Business Consultants & Certified Public Accountants

The Tragic Tale of a Troubled Business Succession

It’s a tragic tale that plays out in many businesses across the country. The owner of the company believes he’s finally ready to trigger his succession plan and retire. So he names his daughter as his successor, enjoys his retirement party and departs for his vacation home.

Reluctant retiree

For six months of the year, the now-former business owner lives at that vacation home while his daughter toils away at establishing control of the company. Although her father has given the daughter stock in the company, he still retains the majority vote.

And whether on vacation or at his primary residence, the former owner insists on calling into work almost every day and being kept informed via email of everything going on. When tough decisions are required, top managers still look to him for final confirmation. Every so often, he even pays a visit to the office with much fanfare, undermining the authority he has seemingly given his daughter to oversee the business.

After a year or two of this, the true consequences start to become clear. The former owner’s relationship with his daughter has deteriorated severely — mainly because of business disagreements. And, without a clear strategic direction, the company itself is floundering and falling behind the competition.

Sad lesson

The lesson of this sad story is fairly clear: Once your retirement date arrives, stick to it. Doing so means getting out — all the way out, at least in terms of decision-making.

Remember, you can always stay available as a consultant. Just make sure not to undermine your successor’s authority. Making a clean break is usually the most effective way to ensure a succession plan succeeds.

Strong moves

If you’re nearing retirement, let us help you go over the details of your succession plan. We can help with both the financial aspects and the strategic moves that will keep your company strong.

 

Fortify Your Benefits Plan with Fiduciary Liability Insurance

Among the most contested areas of employee benefits litigation is an employer’s fiduciary duty to its plan participants and beneficiaries. The cost of defending yourself can be steep — regardless of fault. That’s where fiduciary liability insurance fits in.

Who’s a fiduciary?

ERISA defines a plan fiduciary as an individual who:

  • Has discretionary authority or control with respect to plan management or disposition of plan assets,
  • Renders investment advice for a fee, or
  • Has discretionary authority or responsibility for the plan’s administration.

Although it’s possible to diminish exposure by delegating plan decisions to third parties, it’s generally impossible to eliminate liability risk entirely.

What is it not?

So what is fiduciary liability insurance? Let’s first look at what it isn’t.

First, it isn’t an ERISA fidelity bond. These bonds protect the plan from dishonesty on a fiduciary’s part, but don’t protect fiduciaries from claims by others.

It also isn’t employee benefit liability (EBL) insurance. While both policies cover administrative errors and omissions, EBL coverage doesn’t cover clear ERISA violations.

Finally, it isn’t a directors and officers (D&O) policy. Typically, D&O policies don’t cover incidents that happen when a person is acting in a fiduciary capacity.

What’s covered?

Fiduciary insurance can cover both the fiduciary and the company sponsoring the plan. Policy provisions may include:

  • Faulty advice from counsel,
  • Improper plan document amendments and disclosures to plan participants,
  • Incorrect investment advice,
  • Imprudent choice of outside service provider, and
  • Negligent errors and omissions.

Finding the right policy

When shopping for fiduciary liability coverage, consider the carrier’s experience, financial strength and reputation for paying claims. But, before you get started, please give us a call. We can help you compare costs and fit the purchase into your budget.

Competitive Intelligence is a Strategic Imperative

All too often, the competitive efforts of many companies are internally focused. Many businesses seek to develop better products and services without knowing enough about their competition.

To truly hone your competitive edge, you need to constantly ask one simple question: “What are they up to now?” And the best way to get answers is through the practice of competitive intelligence.

Legal and ethical data gathering

In the information age, companies have a strategic imperative to analyze every bit of data they can on what the competition is doing at all times. Of course, “at all times” doesn’t mean “at any cost.” Competitive intelligence is the process of legally and ethically gathering data on competitors. And your purpose isn’t to undercut what they’re doing but to anticipate trends, compare best practices and target opportunities.

What you need to track

Specifically, you need to stay apprised of your competitors’ product and service lines, financial standing, and market position. You should also track whether the competition is expanding or contracting. Mergers, acquisitions or strategic alliances could mean you need to play defense, while closures or bankruptcy may mean it’s time to go on the offensive.

Crafting a policy

Before you dive into competitive intelligence, it’s important to establish a formal policy governing your efforts. Please contact our firm for assistance. We can help you craft a policy, in consultation with your attorney, that enables you to gather the right information while minimizing the inherent risks involved.

 

4 Keys to Telecommuting Success

If your company is getting aboard the telecommuting trend, consider the following four keys to success:

1. Set a trial period. Begin with a two- to six-month period during which the employee and his or her manager can get a feel for just how (and whether) this arrangement will work. If either side is unhappy at the end of the trial period, make adjustments or scrap the idea entirely.

2. Manage for results. Generally, telecommuters should be managed based on results — not on close scrutiny of everyday work methods. That said, instruct managers to schedule regular telephone calls and request status reports (as necessary) to stay in the loop.

3. Don’t forget about them. Just because they work remotely doesn’t mean they’re no longer part of the team. Include telecommuters in companywide e-mail announcements and invite them to meetings or events held at the office — even if you think they won’t be able to attend.

4. Provide quality technology. Telecommuters should have a reliable computer, Internet connection, telephone (with voice mail), and all the necessary software and network connections. This may seem obvious, but many people launch into telecommuting without considering the nuts and bolts of doing so.

Telecommuting arrangements can also save your company money, such as on office space. Contact us for help crunching the numbers.

 

Craft Your Mission Statement for Maximum Impact

The right mission statement can be a strong motivational force for employees — and a powerful marketing and branding tool. But, whether you’re writing one for the first time or creating a new statement as part of a rebranding effort, you’ve got to craft it carefully for maximum impact. Here are a few guidelines to follow:

Don’t limit yourself. Granted, you can’t be all things to all people. But the world in which businesses operate and compete is constantly changing. Your mission statement should be broad enough to let your company adapt when necessary.

Aspire to inspire. Make your statement visionary, expressing your business’s purpose, aspirations, philosophy and values. It needs to resonate with the people working for and with you. But, at the same time, it must be realistic, practical and workable so as to inspire confidence.

Keep it concise and understandable. A mission statement shouldn’t confuse people seeing it or hearing it. Avoid buzzwords and technical jargon. The true test? Whether your employees can remember and repeat it.

One might say that a mission statement is where a company’s strategic planning begins. For help crafting a statement that will inspire your staff and impress your customers, please contact us.

 

5 Questions to Ask Before Buying New Technology

It’s often hard to tell whether your company really needs the latest tech tool or you’re just trying to keep up with the Joneses. Before you invest in anything, ask five questions:

1. Where are we lagging? Survey your managers and employees about what they need to do their jobs better. Also question industry colleagues about their favorite upgrades.

2. What must the solution do for us? Once you have a general idea of your needs, get specific. List the “must-have” features of a necessary upgrade.

3. What’s the total cost of ownership? Consider all associated expenses, not just the purchase price. Installation, maintenance (including updates and patches), support and repair expenses will all inflate the cost of ownership.

4. Can we actually use this technology? Typically, new technology means employee training. Can someone on staff lead this process or will you need to budget for an outside consultant?

5. Will this purchase boost our bottom line? Ultimately, weigh the technology’s total costs against the potential savings or new revenues it could generate. Don’t forget to look into tax incentives for technology investments.

There’s nothing worse than a technology “solution” that doesn’t solve anything. Let us help you assess your needs, set a reasonable budget and execute the purchase. We’re a phone call or email away.

 

Gearing Up for the ACA’s Information Reporting Requirements

Starting in 2016, applicable large employers (ALEs) under the Affordable Care Act (ACA) will have to file Forms 1094-C and 1095-C to provide information to the IRS and plan participants regarding their health care benefits for the previous year. Both the forms and their instructions are now available for ALEs to study and begin preparations for required filings. In addition, organizations that expect to file Forms 1094 and 1095 electronically can peruse two final IRS publications setting out specifications for using the new ACA Information Returns system.

Keep in mind that ALEs are employers with 50 or more full-time employees or the equivalent. And even ALEs exempt from the ACA’s shared-responsibility (or “play or pay”) provision for 2015 (that is, ALEs with 50 to 99 full-timers or the equivalent who meet certain eligibility requirements) are still subject to the information reporting requirements in relation to their 2015 health care benefits.

If your company is considered an ALE, please contact us for assistance in navigating the ACA’s complex requirements for avoiding penalties and properly reporting benefits. If you’re not an ALE, we can still help you understand how the ACA affects your small business and determine whether you qualify for a tax credit for providing coverage.

 

Do Your Business Ownership Interests Belong in an FLP?

If you’re planning to pass ownership in your business to the next generation, it’s critical to find the best way to do so. One option is a family limited partnership (FLP).

To implement this strategy, you set up a limited partnership and transfer ownership interests to it. Then you give some or all of the limited partnership interests to your heirs.

Control of the FLP remains with the small percentage of partnership interests known as “general partnership interests,” of which you retain ownership. Thus, you reduce your taxable estate by giving away assets (the limited partnership interests) without giving up control of the underlying assets. In other words, you can continue to run your business.

Because the limited partners lack control, these interests can often be valued at a discount. When making a gift of an FLP interest, obtaining a formal valuation by a professional appraiser is essential to establish the value of the underlying assets and partnership interests.

A major risk of FLPs is IRS scrutiny. The agency often challenges FLPs it believes are invalid. That’s where we come in. We can help you establish and maintain a sound, defensible FLP. Please call us.

 

They’re Back! Depreciation Breaks Extended

For much of this year, uncertainty surrounded whether Congress would extend relief in the area of depreciation-related tax breaks. On December 18, clarity finally arrived with the passage of the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). Here’s a look at the impact on two “classic” depreciation breaks:

1. Enhanced Section 179 expensing election. In 2014, Sec. 179 permitted companies to immediately deduct, rather than depreciate, up to $500,000 in qualified new or used assets. The deduction was phased out, dollar for dollar, to the extent qualified asset purchases for the year exceeded $2 million. Under the PATH Act, these amounts have been made permanent (indexed for inflation beginning in 2016) rather than allowed to fall to much lower limits.

2. 50% bonus depreciation. In 2014, this provision allowed businesses to claim an additional first-year depreciation deduction equal to 50% of qualified asset costs. Bonus depreciation generally was available for new (not used) tangible assets with a recovery period of 20 years or less, and certain other assets. That 50% amount has been extended for the 2015, 2016 and 2017 tax years. But it will drop to 40% for 2018 and 30% for 2019.

To reap these benefits on your 2015 tax return, you must acquire qualified assets and place them in service by December 31, 2015. These are but a few of the ways the PATH Act affects business tax planning. Please contact us for more information.

 

Achieving Your Succession and Estate Planning Goals via Recapitalization

Like many business owners, you probably have much of your wealth tied up in your company. And this fact may be creating a conflict between the desire to transfer ownership to the next generation and the desire to stay in control. One potential solution: Recapitalize your business into voting and nonvoting shares.

From an estate planning perspective, the sooner you transfer ownership of your business to the next generation, the better. That way, future appreciation and income are removed from your estate and avoid gift and estate taxes.

Recapitalization can allow you to reap the tax benefits of gifting ownership interests without your having to cede control of the business to your children.

For example, you might retain 10% of the company in the form of a voting interest and allocate the remaining 90% among your children in the form of nonvoting shares. You continue to manage the business while removing a large portion of its value from your taxable estate.

To discuss this strategy further, please give us a call. We can help you explore recapitalization as well as other ways to refine your succession plan and estate plan.