Wisconsin Estate Planning

Should You Mix Business with Friendship?

Have you considered co-founding a new business with a family member or friend? If so, you’re in good company –Fox Business reporter Susan Shreter reports that about half of today’s startups are co-founded among friends, family members or spouses. 

Going into business with a friend or family member? It certainly makes sense that one would want to pursue their most ambitious goals with people they trust. But is doing so good or bad for the relationship you have with your co-founder?

When working with friends, expectations of loyalty and understanding are higher than is common among everyday work colleagues. And when friends let us down, resentments can linger and cause a deep divide in both work relationship and personal relationships.

Here are five ways startup misunderstandings can spiral out of control and potentially end friendships, according to Fox Business.

#1: Unmet Expectations. The typical startup business will take a lot more time and money to become profitable than anyone ever expects.

#2: Work Style Conflicts. Even though friends get along great when hanging out at the bar, this compatibility may not resonate in the office environment.

#3: Business Strategy Disagreements. New startup partners tend to be well aligned to the grander goals of an organization, but rarely have worked through the details of how to achieve these goals.

#4: Spending Conflicts. One of the most common areas of disagreement is spending authority and budget priorities.

#5: No Way Out. What happens when one partner wants to sell out, quit or reduce involvement in the business?

A recent Forbes article, titled “Co-Founding With a Friend - - Without Decimating a Friendship,” shares a few words of wisdom from successful businesses founded by friends. One startup says “when making decisions, we make the conscious decision to not be disrespectful because at the end of the day, we want to stay friends.” Another startup recognizes the importance of keeping work and personal lives separate.

In order to avoid any misunderstandings that could potentially end the business or the friendship, it is important to discuss all issues that might interfere with productive business building. 

References: Fox Business (June 13, 2011) “Why Co-Founding a Business Can Decimate Friendships”

Forbes (December 12, 2012) “Co-Founding With a Friend – Without Decimating a Friendship” 

Maximize Your Hiring Potential – Resume Enhancement

Older workers come to the table with experience, maturity and dedication… But older workers who do wind up unemployed often struggle to recover.

 

In a new year, many companies begin to re-evaluate their staffing needs. This might mean companies will increase their hiring initiatives, or they could decide to shed jobs. Either possibility means having an updated resume ready may pay dividends. Even if nothing changes for you, it wouldn’t hurt to have a spruced up resume.

 

For older individuals, reaching retirement means managing a budget with savings, social security, and part-time income. Having a polished resume is extremely important, as an analysis of the most recent job data by the AARP Public Policy Institute shows. Consider this: unemployment for older job seekers is now 56 weeks on average, compared with 37 weeks for younger workers. In light of this trend, it is crucial for older workers to revise their resumes to catch the eye of potential employers.

 

As reported in The Wall Street Journal, a new program known as the American Association of Community Colleges’ Plus 50 Initiative is helping seniors do just that. The Plus 50 Initiative recognizes the experiences, skills, and leadership that the baby boomer generation possesses. Given the possibility of unemployment facing many older workers, the Plus 50 Initiative seeks to harness the experience of an older generation and use it to teach new skills to an already successful generation.

 

Many times, the only thing standing between a senior and a job is a lack of technical knowledge and computer experience. Taking a short class on computer software is one of the best ways for older job seekers to brush up on these skills, enhance their resumes, and show employers that they are up to date with technology.

 

Consider taking some time to reevaluate how you can best market yourself in an ever-changing economy and job market.

 

References: The Wall Street Journal (October 5, 2012) “Can classes give older workers an edge?”

 

American Association of Community Colleges “The Plus 50 Initiative”

Retain Your Most Talented Employees

Employees who are challenged, engaged, valued, and rewarded (emotionally, intellectually & financially) rarely leave, and more importantly, they perform at very high levels. However if you miss any of these critical areas, it’s only a matter of time until they head for the elevator.

 

Job change is a fact of life for men and women in today’s workforce, and many workers change jobs frequently during their employable years. With all the shifts in the working world, it’s no secret that training employees is costly and good talent is hard to find. So, why don’t more CEO’s and managers focus on retaining talent?

A recent Forbes article sheds some light on the disconnect and discusses the “10 Reasons Your Top Talent Will Leave You.” The abbreviated version includes:

1. You failed to unleash their passions.
2. You failed to challenge their intellect.
3. You failed to engage their creativity.
4. You failed to develop their skills.
5. You failed to give them a voice.
6. You failed to care.
7. You failed to lead.
8. You failed to recognize their contributions.
9. You failed to increase their responsibility.
10. You failed to keep your commitments.

If you have a high turnover rate within your staff, this article may be worth reading. Once you’ve read the article, follow through with the recommendations or else you may be at risk of losing your most talented employees.

Reference:  Forbes (December 13, 2012) “10 Reasons Your Top Talent Will Leave You”

Limited Partnerships, General Liability?

It is better to never be a general partner if one can avoid it. But if a person is going to be a general partner of a limited partnership that is either conducting any substantial business or taking investors, they had better do their own asset protection first.

Personal asset protection is a major motivator behind creating a business entity through which to conduct business activities. For certain entities that means the protection of a corporate veil, but others are less safe.

On that note, a recent Forbes article titled “Miske: The Innocent General Partner Tagged With Liability For Losses Due To Misdeeds Of Another General Partner,” provides a word of caution when it comes limited partnerships via the case of Miske v. Bisno. In that particular case, one general partner in a limited partnership engaged in unwholesome activities, including embezzlement. Naturally, the embezzlement was discovered and led to a loss.

A limited partner then sued an entirely different general partner for the losses. The innocent general partner protested, arguing that he knew he was liable to third parties (which is bad enough), but not to limited partners in the same way. Unfortunately, the court didn’t agree, ruling that it doesn’t matter whether the suit is third-party or internal since a general partner is liable for the entity of which he or she is a general partner. As stated in the original article, “general partner” is just another way of saying “generally liable.”

When choosing and using an entity to protect your assets and your individual liability, be sure to consult competent legal counsel to help you navigate the land mines. 

Reference: Forbes (May 25, 2012) “Miske: The Innocent General Partner Tagged With Liability For Losses Due To Misdeeds Of Another General Partner”

 

When Your “Alter Ego” May Not Be Enough

This case illustrates the inherent dangers of the Single Member LLC — which is they are “an alter ego case waiting to happen”.

LLCs or “Limited Liability Corporations” can be excellent vehicles to accomplish just what their names suggest - limiting liability.

That said, I stumbled across a recent message of caution regarding some LLCs, and the court case of Martin v. Freeman, ___ P.3d ____, 2012 WL 311660, 2012 COA 21 (Colo.App., Feb. 2, 2012) to back it up, both of which are worth sharing.

You might say that an LLC is one thing, but a SMLLC, or a “single member” LLC, is a different beast entirely, at least from an asset protection point of view. To wit, the above article points out that a single member LLC is “an alter ego case waiting to happen.”

The case of Martin v. Freeman is, as you might have imagined, a “veil-piercing” case as Freeman was the sole owner of an LLC involved in some hefty litigation and sold the LLC’s property to, at least in part, help cover the legal fees of the litigation. Of course, that left the LLC with no assets to satisfy the judgment that came down against it and only one place to turn for that satisfaction: Freeman himself.

After all, Freeman had just under-capitalized the LLC, and did so by distributing funds to himself only to turn around and help pay legal fees for the LLC. “Undercapitalization” is the great leveler of corporations when it comes to asset protection and with little difference on record between “Freeman the LLC owner” and “Freeman the individual,” the corporate veil fell apart. Freeman was held personally liable.

This is one more lesson on a subject that always bears repeating. Single member LLCs aren’t exactly flawed by nature, but they are often the easiest to muck up. In the end, keeping things straight between yourself as the “business owner” and yourself as the “individual” requires some vigilance and diligence.

For more information on organizing Limited Liability Companies, visit my website or contact my office for an appointment.

Reference: Forbes (February 5, 2012) “Martin: The Inherent Dangers Of The Single Member LLC And Alter Ego Veil Piercing”

Avoid Deadly Mistakes in Succession Planning

So we all know a [succession] plan is needed. But having the wrong plan can be just as disastrous.

It’s said that a little knowledge can be a dangerous thing. However, what is less often said, yet is ultimately just as true, is that just a little planning can be a dangerous thing. Improper and rushed planning will do you no good (and perhaps even harm).

This is especially the case with succession planning. Oftentimes, the lifeblood of a business is at stake even more than its assets. In that vein, then, a recent article in Registered Rep magazine described the three deadly mistakes of succession planning. The original article has an emphasis on financial advisors, but with a little rhetorical tweaking these mistakes are universal in application.

Don’t “build the wrong bench.”

Don’t stock your management team with the wrong people. Who are the wrong people? That depends on your business, but certainly for a family business that can mean a disinterested family member. It can just as easily mean someone who doesn’t share enough in the business goals or, in the other direction, one who doesn’t think outside of the box enough to see past them.

Don’t turn succession into a contest.

It makes for a great story when we read or hear about executives jockeying into position for a spot at the top, whether on TV or in real life. However, this jockeying doesn’t make good business sense (and come to think of it that’s usually the moral of the story when it is on TV). Competition for succession within a business can be destructive rather than character-building, and the business itself is what suffers.

Don’t act out of fear.

Acting out of fear of one’s death may be the most obvious and yet also the most difficult when you’re facing big questions. Rather, it’s important to center yourself on the task and get appropriate legal counsel to ensure the success of the process.

Reference: Registered Rep (January 20, 2012) “The Three Deadly Mistakes of Succession Planning”

Selling Your Family Business with The Tax Wind At Your Back

There is a pent-up pipeline of owners who have had to put off selling in recent years because of the economy. And now that many of these companies have at least one year of profits on the books, they are more attractive to potential investors.

Whether we’re coming out of the recession is still very much in debate. Nevertheless, at least for some small businesses, the balance sheets are starting to look a bit better.

Having weathered the storm, some business owners are now ready to get out. According to a recent New York Times article, 2012 is going to be the time to sell the business for some owners.

“Buy low, sell high” is conventional market wisdom. To some business owners coming out of the rut with a good year behind them, right now may be the “high sales” they’ve been awaiting. Yet for some investors right now may still be the “low buys” with an eye for growth.

Behind the scenes, however, there’s more than simple market dynamics afoot in 2012. As you may recall, it also is the last year of the Bush-era tax cuts as they were extended only until the end of 2012.

So, if you’re looking to sell the business, then 2012 will offer a lower capital gains tax rate, at 15% instead of the 20% slated to fall into place come next January.

If your business IS your personal wealth, then this is real money for your future and for your family’s future.

Why are you waiting? Unless you intend to keep you family business in the family, the tax planets are beautifully (albeit temporarily) aligned with those same Bush-era tax cuts in place – and the generous Gift and Estate tax levels.

Accordingly, I recommend a consultation with your trusted accounting, legal and financial advisors without delay.

Reference: The New York Times (December 21, 2011) “Why Some Business Owners Think Now Is The Time To Sell”

LLC Planning For Your Business and Family

I am frequently asked by small business owners if they should have a separate LLC or multiple LLCs for their assets. The answer is “it depends” on what your objective is for considering this.

When it comes to understanding your estate and planning for it, the key concept is ownership. How do you own your assets? How should you own your assets? How can you easily pass along this ownership to your loved ones?

When it comes to business assets, whether in the context of ordinary day-to-day operations or as a business owner setting up your estate plan, ownership is still the name of the game. One question that arises, then, is whether your assets should be spread across separate or multiple LLCs.

I came across a recent article in CPA Magazine and, according to the author, whether you should start splintering your assets into multiple LLCs depends a great deal on what you hope to accomplish. No surprise there.

However, to many it’s simply a question of liability and risk protection, but then there are other goals. Namely, splitting into multiple business entities will allow your company to move the ownership of assets around between family members or employees without necessarily dividing the business.

This can be accomplished with some careful planning, corporate due diligence, and transactions like the sale-leaseback or, more in the vein of estate planning, the gift-leaseback. In that latter play, the business owner either leases or gifts the asset away and then immediately leases it back, thereby spreading ownership but retaining the operations of the company. Of course, not all business assets are well equipped for this practice, but others are perfectly positioned, especially those that deal in large equipment or vehicles.

It’s not quite as simple in practice, and diligence is a necessity, but for many small and family owned businesses this fractured structure will allow a great deal of leeway.

Whether it truly is right for you will take some thought and competent counsel, both legal and financial/tax, at your side. In the end, it all comes down to your own unique goals, first for your business and second for your family.

Reference: CPA Magazine (2011) “How to Determine if a Separate LLC is Right for Your Assets”

Employee Retirement Plans May Be Easier Than You Think

Business owners should rethink what they "know" about sponsoring retirement plans, says the founder of a firm that administers 401(k)s for small companies.

It’s the last week of the year, and if your small business does not already have an employee retirement plan in place chances are good you’re thinking about it. Chances are also pretty good that you think it’s more difficult, and more expensive, to get started than it really is.

Bloomberg Businessweek ran an article earlier this month outlining some of the options, with helpful advice. Nearly three-quarters of small employers do not sponsor retirement plans for their employees, perhaps because of outdated negative notions about their costs and complexity.

If you are a small business owner, now may be the right time to revisit the concept of employee retirement plans. There are several options including Payroll Deduction IRAs, SEPs, SIMPLE IRA Plans, and 401(k)s. The options may be more attractive than you think once you do some investigating.

Reference: Bloomberg Businessweek (December 6, 2011) “Establishing an Employee Retirement Plan”

Independent Contractor Calamities

If you treat employees as independent contractors and fail to withhold taxes the IRS can reclassify them and assess potentially crippling retroactive penalties. There are other consequences too.

Are you a small business owner? Do you have any “independent contractors”? Really? Then, watch out!

The IRS is looking for revenue. Surprised? Don’t be.

If you use independent contractors, then you might need to exercise a bit more diligence. Why, the IRS may consider them to be “employees” masquerading in a tax-cheating disguise.

It’s quite common for small business owners to rely on independent contractors, especially in lean times. And, from the perspective of the IRS, the difference can be huge in tax and legal terms. Why? An employer doesn’t have to withhold taxes or pay any benefits for an independent contractor (instead, the worker pays a self-employment tax.). Unfortunately, some business owners intentionally classify workers inaccurately… and the IRS is working to prevent it in several ways.

However, the IRS isn’t the only one on the worker classification campaign. Forbes has a series of recent articles to keep us informed. Robert Wood has paid special attention to the issue, reporting here that the IRS has updated its SS-8 Form to inquire about the employee classification and it is slanted more heavily toward the classification of “employee” versus “independent contractor.”

The threat of improperly classifying a worker is always that the IRS will “reclassify” them, enforce penalties, and demand the back taxes on that classification. Nevertheless, this too may become more difficult and even more of a threat. In another article, Woods points out how recent examples indicate that the IRS is working far more closely with the Department of Labor and state governments to evaluate worker classifications. As a result, the consequences of an IRS reclassification also could mean unwanted attention from those bodies as well.

Finally, the IRS has started the Voluntary Compliance Settlement Program (VCSP) to give employers incentive to come forward and reclassify. In exchange, the IRS is offering a reduced penalty of a flat 10% on all employment tax liabilities for the past year. Note: This includes both the employer and the employee sides of Medicare and Social Security taxes, since the employer would have had to withhold the employee side from the employee’s pay in the first place. Stephen Dunn reports on that development here, along with the suspicion that it is actually an illusory classification program, since the IRS doesn’t have a leg to stand on in that effort.

Hopefully, you don’t have anything to hide. Who wants any extra attention from the IRS?

Reference: Forbes (September 21, 2011) “IRS, DOL and State Mount Independent Contractor Attack”; and (September 27, 2011) “Employers Beware of  IRS’  Illusory Worker Classification Program”