they fear losing the known.
Procrastination on the part of an owner is not uncommon and can arise for one of several reasons. First, some owners just don’t know where or how to start planning an exit. If you are one of those owners, then reading the remainder of this article is a good start. The next step is to contact an exit planning professional to begin the process of creating an exit plan that allows you to cash out of your business and maximize your after tax proceeds when you are ready to do so.
Second, some owners think that they can sell later, but as we have been discussing, when most baby boomers reach retirement age, the glut of companies in the marketplace is projected to drive prices down. There will be many more sellers than buyers; hence, a buyer’s market. Further, the merger and acquisition cycle can have a huge effect on the sale price of a company.
In the third group of procrastinating owners are those who believe that because they have “good” businesses, the process will take care of itself. When they think about selling, they simply assume that there isn’t much for them to do. They believe that when the time is right, the right buyer will appear and pay them a great price for their company.
It does happen, though quite rarely, that the right buyer appears and pays a great price for a great company. However, it can be much better to prepare for the biggest financial transaction of your life, instead of leaving the success of your business exit to the luck of the draw.
In our experience, the owners who suffer from the fear of the unknown usually hold one (or more) of the following opinions:
· “I don’t think the business is worth enough to satisfy my financial needs and objectives during retirement.”
· “If the employees discover I’m trying to sell, they will all quit and I will have nothing to sell.”
· “Because I’m indispensable to the company (the company can’t run without me), I’ll be required to work years for a new owner and I don’t like working for anyone!”
· “The sale process will take too long and cost too much.”
On the other hand, the fear of losing the known is usually based on the following:
· “The business has been my life—or at least it has given my life a great deal of meaning and focus; without it I may feel lost.”
· “The government will take too much in taxes—it’s easier, less risky and more lucrative to stay, enjoy the cash flow and then leave getting paid over time.”
· “What will I do after I sell and leave the business? I don’t know what my life will look like if I leave.”
If one of these concerns resonates with you, then the time may be now to squarely assess these concerns. Your burdens can be greatly eased if you seek out an exit planning professional with substantial experience in assisting business owners in creating a customized exit plan which meets their personal and business objectives.
That professional can help you identify which concerns may be truly “real” and which ones may be easily resolved. Also, he or she can help guide you through the process of reviewing all of the factors associated with exiting your business—along with various options to consider—leading to a comprehensive exit plan that can help you remove the common roadblocks and take appropriate action now to meet your objectives.
The Affordable Care Act of 2010 set in place gradual reforms to America’s health care system, and some of the most impactful changes are scheduled for 2014. The Act’s provisions are intended to provide comprehensive health care insurance coverage by imposing policy requirements for certain employers and also creating health care exchanges (or marketplaces) for individuals who remain uncovered.
A full discussion of the health care changes is well beyond the scope of this article. However, we present the following to help establish or strengthen a foundation that you can build a better understanding on.
The health insurance exchanges will be available October 1, 2013, and can be state or federally based. Both the North and South Carolina exchanges will be federally based. The year 2013 will usher in call centers, mall kiosks, radio ads, TV ads, and Internet sites dedicated to providing information about health insurance options for individuals.
These plans will allow some flexibility in price and coverage through the creation of platinum, gold, silver, and bronze levels. Individuals will be required to obtain minimum essential coverage, with all options offered by the exchanges meeting this requirement. Individuals who do not purchase insurance will pay a penalty through their 2014 tax returns at a rate of 1 percent of household income over a threshold amount (minimum $95 penalty). Through 2016 the penalty will increase to 2.5 percent of household income above a threshold amount (minimum $695 penalty).
Purchasers of insurance through an exchange may be eligible for a premium assistance credit if income is less than 400 percent of the poverty level. Currently, a family of four with income less than $92,200 would qualify for some level of assistance. Some people will be exempt from the mandate, primarily those who are not required to file an income tax return and those who would have to pay more than 8 percent of household income for minimum health insurance.
Some employers will be mandated to provide minimum essential coverage to employees. Beginning in 2014, an employer would be subject to this mandate if it had at least 50 full-time employees for the previous calendar year (2013). A full-time employee is considered to be one who averages at least 30 hours a week. However, part-time employees’ hours are added together to make more full-time equivalents. In other words, cutting all of a business’s employees’ hours back to 29 would not circumvent the mandate.
There are two potential penalties to not complying with this law:
The first penalty is imposed if the employer does not offer minimum essential insurance to at least 95 percent of employees. If at least one employee obtains insurance from an exchange using an assistance credit, a $2,000 annual penalty will be charged. The penalty is based on the number of employees that exceed 30 for the employer.
An employee obtaining insurance from an exchange will have to complete a questionnaire including information about his/her employer. The IRS will contact employers to inform them of their potential liability and provide them with an opportunity to respond before any liability is assessed. The contact for a given year will not occur until after employees’ individual tax returns are due for that year claiming premium assistance credits and after the due date for employers meeting the 50-employee threshold to file information returns regarding insurance coverage.
The second penalty is for unaffordable insurance. “Affordable” is defined as the employee-paid portion being 9.5 percent or less of his/her household income. If an employee’s cost of insurance provided by an employer is greater than 9.5 percent of their household income, this penalty would be imposed on the employer.
If the employer offers insurance to at least 95percent of employees and one employee obtains insurance from an exchange using an assistance credit, there is a $3,000 annual penalty for each such employee that is deemed to being provided unaffordable insurance. This penalty is capped at the penalty that would apply if coverage were not offered (see the minimum essential penalty discussed above).
With the changing environment for health care in the United States, employers need to evaluate how the new provisions affect them and when. Any changes, of course, will need time for implementation and communication to the workforce.
The regulations implementing the law are voluminous, complex, and contain many provisions not mentioned above. In order to make sure your company is in compliance, it is recommended that you include your employee benefits consultants and certified public accountants in the evaluation and planning process.
A critical element in protecting your finances, critical infrastructure, intellectual property and other valuable digital information is preventing the theft of your digital identity. Whether an individual or corporate entity, a system administrator or administrative assistant, an executive or network engineer, the compromise of your identity provides “the keys to kingdom” for a hacker or corporate thief.
Traditional thieves will plan multiple means of gaining entry into a home or facility, but will first start with the easiest means of access. Very few will attempt to pick a lock or disarm a security system before checking to see if the door is locked or if someone left a key under the mat.
Cyber criminals are no different; they start with the easiest route—assuming your digital identity and separating it from your physical identity. Once a cyberthief has your digital identity, there is little you can do to stop the damage.
The first layer of defense against identity theft is protecting the physical medium by which you enter the digital domain. Whether it be smartphones, tablets, or networked computers—all provide easy attack vectors for the hacker.
An unlocked smartphone or a tablet with a simple four-digit password is synonymous with leaving the key under the mat. While screen-locked passwords are easily bypassed, taking the time to enter a more complex password might dissuade the hacker.
To ensure security of your physical device, it is always recommended that you encrypt the drive. The latest Android and iOS mobile devices now provide strong encryption for multiple data storage media including the microSD cards.
The next layer of access into the digital world is through networks and servers, which includes wireless and wired routers, Bluetooth devices, and other peripherals that provide the communications link to the Internet. This equipment is often the focal point of an attack because it can be done remotely and on a large scale. Domestic and foreign hackers continuously “ping” devices attached to the Internet looking for that unlocked door.
When they find one, they gain access and control and then use it as a proxy for gathering and distributing information—often without the owner’s knowledge. The threat is so significant that the U.S. government established the National Vulnerability Database to track the vulnerabilities and criticality of those vulnerabilities for network equipment.
To protect your network layer, it’s usually the small things that make a difference. First, secure your wireless home network with WPA-type encryptionand change the manufacturer’s default passwords. By not changing the default passwords or leaving ports open and exposed, the “door” is unlocked on a router.
Next, avoid establishing an unlocked “guest” network and regularly download updates to the router firmware. When hackers and network professionals find vulnerabilities in network equipment, they often publish it on the Internet. Manufacturers respond to these postings by pushing out new software. If you do not download the new software, then your equipment will likely be compromised.
The third layer is cloud-based services such as Google Apps, Microsoft Live and Apple’s iCloud. These services provide an entry point into large repositories of personal information from passwords to personal information. Combine that information with data collected by retail vendors, social media sites, and app developers (under the auspices of monitoring the “experience” of that app)—the distribution of all of that information across public and private databases—and the digital version of you can then be generated in hours.
Google and other service providers are now offering security services that can be remotely activated if a smartphone or tablet is lost or stolen. Google Apps, for example, allows the administrator to remotely block access to the email server and cloud-based documents along with the ability to remotely wipe the device if it lost, stolen or compromised.
While this might seem to be somewhat overwhelming, don’t be intimidated. Using these remote security services is relatively easy and most small business owners can implement them on their own.
These examples and recommendations merely scratch the surface of potential vulnerabilities for small businesses, but are intended to raise your awareness. It is always advisable to consult with a specialist in technical surveillance and security systems to provide professional services related to information security.
Content contributed by Advanced Mission Systems, LLC, a company specializing in technical surveillance and physical, electronic and cyber security for military, law enforcement, commercial and individual use. For more information, contact Jerry Snyder at 980-819-2600 or visit www.amsdv.com.Jerry Snyder is President of Advanced Mission Systems, LLC. AMS specializes in technical surveillance and physical, electronic and cyber security for military, law enforcement, commercial and individual use.