The number of seismic changes in the way business is done during the past 10 to 15 years is unprecedented. Just ponder the magnitude of all that has occurred as you read this list: Cell phones became ubiquitous, and computers with 24/7 Internet access moved from the strident screechy tones and beeps of telephone dial up to today’s broadband connections that transmit huge amounts of data in seconds, resulting in virtually everyone being constantly connected.
Instead of getting the latest news at 11 p.m. and sleeping on it, we now receive a constant stream of information in real time. Reaction time has moved from digesting the myriad of hard copy reports that awaited you at the office each morning to now making decisions simultaneously with that first sip of morning coffee while reading data on a smart devise.
In addition, the era of easy money is also long gone, along with what seemed to be extraordinary and unlimited growth where the average company would do just fine, propelled by a rising tide of good times.
The tragedy of Sept. 11 jolted the world permanently, altering the way people live and think about the future. There are no more givens that one will grow up, go to school, get a job, have a family and live happily ever after. Two major wars have lingered beyond anyone’s worst expectations. Then came the economic meltdown of 2008 when the wheels came off the wagon and the music stopped playing while everyone frantically searched for too few remaining chairs. With the stock market crash and the banking/lending meltdown, even the most sanguine turned jaundiced toward their views of government, business and what the future holds.
Even those businesses naively ensconced in their fairytale cocoons realized it was no longer business as usual. What worked for years would no longer move the needle. Customers’ attitudes and loyalties could no longer be taken for granted as businesses acknowledged that future success and prosperity could well be the exception, rather than the rule.
Does this mean that everything that we’ve learned in the past has gone swirling down the drain, including basic business principles and practices that were sacrosanct?
There are no pat answers to deal with almost revolutionary metamorphoses, if you don’t change, you most certainly will become a victim of change.
Welcome to the new ‘now.’ If you’re leading an organization today, you must devote the majority of your time and efforts to looking ahead and trying to find the answers before your competitors even know the questions. Change has become how we must do business. What worked for your company previously is, at best, a fleeting memory overshadowed by the customers’ mindset of “What have you done for me today?” In short, there are no guarantees other than you’ll have to continuously get better or be gone.
A scary thought? It all depends how you approach this new reality. With changes come new opportunities, new ground rules and the ability to find a better way and deliver that better way more efficiently and effectively.
So how do you go about preparing for the future? Certainly use all of the new tools that are at your fingertips. Instant information on the Web is available to all of us with a few keystrokes directed at a growing number of sophisticated search engine. Data that took weeks and months to gather can now be gleaned in minutes or hours. While Americans are graying as the over-50 crowd mushrooms, don’t ignore the young who know only this new way of life. Does this mean you should add a few 14-year-olds to your board? Maybe not a practical idea, but be sure you’re at least talking to a couple of them on an ongoing basis. Ideas come in many forms, many times from the most unlikely.
You must retrain your team to challenge virtually everything and find a better way, envision products, goods and services that no one knows they even need yet, and create a strategy to deliver them compellingly and creatively.
Will there continue to be business casualties? You bet. Much more importantly, however, there will be many business successes for those companies led by visionaries who answer that morning wake-up call each day with an open mind to the new now.
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at firstname.lastname@example.org.
A unique new book with an unorthodox, yet proven approach to achieving extraordinary success.
What does it take to grow rapidly and effectively from mind to market?
This book offers an unconventional philosophy for starting and building a business that exceeds your own expectations.
Beating the competition is never easy. That’s why it requires a benevolent dictator.
Published by John Wiley & Sons. AVAILABLE NOW! Order online now at: www.thebenevolentdictator.biz
Also available wherever books and eBooks are sold, and from Smart Business Magazine and www.SBNOnline.com. Contact Dustin S. Klein of Smart Business at (800) 988-4726 for bulk order special pricing.
If you’ve been running a business for some time, then I’m sure you know some CEOs who are struggling to keep their business going or have already closed their doors.
In some cases, the cause might be the economy. Maybe they were in an industry hit particularly hard and were crippled by the drop off in sales or maybe a large customer folded or took its business elsewhere.
The most troubling aspect in many of these situations is that the person in charge didn’t necessarily do anything wrong. The leader made all the right calls and did everything by the book but still ended up with a struggling business.
After you’ve been running a business for a while, you realize that even doing everything right doesn’t guarantee success. The harshest lesson to learn is that you can’t control everything and bad things happen to good people and good companies.
The real test for many begins not with how they deal with success but how they deal with setbacks. Most have never tasted defeat before, and it can be a difficult experience. One day they are the CEO of a successful and respected company, and the next day they are sitting at home wondering what they could have done differently. The experience can be depressing for some and overwhelming for others.
But there’s a saying that as one door closes, another opens, and that certainly holds true with business. If you find yourself in the situation of leading a struggling business, you need to approach it as a challenge. Don’t waste time lamenting what could have been; focus your energy on what could be. Maybe you need to tweak your business, or maybe you need to completely reinvent your company, but the key is to do something.
Take McDonald’s for instance. In the early 2000s, the company was distracted by multiple acquisitions, a massive expansion plan and a menu cluttered with items consumers didn’t necessarily want. The stock price dropped to $12. The company reinvented itself by returning to its roots, divesting of the distracting side businesses and revamping its menu and restaurants to appeal to consumers. The results changed the perception of McDonald’s from a restaurant in decline to the undisputed king of the industry with a stock price in the $80 range.
Another example is IBM. The company was saddled with low growth after trying to dominate the consumer and business hardware and software segments, and its stock dropped to $10. The leadership refocused the company on business software, a few key business hardware components and IT services. It now dominates the business IT services category and its stock commands almost $200 per share.
While you may not be as large as IBM or McDonald’s, the point is that business is constantly evolving. Sometimes it means getting back to your roots, and other times it means abandoning one line of business in favor of another.
Take a hard look at your company and think about what you could do differently. Are there some product lines that are better than others? What if you focused on your core products and did them better than anyone else? Can you follow the lead of McDonald’s or IBM to chart a new course?
If it’s too late for that, look at your current situation and find a new path to success. You led a successful business once, so you can surely do it again. Reach out to friends and colleagues to find out where the opportunities may be in the market and think about a way they could invest in your new venture. You never know who may be able to lend a helping hand. One door may have closed in your career, but with some entrepreneurial thinking, the help of some friends and prayer, another will open. The best is yet to come.
Fred Koury is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or email@example.com.
James Taylor and Arun Pasrija, Ph.D., remember well when the company they founded, CHR Solutions Inc., acquired another business a few years ago — and two of the acquired executives were a bit hostile with each other.
But Taylor and Pasrija were no novices at acquiring and merging other businesses with their telecommunication technology solutions company. Throughout an eight-year time span, they acquired or merged 12 companies. CHR Solutions now has 530 employees and annual revenue of $61 million for 2011.
This particular situation, however, demanded a resolution that was nearly a total makeover.
“Two senior executives at two major locations were at war with each other,” says Taylor, chairman and CEO of the company.
“They just refused to deal with each other. They refused to cooperate, didn’t want to talk to each other, and all they were doing was destroying value.”
Part of the reason that both executives voted in favor of the acquisition was to prevent the other from being in charge anymore. They reasoned that by becoming smaller fish in a bigger sea, so to speak, neither would be a leader.
“As part of the solution, we had to work with the senior executive who owned a big portion of that challenge,” Taylor says. “The other person had basically given up trying — but he owned much of the problem, too, for having given up.”
What Taylor and Pasrija did amounts to an attitude adjustment, mental makeover and reassignment.
“We revised the other executive’s role, took him out of his assignment where the conflict was, reshaped and remodeled him, and he then worked directly with us at a senior executive level on strategic items; we really reshaped his attitude and his involvement,” Taylor says.
After a length of time, the situation had not only been resolved but a new chapter was unfolding.
“It took about three years to rehabilitate the relationship and redevelop mutual respect and trust, and, frankly, I think we went even further — I think we helped them re-establish some of the friendship they had before,” Taylor says. “The guy who was causing problems is actually back today working for the guy who he swore he couldn’t work for and the other guy swore he couldn’t work with.”
“We just couldn’t walk in and leave it alone like that,” says Pasrija, president and COO of CHR Solutions. “So we addressed it, and I think it worked out pretty good because it gave both of them some space initially so they were not interacting with each other. Then it improved to the point where they appreciated what the other party brought to the table.”
Taylor notes separating the parties was the first step of the solution.
“We had to take the pressure off first,” he says. “We had to take them out from reporting to each other or one of them reporting to the other, and we had to start educating. I think there was some ego relative to that as well as I don’t think the hostile exec fully understood the situation. Part of that rehabilitation process was that as he participated more closely with the senior execs of the organization, he got a perspective about the decisions we were making and why we are making them, and he had a chance to catch his breath and feel like he was adding value.”
One of the major points that hit home was that the executive needed a behavior change in order to be a successful leader.
“It’s not about right or wrong; it’s about changing to be successful,” Taylor says. “We were firm with him: ‘If you can’t change, we can’t correct this and you can’t be here.’ That’s a pretty significant conversation about a guy’s career and his life and the 25 years he spent investing in the company and the industry that he is in.”
The moment of truth came, and he met the challenge head-on. It paid off.
“He actually told us at one point that he had never had the coaching that he was receiving from us,” Taylor says.
“Once an executive is reshaped, it creates alignment right at the people,” Pasrija says. “People see the issue, the senior guys realize that there was an issue at the senior level, and the improvement gets amplified all the way down.”
But it’s not unusual during the acquisition process when executives are being vetted that you find some leaders who haven’t received professional executive training. That’s where the acquiring company has to step in.
“Many times, these guys in smaller companies, they don’t have what I will call professional leadership. What they have is 25 years of first-year experience,” Taylor says. “I don’t mean that in a negative way. Technicians — borrowing the term from Michael Gerber’s ‘The E-Myth’ — may be very, very competent at the business and technical aspects of what they’re doing, but they’ve not done HR management or leadership development, they’ve not run bigger organizations, and they don’t know how to manage conflict.”
Taylor feels a weakness in leadership training may be the cause for some companies to hit a financial brick wall.
“There is a reason many small entrepreneurial companies get stuck at a $5 million, $10 million or $15 million size, and the reason for that is the depth of management,” Taylor says. “That’s only what management can handle. You’ve got to think differently — it’s a different capital structure. It’s a different leadership structure. It’s a different investment you make. It’s a different way you manage.
“We’ve got to help them with the additional skills they need to run the business in a different way and a different level.”
Here’s how Taylor and Pasrija focus on enhancing employees gained through an acquisition or merger — and existing staff — to tap new levels of success.
Look for more talent, not less
There are several criteria that have to be met when a company makes an acquisition or merger. Geography, adding to the product line and creating an attractive client list are examples. In addition, the leadership team should have some similar values.
“You can think of a business almost like a mosaic, made of all the small little stones that build a picture,” Taylor says. “Look for things that add value, that fill in parts of the mosaic, whether it be a product, people, geographic reach, whether they be of the size and scalability that they offer or whether they bring long-term clients.
“But look for things that you can integrate and that the leadership team buys in and understands your vision because you are not looking to write checks and send a bunch of people home. Look for more talent on the team. I believe you can never have too much talent. I never get up in the morning and say, ‘Oh gosh, I wish we didn’t have so much talent.’”
Pasrija says he believes the most important criterion is spending time during integration with the management team and making sure the new faces can be part of the broader team.
“From the personality perspective, that will make or break the deal,” he says. “All the other things are important but are actually kind of minimal. You want to make sure the product is a right fit, but beyond that, you have to focus on integration, which takes a lot of time, so you are just comfortable to have these teams that can integrate and be part of each other.”
It’s better to integrate rather than incinerate, Taylor says. But it may not be the case for all industries.
“As you integrate companies, a lot of people want to do burnouts,” he says. “We don’t like burnouts. Burnouts mean don’t integrate. So the idea of burnouts is to try to protect your purchase price versus some of the functions you have made.
“We think the trade-off on burnouts is worse than the downside created by not integrating, particularly in the services area. Now that could be different in the manufacturing business or something else, but particularly in the services business, that is just a very specific thing we go through.”
Getting employees to integrate in one culture for one company in one version is a key to success, Pasrija says.
“You need to present one company to a customer or client,” he says. “They don’t really care whether there were two, three or four companies in their history or there are offices in different states. It’s one company helping them solve their needs. And that model will help their clients succeed.”
Learn to rank the entrepreneurs
Before you attend to reshaping or re-educating executives acquired in an acquisition or merger, there needs to be an honest appraisal of their talents. You will save yourself some time and effort if you evaluate the entrepreneurs in three categories or stages. Meet with the person to try to establish what stage of an entrepreneur he or she is.
“Stage I is that he or she is Superman or Superwoman,” Taylor says. “They can leap buildings in a single bound. They have a great big S on their chest. That big old S stops bullets, and everything’s good, right?
“Well, the reality of those people is they kill companies. If you go back to the ’90s and look at all the sales, mergers, acquisitions and the dot-com roll-up, they were all supermen and superwomen. If they are Stage I, run away. Don’t walk.”
The second stage involves some qualities of the first but with more self-awareness of strengths and weaknesses.
“If they are Stage II entrepreneurs, they woke up and realized that it’s just a T-shirt and it doesn’t stop bullets,” Taylor says. “But they say, ‘You know what? I’m kind of achy. My stomach is upset. I have a fever. I have a headache.’ The diagnosis is that you have the flu, and they say, ‘No no, just give me some Tylenol and send me back in, coach.’
“The problem with that is Stage II entrepreneurs cost money. They take bigger zigs and longer zags than you need to have. The problem with a zig and a zag is that the more out of a straight line you are, the longer it takes and the more money it takes. Sometimes with the right Stage II person, you can bring him or her into Stage III. But go cautious on Stage II. Really understand where they are; understand the culture that they have created.”
As you may expect, the perfect candidates are the Stage III hopefuls. As troops parachute into a combat zone and hit the ground running, so do Stage III entrepreneurs.
“Because of their time frame, some people who have led the business before are immediate Stage III entrepreneurs,” Taylor says. “Some get there in a very short time, some are super bad for 25 years. The Stage III entrepreneur gets there and says, ‘OK, how do I do this run? What’s the right thing to do?’ They can check their ego aside, too.”
Invest in developing leaders
One of the things both Taylor and Pasrija benefited from in their careers was a leadership development training program. Taylor received training from Sears, and Pasrija from Lucent Technologies. It gave them the impetus to create a leadership development program for current and acquired employees at CHR Solutions. The program has graduated 60 future leaders since 2008 when it was founded.
“We believe we can actually create talent from inside,” Pasrija says. “Not that we couldn’t have gone out and hired executives. We wanted to invest to create a pool of potential leaders. It’s good for the morale of the employees; it’s good for us because we develop comfort and trust in them.”
The company selects 20 to 25 employees each year to be so-called “special leaders.”
“They’ve demonstrated leadership behaviors and quality,” Pasrija says. “We believe it is worth the investment, and some of them for sure will be able to take much, much bigger roles down the road.”
The program, which costs $60,000 to $70,000 a month to operate, is a two-step process.
“One is a formal kind of a mini-executive MBA if you will, where they go through classes for the course of a year,” Pasrija says. “It is held from 7 to 9 in the morning every other week — two hours of a lecture, classwork and homework assignments.”
Classes are held on sales and sales processes, marketing, product management, finance and accounting, understanding cash flow, balance sheets, income saving, why it is important to focus on net terms for a contract, working capital and other concepts.
“We have to manage change,” Pasrija says. “That’s a big feat. Crucial conversations: how to have a hard conversation with your peers, with your employees, your managers and, sometimes, the client.”
The “students” go through all the processes and then undertake a final assignment. They are put in charge of a fictitious company with a senior leader and their team, and they are given a scenario, much like a case study.
“Here’s what’s going on, here are the financials, here are the industry situations and you plan for business and the events that will happen,” Pasrija says. “Then you go back and figure out what would you do and what is the impact. Then they work on it for a couple of weeks and make a presentation to the entire management team.”
“After completion, they are sort of fast-tracked for opportunities and given much higher preference in promotions,” Taylor says. “This is very, very formal. We spend thousands and thousands of dollars doing this every year — we think it is that important.
“If you’re going to grow large business, you have to be able to create the appropriate discipline and infrastructure to exactly achieve the very way and be very profit-driven. That’s part of the culture of who you are and what you are doing.
“That’s hard to achieve if you think about it for a second. Think about that versus a freewheeling entrepreneur who started his own small business. A large part of that cultural change and educational process is to bring them into what it takes to be a much larger business.” <<
How to reach: CHR Solutions Inc., (713) 995-4778 or www.chrsolutions.com
James Taylor, chairman and CEO, CHR Solutions Inc.
Arun Pasrija, president and COO, CHR Solutions Inc.
Pasrija: Pune, India
Taylor: West Plains, Mo., so I’m a hillbilly. I’m from a foreign country as well!
What was your first job?
Pasrija: My first job was actually at a motorcycle factory. It was a summer job assembling 150cc bikes made by the Escorts Group.
Taylor: I’m trying to remember when I didn’t work. I used to cut firewood, pick rocks, bale hay and work in different stores. It’s a great thing for kids to learn how to work and do things.
Whom do you admire in business?
Taylor: I admire Bill Gates, Larry Ellison, Michael Dell and Steve Jobs — they created something from nothing. It’s about the entrepreneurial spirit. They got ‘out of the box.’
Pasrija: I admire Warren Buffett. I’ve read a lot of his books, and I always read his annual shareholder letter. His way of getting the big picture, keeping it simple, making sure the right people are doing the right things and honesty and integrity behind his business — I really have a lot of respect for what he has accomplished.
What was the best business advice you have given or received?
Pasrija: We’ve assembled a very strong team. Always keep telling your team, ‘We can do anything we want but we cannot do everything we want. We need to figure out what to focus on.’
Taylor: I was once told early in my career that too many people are afraid of hard work. People try to do the quick and easy. Many entrepreneurs give up and quit or only were business people because they are afraid of the hard work, and the reality of it is that some of the stuff, you just have to grind it out.
What is your definition of business success?
Pasrija: If you have a client who is happy with the product or services you are selling, the employees love to come to work every day and are excited, and their shareholders are happy to see the value of the enterprise going up every year. I think that’s success.
Taylor: We’ve had the luxury of focusing a little on the ball where it needs to go. I think that’s part of what has caused some loss in America for things such as research and development, the loss of some of these key long-term strategic things. That doesn’t mean that we’re not focused on profitability, but you’ve also got to balance that with longer-term success. That’s difficult as you are consuming cash at the rate that you grow, and you continue to make investments. We want employees to be happy and do things but it also means that we have to be competitive. It’s a sign of hard work, balance and vision.
A frenzy arose recently when the Associated Press reported some hiring companies were asking potential job candidates for their Facebook passwords. While the practice is not nearly as widespread as the news story originally suggested, the idea of such an invasion of privacy hit a strong nerve and sparked a national discussion. Maryland was quick to pass legislation prohibiting employers from asking to access an applicant’s social media profiles, and other states have proposed similar legislation.
So where should the line be drawn? If asking job applicants for Facebook passwords is taboo, can you Google them? If sending friend requests is too forward, can you connect with applicants via LinkedIn?
There are no correct answers because there are no concrete rules, but before you take to the Net to investigate your next new hire, ask yourself a few questions.
What’s to gain?
What do you want to learn by investigating a job applicant online? Federal Equal Employment Opportunity Commission laws dictate that companies make hiring decisions based on job-related information only. While a basic Google search is unlikely to provide much job-related data, it could easily divulge information that puts an applicant in a protected class — their race, color, religion, sex, national origin, age, disability or genetics. Certainly, some of the same information would be disclosed during an interview, but what if after reviewing one candidate’s lackluster resume, you decide interviewing him or her would be a waste of time?
However, out of curiosity, you Google the applicant anyway and learn she’s an African-American woman in her late 50s. Now there is the potential taint of discrimination attached to your decision not to interview her.
Can you handle the truth?
What will you do with the information you discover? Remember the famous courtroom scene in the movie “A Few Good Men” in which Jack Nicholson’s character screams, “You can’t handle the truth!” Can you handle the truth? Are you ready for what you might learn about a job applicant online?
What if through connecting with your top candidate on a social networking site, you come across a fundraising campaign for his child with muscular dystrophy? You might assume if you hire him, your company’s health insurance premiums would increase or that he would be unable to fully commit to the job with a special needs child at home.
What if you discover the young go-getter you are about to hire as an executive assistant has been moonlighting at a questionable nightclub? You can’t unlearn facts once you’ve learned them, so can you trust yourself to make a completely unbiased hiring decision?
Can you be certain that what you find is a current and accurate representation of the candidate?
If your parents were right and you’re judged by the company you keep, for better or worse a company is also judged by the people it employs. In this age of rampant online recklessness, it’s understandable that employers would want to protect their company’s reputation from the damage even just one employee’s careless indiscretion could cause.
Remember the Domino’s Pizza incident when two employees posted a video of themselves sabotaging a submarine sandwich? Personal posts could be a red flag that the candidate you are about to hire doesn’t always display the best judgment.
But how can you be sure those party pics you found tagging your star candidate were posted with her knowledge or are not from 10 years ago when she was still a college coed?
Social media offers companies an alluring platform to connect with their audiences, whether that’s customers, employees or even prospective employees. But company representatives need to use discretion if they intend to access social media or any online tools in the hiring process. Some well-intended prying could be deemed discriminatory or lead you to pass up a potential star.
Poor judgment, whether it is on the part of an individual or part of a company practice, will always carry negative consequences.
John Allen is president and COO of G&A Partners, a Texas-based human resources and administrative services company that manages human resources, benefits, payroll, accounting and risk management for growing businesses. For more information about the company, visit www.gnapartners.com.
For business owners and entrepreneurs, wealth management and planning is not a project, it is a process.
“It’s something you never complete; it’s ongoing in nature,” says J. Harold Williams, CPA/PFS, CFP, president and CEO, Linscomb & Williams, an affiliate of Cadence Bank.
He says that too many people approach wealth management erroneously, thinking, “I’ll get a financial plan done and check that off my list.” However, financial planning is much like designing a blueprint for a house, building it and maintaining it — a process that never ends.
Smart Business spoke with Williams about how to lay the foundation of your financial future while transitioning out of business ownership.
What actions are important for entrepreneurs before year-end in light of the expiring tax provisions such as the $5 million gift and estate tax exemption?
There is a unique condition in 2012 where you can gift, during your lifetime, tax free, just over $5 million. Business owners generally have some complexity to their estate planning, in that ownership of their business is their predominate asset and it is illiquid, which makes it difficult for estate planning purposes.
This special provision in 2012 allows you to transfer a significant portion of your wealth during your lifetime in a way that the future growth on the amount that you gift is not going to be counted in your estate.
For example, if you have a successful family business worth $20 million and you expect that its value will grow, it is possible to take a partial interest in that business this year, as much as $10 million of the value, and gift it into a trust for your heirs. If you gift half of it in 2012 and the business value doubles, the doubling of value in the half that you gave away would not be counted as part of your estate when you die.
There have been a lot of discussions about what the estate tax rate will be in the future. Right now, the estate tax rate is 35 percent, so if you can move appreciation to the next generation and not have it taxed, the result could be a savings of 50 percent of the amount that is transferred. That is a powerful planning concept.
If business owners are considering selling their business, how do they gauge financial security to be sure the income they had previously been earning is adequately replaced?
It is common for business owners who are about to sell, or have just sold their business and are walking away from an attractive paycheck, to begin wondering how they will replace that paycheck.
Before you sell the business, do some planning to confirm that you can sustain the lifestyle you have enjoyed while relying upon a more traditional portfolio of investments. When the business is liquefied, you pay some tax and need to invest the money.
It is likely not possible to get the same returns on an investment portfolio that you got from the business, so it is important to run the numbers and recruit someone who can help you determine the various contingencies. Doing this before you sell the business will allow you to engineer some things into the structure of the selling contract to enhance your ability to sustain your lifestyle.
Are Family Limited Partnerships (FLP) still being used as an estate planning tool, and what is the IRS’s attitude about this?
They are being used, and most cutting-edge estate planning attorneys recommend them as a viable vehicle. FLPs are not particularly loved by the IRS, but they are effective if done right. The main thing is to stay involved with your FLP; don’t just begin one, make a file and put the file away. The IRS could potentially scrutinize an FLP because it gives you a discount on the business interest connected to the estate or gift tax return. It will look to see if this has substance and form.
It is important to be diligent about keeping your records and following proper procedures when creating an FLP. When FLPs are not generating the estate tax savings that are desired, it’s often because the originator paid for a lot of documents to be created and didn’t live with them and make them part of the ongoing planning.
To do it properly means careful coordination with the lawyer who will draft the documents, the accountant who will advise you on tax law and other tax matters, and the wealth manager or planner who helps design the plan on the front end and maintains it on an ongoing basis.
Considering all the new 401(k) plan disclosure rules being issued on plan fees and expenses, how can a business owner avoid the risk of personal liability and make sure they don’t unintentionally violate these requirements?
For business owners, this is a bit of a minefield. In some cases, you might not realize you’re walking through it until it blows up. Generally, regulators look for a good-faith climate of compliance. The important thing is to document everything appropriately and leave a clear trail that shows you are trying to be in compliance.
The government often has a more favorable attitude if it can see you are trying to comply. It doesn’t want to see neglect, so intent goes a long way. It’s an area where, depending on the size of your 401(k) plan, you may need legal counsel to advise you on those policies and procedures.
J. Harold Williams, CPA/PFS, CFP, is president and CEO, Linscomb & Williams, an affiliate of Cadence Bank. Reach him at (713) 840-1000 or firstname.lastname@example.org.
Insights Banking & Finance is brought to you by Cadence Bank
Protect the environment and lower taxes through conservation or renewable energy credits and incentivesWritten by SBN Staff
Not only is Texas a leading provider of crude oil and natural gas, but the state’s abundant sunlight and persistent winds offer businesses yet another opportunity to lead the nation by tapping renewable energy sources to power manufacturing plants, distribution centers and office buildings.
But despite the fact that Texas companies can leverage more than 80 federal, state and local incentive programs to defray the cost of purchasing and installing renewable energy systems and energy conservation equipment, executives in the Lone Star state are still leaving money on the table.
“Renewable energy and conservation incentives and credits allow companies to demonstrate environmental stewardship, increase operating efficiencies, and lower income taxes by defraying the cost of purchasing renewable energy and energy conservation equipment and systems,” says Laura Roman, CPA, CMAP, a partner in tax and strategic business services at Weaver. “Unfortunately, the funds often go unused, and the programs won’t last forever.”
Smart Business spoke with Roman about the opportunities to lower taxes and operating expenses and positively impact the environment by taking advantage of underutilized conservation and renewable energy credits and incentives.
Why should companies consider switching to renewable energy or energy efficient building materials?
The benefits include the opportunity to lower energy consumption and utility bills by installing modern, energy-efficient manufacturing equipment, windows or HVAC systems, and the chance to promote a positive public image by launching green initiatives and supporting environmental stewardship. Plus, both tenants and building owners can utilize the incentive programs and reap the financial rewards. For example, the improvements help owners by boosting property values, while tenants benefit from increased energy efficiency, which ultimately reduces operating costs.
What types of incentives are available?
There are more than 54 federal and 28 state and local programs that can be used for equipment purchases or upgrades that reduce energy consumption or utilize solar, wind, ethanol and biodiesel energy. The programs include tax deductions, credits and exemptions, loans and grants, rebates and performance-based incentives. For example, Texas businesses can qualify for commercial energy efficiency rebates, energy-efficient incentive programs, green building corporate tax credits and sales tax exemptions for purchasing energy and water efficient products. While the U.S. Treasury Department offers renewable energy grants for projects involving solar photovoltaics, landfill gas, wind, biomass, hydroelectric, geothermal, municipal solid waste, CHP/cogeneration, solar hybrid lighting, hydrokinetic, tidal/wave energy, and ocean and fuel cells using renewable fuels or micro turbines.
Best of all, executives don’t have to commandeer large amounts of cash to complete the projects because companies can tap different programs to train employees, purchase equipment or pay for installation contractors. So, companies can still invest in that much-needed marketing program or software upgrade if they utilize renewable energy incentives and credits to hire renewable energy specialists, replace inefficient manufacturing equipment or install a new HVAC system.
How do the incentives provide financial benefits?
Essentially there are five areas where companies benefit from renewable energy incentives and tax credits.
- Gross income exclusions. Companies can deduct the full amount of incentive payments or grant funds they receive for qualified renewable energy or energy conservation projects from gross income.
- Dollar-for-dollar deductions. There are no sliding scales or phased-out deductions. Companies can use every dollar they invest in qualified renewable energy and energy conservation projects to reduce their tax liability.
- Accelerated depreciation. Under IRS Section 179D, companies can depreciate the cost of purchasing new plant and energy equipment at a faster rate than typically allowed. So, instead of taking 39 years to recover the cost of a new lighting, HVAC system or building envelope, the owner of a 100,000-square-foot building can deduct up to $1.80 per square foot, or up to $180,000 in the first year.
- Ancillary funding and allowances. Funding is available to hire specialized workers or train current employees on the use of renewable energy equipment and processes.
- Multiple opportunities. Companies can tap multiple incentives for each project including loans, performance-based incentives, deductions, tax exemptions and grants, as well as property and sales tax rebates.
Should executives be aware of any special qualifications or rules?
The incentive plans and tax codes are fairly straightforward, but there’s no need to spend hours interpreting the criteria or deciphering nebulous clauses when a tax professional is intimately familiar with the nuances of each program. At the same time, he or she may help identify additional opportunities to complete the project without tapping cash reserves, and can often share tips and ideas from experience helping other companies navigate the process.
How can executives evaluate the ROI and choose the most advantageous projects?
Companies should discuss ideas and energy needs with architects, contractors and energy professionals so they can create a list of feasible projects and determine the material and labor cost for the various improvements. Review the list with an accountant, since he or she is familiar with the tax code and incentives and can provide an estimate of the cash outlay and ROI. Finally, act now. Remember, it costs virtually nothing to investigate these opportunities, and there’s no sense in waiting when the money to complete renewable energy or energy conservation projects is there for the taking.
Laura Roman, CPA, CMAP, is a partner in tax and strategic business services at Weaver. Reach her at (432) 570-3030 or Laura.Roman@weaverllp.com.
Insights Accounting is brought to you by Weaver
A hiring plan provides your company with a path forward to reach its goals through its staff. It’s designed to answer questions such as, ‘How do we realize our vision and whom do we need to help us get there?’ Without such a plan, a company may make hires that don’t fit into the overall goals of the company.
“People are a company’s No. 1 asset,” says Jarrod Daniel, CEO of The Daniel Group. “You have to make sure that asset can help your company achieve its goals.”
He says that once a company has set its vision, it should create a hiring plan that outlines who should fill each of the roles that are necessary to succeed. But it is a perpetually evolving task.
“You have to continuously examine your hiring plan and the staff that you currently have in place to determine what can be improved,” Daniel says.
Smart Business spoke with Daniel about comprehensive hiring plans and how they can help a company realize its potential.
What are the elements of a comprehensive hiring plan?
There are quantitative and qualitative elements to your hiring plan, but it starts with knowing what your vision is as a company. You want to bring in the right people and align them with a plan that lays out what you want to achieve as a company, which is your overall vision.
A good hiring plan involves onboarding, sourcing people to determine the right qualifications and setting their career paths within the company. Part of onboarding occurs during the interview by letting people know what is expected from them to help the company reach its ultimate goals. If they know the expectations up front, they can always be working toward that, regardless of the time it might take to get there. Having a career plan for individuals that incorporates what they can potentially do for your business down the line is an important element of hiring.
Otherwise, you have to balance a person’s technical skills with their ability to fit within your company culture. It doesn’t do much good to hire a smart, technically sound individual if that person can’t gel with your company’s culture.
How often should a company revisit and adjust its hiring plan?
You should adjust your hiring plan every single time you want to hire somebody. Things change within your hiring plan, so it has to be flexible. There are many divisions within a company, each with different strengths that help meet the company’s overall goals. Further, each department has a distinct hiring plan, as does each position. It is important to continuously adjust the short-term goals of your plan to stay on track with your long-term goals.
In addition, every time you hire someone, you will also need to plan out your expectations for his or her development in that position. If you continue to have to hire to fill that position, you need to review your plan and your past hires to determine what is going wrong.
How far into the future should the plan project?
That depends on the size of the company and the type of position to be filled, but generally, any time you plan for growth, you have to have a strategy. Say a large company has hiring needs that are project based, in which case, its plan might look four months ahead to determine the manpower necessary to complete a job.
However, if it is a cultural hiring plan — a company looking to hire a new vice president or CEO — it could take a few years because, as you go up the hiring triangle to a position that requires more specific skills and experience, it will takes longer to find a qualified candidate.
A company might also be in a position where it needs to hire to the gap, which refers to the difference in age you have between the people in management — say they’re in their 50s — and the next in line who can do the job, who we’ll say are in their 20s. That’s a significant age gap, so it’s important to make a plan to hire to fill it, say with someone in his or her late 30s.
Who determines the course and goals of the hiring plan?
Management and ownership usually collaborate on the hiring plan. Ownership will determine the plan when a company is just getting started, then management will take over this duty once its members are clear on the company’s vision and can align a hiring plan to meet company goals.
Management and human resources should have a forecast for hiring for a period covering three months, six months and one year. In that forecast, they need to have a hiring plan in place so when the time comes to bring someone onboard, it can happen quickly.
Companies should be working on their hiring plan on a daily basis because things could be going great while you are fully staffed, but anything can happen tomorrow to change that.
How can a staffing firm help a company with its hiring plan?
A staffing agency can serve as a third party that can consult with a company without the bias that might exist from within a business. It can go in and look at the situation from a counseling standpoint to give an objective perspective of the culture and the technological skillsets of the staff and offer clarity.
Staffing firms have seen many hiring plans, and this broader perspective and experience can be applied to companies that are just forming their plans by compiling best practices into a custom strategy.
Jarrod Daniel is CEO of The Daniel Group. Reach him at (713) 932-9313 or email@example.com.
Insights Staffing is brought to you by The Daniel Group
In business, as in life, there’s a benefit to having guidance that’s tried and true. Most successful business owners can cite mentors who have directed their paths along the way. As companies grow, those informal relationships are usually replaced by formal boards of directors. A board of directors is a very useful method for allowing significant shareholders to feel they have a say in the strategic planning for the company.
It’s my opinion that all companies – regardless of size – need to have a board. In this two-part series, I will explore the benefits that a small company can gain from having a corporate board and how a small business owner can establish a board.
First, let’s examine the benefits:
1) A good board of directors will do what employees often are afraid to do: challenge the leader. Most employees don’t feel empowered to speak up when they think a strategy is misguided or out of sync with customers or a target market. Board directors should be willing to openly question ideas and the assumptions that guide strategic planning to help the president or CEO suss out their soundness.
2) A board can provide accountability – particularly in family-run businesses where it can be hard for an unbiased assessment of the business without familial issues clouding judgment.
3) Boards can help with recruiting, evaluating and selecting top job candidates, as well as setting compensation criteria that are fair and transparent. Since directors are removed from the daily running of the business, they can help with succession planning.
4) For companies considering a public offering, setting up a board early can help acclimate the owners to the enhance scrutiny that they will face once the company is publicly traded.
5) A board of directors is legally required for registered corporations.
Next column: How to create your own board.
Patricia Adams is the CEO of Zeitgeist Expressions and the author of “ABCs of Change: Three Building Blocks to Happy Relationships.” In 2011, she was named one of Ernst & Young LLP’s Entrepreneurial Winning Women, one of Enterprising Women Magazine’s Enterprising Women of the Year Award and the SBA’s Small Business Person of the Year for Region VI. Her company, Zeitgeist Wellness Group, offers a full-service Employee Assistance Program to businesses in the San Antonio region. For more information, visit www.zwgroup.net.
When Andrew Dorn, Industry Leader, Information Intensive Business, Acxiom Corporation, was recently researching the top manufacturers in the United States, one topic kept coming up — the strong growth expectations focused on the world's emerging markets. With the economies of the U.S. and Europe in flux, Dorn felt that, now more than ever, manufacturers need to be attentive to those emerging markets.
"The world is now flat," says Dorn. "Competition comes from everywhere, so manufacturers need to be everywhere."
Because of that, Acxiom has partnered with Smart Business to present a special one-hour webinar: "Driving Global Sales for Manufacturers: Why global growth for manufacturers is more important than ever."
During the webinar — on Wednesday, September 19 at 1:00pm EST — we will discuss why global sales for manufacturers is critical, what factors should be considered in developing or refining the international strategy, and, finally, present a roadmap that can be employed to optimize chances for success.
Featured panelists will be Zia Daniell Wigder, Vice President and Research Director, Forrester Research; Jennifer Barrett Glasgow, Global Privacy and Public Policy Executive, Acxiom; and Michael Biwer, Managing Director, Acxiom.
"As you enter the global market, it is imperative you understand the privacy laws in each country as they are quite complex and some are very stringent, for example, having criminal penalties for some violations," says Barrett Glasgow.
Other topics to be discussed include:
- How to determine which countries to enter and what data to gather to understand regional customer requirements
- Recommended approaches to building country-specific strategies that can help facilitate smooth transitions, lowest possible cost-of-entry, and consistent performance
- Considerations for navigating the complex web of country-specific data protection and privacy laws companies must adhere to in their efforts to connect with customers and prospects
- Best practices used by leading companies that have successfully entered new markets
"The U.S. and European economies are still recovering and the balance of growth is constantly shifting," says Dorn. "For example, China and Brazil have been experiencing strong growth. They are encountering a maturity curve, but that doesn't lessen the importance of the issue — manufacturers need to be diversified and have a presence in all major world markets."
The webinar, "Driving Global Sales for Manufacturers: Why global growth for manufacturers is more important than ever" will be held at 1:00 pm EST on Wednesday, September 19.
There’s an old saying that the best way to get yourself out of a hole is to stop digging.
The problem is that, too many times, you think there’s a treasure lurking just a few more shovelfuls down, so the digging continues. As the hole gets deeper, you keep at it because you’ve already put so much effort into it that it would be a waste to stop now.
There are many examples in business of these ever-deepening holes that eat up manpower, time and money. Sometimes, the elusive treasure is a product that’s sputtering along but just can’t quite get going like you had hoped. Other times, it is a person who has all the promise in the world but doesn’t have much to show for it other than a warm chair and a lot of frustration on your part. The “hole” might even be an entire division that is underperforming or a vendor that just isn’t meeting your needs.
Corporate America is littered with decisions that seemed like a good idea at the time but that just didn’t work out. Remember New Coke? It was meant to replace the Coca-Cola that everyone grew up with, but it lasted only 77 days before the classic formula was reintroduced to the market.
The Coca-Cola Co. wisely made the tough decision that its reformulation didn’t pan out the way it had hoped and brought back the old formula. The result was that while New Coke may have failed, the company retained its top spot. It realized the hole was getting too deep with no return in sight, so it got out.
If you’re going to be successful, then you will have to make tough decisions. No matter how close to the buried treasure you think you are, at some point, you have to take your shovel and climb out of the hole and move on.
It’s called cutting your losses. Coke executives could have stuck to their decision because every bit of market research showed that people liked the taste of the new formula better, but it just wasn’t showing up in the sales figures. Maybe you’ve invested a lot of time and money into a product or a person, but there comes a point where you have to give up and focus your resources on more productive areas.
You can’t be afraid to make these tough decisions. It might be easier to justify further expense to keep going, but don’t wait any longer. Pull the plug.
Ending a project that’s bleeding money is an easy decision. The really tough choices come with the marginal performers — people included. To know when enough is enough, you need to set up accountability for projects and people so you can measure how well things are going compared to the standards you’ve set.
If something isn’t measuring up, get rid of it. In today’s business world, profit margins are too thin to waste money on unproductive portions of your business. You can’t afford to have a nonproductive anything — be it a person, division or product — weighing you down. Do everything you can to help the people affected move on, but make the decision and stick with it. These types of decisions are never easy. You never know how they will affect your business. It will always be easier to keep going after that elusive return on your investment, but you have to hold yourself accountable, as well. If it’s not working, it’s time to make a change.
So stop digging now before the hole gets so deep that you are unable to climb back out of it.
If you are interested in learning more about publishing a book, please contact our publisher, Dustin Klein, at firstname.lastname@example.org or (440) 250-7026.
Fred Koury is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or email@example.com.