Roger Vozar

Many companies talk about the need for employee engagement, but few are taking the necessary steps to engage their workforce.

“While it’s a commonly used term, it’s not common practice. For example, 75 percent of leaders have no engagement strategy, yet 90 percent consider engagement to be a critical component of a company’s success,” says Beth Thomas, executive vice president and managing director of Consulting Services at Sequent.

“Right now, 70 percent of employees are disengaged at work, and it’s costing companies over $300 billion in lost productivity, turnover and diminished business success. Based on statistics, you would think that companies would view this as a critical initiative,” says Thomas.

Smart Business spoke with Thomas, author of “Powered by Happy: How to Get and Stay Happy at Work,” about how to boost employee engagement.

Why have companies been slow to address engagement?

There are several reasons. Some companies believe customer satisfaction is engagement — it’s not. You can have happy, disengaged employees who are genetically happy or pleased with the company, but are not engaged in their work or in the right role.

Surveys will address items like wages, benefits and the company café, but that doesn’t get into the emotional connection to work and employees’ desire to use discretionary effort to be the best performers they can be.

Sometimes companies conduct surveys and do nothing with the results, which creates even more disengagement.

What is the process of engaging employees?

We utilize a nine-step process:

  • Create a vision. What do you want to achieve? What’s the value proposition?
  • Determine the metrics of success. Use benchmarks and create performance goals needed to improve engagement, which will also build customer loyalty and your bottom line.
  • Align expectations. Once you have a vision and decided how to measure success, develop an employee engagement survey designed to get the information needed to improve engagement.
  • Execute the survey. We conduct an educational webinar first, so employees know why the survey is being done and their role in making it a success.
  • Create an action plan based on the survey results. The plan should prioritize tasks and assign ownership and timing to each milestone. Communicate the survey results and how they are being used.
  • Establish a team of influencers. This group will organize activities — based on survey results — to help achieve and sustain a higher level of engagement.
  • Develop leaders and frontline managers. They need to understand how to impact the company culture and employees every day. Many managers think they are prepared to coach and lead engagement, but they really aren’t.
  • Evaluate if course correction is needed. Training or action plan activities may need to be modified to ensure you’re set up for a successful journey toward engagement, rather than a pit stop.
  • Ensure sustainability. Creating that initial engagement is easier than sustaining or improving engagement. We have an engagement application that provides managers with a support network of tips, tricks and hints on how to continually drive engagement. You have to create engagement as a habit; it occurs naturally because of the way you manage people.

What mistakes do companies make when implementing engagement strategies?

One is rewarding performance without behaviors. Someone might be a great producer, but have a bad attitude. Knowing that they have a bad attitude and rewarding them based on sheer numbers or performance is a mistake.

The management and leadership team also has to believe and drive the engagement process; it’s not enough just to say it’s an important initiative.

The benefits of engagement are so great that more companies should make it an emphasis. Engaged employees generate 40 percent more revenue than disengaged ones and are 87 percent less likely to leave. So being able to recruit, retain and benefit from engaged employees will impact your bottom line and the success of your company.

Beth Thomas is executive vice president and managing director of Consulting Services at Sequent. Reach her at (614) 839-4088 or

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After a couple of years sitting stagnant at 3.25 percent, the prime interest rate is expected to go up in 2014, making this a good time to secure a business loan.

“There’s not a lot of inflationary pressure yet. The Federal Reserve has been signaling a desire to come off of quantitative easing, and they’ve been trying to set the market up for rate increases. But every time it’s mentioned, the stock market drops 100 points,” says Michael Hengl, senior vice president and group manager of Corporate Banking at Bridge Bank.

Eventually the expectation of higher interest rates will be set to the extent that the impact to the stock market will not be that great, and the rates will go up, Hengl says.

Smart Business spoke with Hengl about the state of the commercial banking industry and what’s in store for 2014.

How substantial will interest rate increases be in 2014?

Rates will start easing in the second half of 2014, but we’re not going to see big jumps.

Some sectors of the economy are doing very well. The Bay Area is dominated by technology companies that are going gangbusters right now. The energy industry is doing very well in places like Texas and North Dakota. However, there are still elements of the economy that are struggling.

That’s what makes it a good time for a small or midsize business to get a commercial loan. Right now, there is a lot of liquidity in the banking system, and banks want to make those loans. There just is not enough demand.

Is that because businesses are reluctant to increase debt?

Business managers are being very cautious. When it comes to hiring, they are taking it to the point where they’re maximizing the people they have on hand. Or if they’re buying equipment, it’s all replacement items. There’s been a decent amount of equipment financing, but it’s for capital expenditures that companies deferred in 2009, 2010 and 2011. They’re catching up with those needs.

Businesses are not buying equipment for expansion; when that happens, that’s when interest rates will start climbing.

Will anticipation of interest rate increases spur activity early in 2014?

Many commercial loans are variable-rate, so they’re much less rate sensitive. If you need a line of credit for inventory, you get the loan. However, equipment loans may have fixed rates, which you want to get at the lowest possible rate, and there have been more commercial real estate acquisitions.

One deal earlier this year was done solely because long-term rates were creeping up. Back in early summer, there was a big jump in mortgage rates.

Other than rate, are there advantages to getting a loan now?

Sure — when a company approaches a bank for a loan, they’re going to find the bank very receptive. Still, there were lessons learned from the financial crisis, and banks will exercise additional due diligence. That’s an advantage to business owners because it improves communication between the bank and the borrower, which is the cornerstone of a banking relationship.

A good example of how businesses can be helped by this process involved a company in the food industry, which had strong growth, but profits were lagging due to a manufacturing operation overseas. It couldn’t close the facility because of the impact on liquidity, and an operating line of credit was needed to fuel growth. By understanding this, a bank could cover the short-term need, knowing the company would recapture that over the long term.

That’s why it’s important for a company to sit down with its bank, go through the due diligence process and not be frustrated if it’s more work than it was five years ago.

In another case, a client bought a much larger company, a risky proposition. The company had a strong set of projections and acquisition plan, which was actually strengthened by the bank’s due diligence process. Now, the bank’s comfortable with the deal, and the company has a better business plan in place.

The bottom line is that it’s important to be proactive in communications with your banker, so the bank can react quickly when you need help. Ultimately that good relationship should help mitigate risk for both parties.

Michael Hengl is a senior vice president and group manager of Corporate Banking at Bridge Bank. Reach him at (925) 249-4901 or

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Just as you would when buying a house, it’s important to conduct a thorough review when considering a commercial property purchase.

“Next time I buy a house, I’ll be walking around with the inspector to make sure that they’re doing a thorough job. I’m going to be turning on the faucets and flushing the toilets just in case the home inspector misses it,” says Todd J. Wenzel, a partner at Ropers Majeski Kohn & Bentley PC. “It’s a little different with commercial properties in that the concerns aren’t the same, particularly if it’s an investment property. But you have to do your due diligence.”

Smart Business spoke with Wenzel about problems commercial property owners need to watch for, whether they occupy the space or serve as landlords.

What due diligence should be conducted before completing a purchase?

It depends on the age and size of the building, but for the most part it’s not as involved as with residential properties. With owner-occupied properties, it’s more about checking for any structural problems with the building. However, if it’s an investment property, look at occupancy certificates and rent rolls. Ensure leases are up to date with no outstanding renewals or rental payments.

With commercial properties, it’s important to have full disclosure. It’s expected that parties on both ends are sophisticated, so the law does not provide the same protections that residential purchasers receive.

Should you check on tenants as well?

There should be a file on each tenant, complete with financial background checks to confirm that tenants have the wherewithal to continue making payments. Be sure to look at whether a tenant has a history of late payments or nonpayment of rent.

In a recent situation, there was no credit report run on tenants. The client that purchased the property received a good purchase price, but the tenant files were very thin. It turned out that some tenants were in immediate default after the purchase. Ultimately, one tenant breached his or her lease, left and litigation ensued. Obviously, a buyer wants to avoid that; if you see tenant information missing, run your own credit check as part of your due diligence.

Considering the moist climate in Northern California, how big of a problem is mold?

It can be a real problem. You typically see mold claims in residential settings, but it can happen in commercial ones, too. Tenants must notify a landlord as soon as they suspect mold, because it becomes problematic once spores are airborne. Commercial leases should contain specific notice provisions required of the tenant to notify the owner of the first signs of mold.

A commercial tenant client recently suffered property loss and business interruption when a roof leak caused water to drip into the office space and storage room walls for months (possibly longer). When they opened the wall, they found mushrooms growing. Mold in a commercial setting is not as serious of a health risk as in a residence because no one is sleeping there, but you still can have people working around it eight hours or more a day.

If the problem is hidden in the walls, landlords have some defenses if they had no notice or reason to know. But if it’s indicative of a persistent water leak, the owner may be charged with constructive knowledge. The legal exposure is worse if the landlord knows and acts slowly to address the situation.

What key items need to be looked at when considering facility expansion?

The main concern is structural integrity and the foundation, making sure the soil will support an addition. Get engineers to check piers and other foundational measures.

If you’re doing an extensive renovation on an older building, you may need to bring it up to current codes. This cost estimate should be part of a preconstruction checklist.

Ask architects and engineers if they can incorporate green-building elements into the project. It may cost a little more, but it’ll speed up the permit process and can help in terms of public relations.

Although it’s difficult to get contractors to guarantee a maximum price because costs are based on time and materials, it’s a good idea to include a cap when bidding projects — a $50,000 job cannot exceed $15,000 in change orders. Otherwise, some contractors submit low bids, hoping to make up the difference in change orders.

Todd J. Wenzel is a partner at Ropers Majeski Kohn & Bentley PC. Reach him at (415) 972-6316 or

Insights Legal Affairs is brought to you by Ropers Majeski Kohn & Bentley PC

To a business owner looking for market penetration, establishing a franchise provides a number of benefits.

“We’ve taken clients operating from a few local locations to expanding into many states through franchising because they had aggressive expansion plans and were a great candidate to franchise,” says Kacie Davis, an associate with Kegler, Brown, Hill + Ritter.

However, launching a franchise system isn’t an easy get-rich-quick scheme.

“It’s really a cost/benefit analysis for a business as to whether they’re ready to expand and can support an on-going franchise system,” says Davis.

Smart Business spoke with Davis about the process of franchising a business.

What is a franchise?

Essentially it’s a business arrangement where one party grants rights to offer goods or services under its company or brand name. The seller provides significant control or assistance over the business, and the purchaser makes a minimum payment to enter into the arrangement.

What are the benefits of franchising?

Franchising allows you to build brand recognition and increase market share with a limited risk of financial exposure. Franchisors can shift the burden of operations and obtaining necessary capital to open new locations onto individual franchisees. Additionally, the franchise model provides new revenue streams to the franchisor by way of franchise fees and royalties. Franchisees also benefit because they start with a proven business model and leverage a successful brand name to tap into an immediate customer base.

How do you determine if a business is suitable for a franchise?

While it’s somewhat intangible, there are certain hallmarks of successful franchises.

  • The franchised business has one or more established and profitable locations.

  • The business can be replicated into a turnkey operation.

  • The concept is transferable to other markets or locations.

  • The business has been lucrative and is attractive in terms of ROI.

Any type or size of business can be franchised, but a key component is its capability of supporting long-term franchisee relationships — a franchise system will only be successful if its franchisees are successful.

How is a franchise established?

In order to sell franchises, you must comply with Federal Trade Commission (FTC) regulations, which involves the preparation of a Franchise Disclosure Document (FDD). The FDD provides the franchisee with information on the business, the services the franchisor will provide and other information about the franchisor, including financial statements. Several states require registration of the FDD before franchises may be sold within that state. This means working with the state’s attorney general or securities division.

In addition to the FDD, you’ll need a franchise agreement and other contracts that detail the franchisee’s compliance requirements, such as how they use your brand name and trademarks, and how you can enforce your rights.

In order to support your franchisees, you also need a very specific operations manual for the business and a training method to teach new franchisees how to operate the business and implement the operations manual. This will ensure uniformity and protect the franchised brand, ensuring consistency and increasing brand value.

What are some common problem areas?

One problem a business owner can run into when expanding is starting to sell a franchise without realizing it. People enter into licensing agreements thinking they are not selling franchises and can avoid FTC regulations and requirements. However, what can trip an owner up, and turn the license arrangement into a franchise arrangement, is providing the right to use your brand name in connection with providing assistance or control over that licensee’s business operations.

Another risk is putting capital into franchising a business that wasn’t market-tested. Without this, you don’t know that anyone would buy into the concept and replicate the success you’ve had.

Kacie Davis is an associate at Kegler Brown Hill + Ritter. Reach her at (614) 462-5402 or

Insights Legal Affairs is brought to you by Kegler Brown Hill + Ritter

Top earners may be surprised at all the additional taxes they’re paying when they file in April.

Christopher Axene, CPA, a principal in Tax Services at Rea & Associates, says many people could have exactly the same income as they had the previous year, but experience a 6 percent increase in their tax rate nonetheless.

“If they’re not doing tax planning or getting some idea where they stand, it might be a shock for some people,” he says.

Smart Business spoke to Axene about tax changes for 2013 that could sneak up on filers who haven’t accounted for the additional liability.

What are the key tax changes top earners can expect for 2013?

The increase in tax rates is the most significant change, going to a new top rate of 39.6 percent compared to the 35 percent rate in the past for couples with an annual income of more than $450,000.

There’s also a 3.8 percent surtax on net investment income. That applies to individuals with $200,000 or more in adjusted gross income (AGI) and couples with $250,000 or more.

Rates are increasing for capital gains and dividends, going from 15 to 20 percent. The AGI threshold for the 20 percent rate is $400,000 for individuals and $450,000 for couples.

Couples with W-2 income over $250,000 will also see an additional 0.9 percent Medicare tax this year.
Because of all of these changes, it’s important to start doing tax planning now.

Are there things that can be done to lessen the tax burden?

It’s not so much about getting away from these taxes; it’s a matter of being aware of their impact. It doesn’t make sense to take a pay cut just to pay less tax.

Most people will be withholding enough for the 39.6 percent tax rate, so that’s not likely to cause surprises. But the 3.8 percent surtax on investment income isn’t being withheld, and there’s no withholding tax associated with dividends. People might be making estimated payments, but payments based on prior year tax rates won’t be sufficient come April.

While there aren’t any major loopholes or tax havens, making the maximum contributions to a retirement plan continues to be a powerful tax deferral tool both for employees as well as the self-employed. Another thing to consider is the IRA distribution available to people who are over 70½ years old. As long as they are charitably inclined, they can take a distribution up to $100,000 from their IRAs and give that directly to a qualified charity. Those dollars won’t be included as taxable income, but they don’t get a tax deduction for the contribution either. For those who don’t need the money, it can be a useful tool to satisfy the yearly minimum distribution requirement and fulfill charitable goals.

Other than that, you could save on taxes by manipulating when income is earned or when deductions are paid. If you own a business and have control over your income, it might make sense to spread income over multiple years or bunch deductions into one year in order to maximize lower tax rates.

Should people who expect to owe more make additional tax payments now?

Run projections, get estimates and figure out what will be your tax liability. If you need to make up a difference, perhaps withhold more out of a bonus check in December or make an estimated payment in January to lessen the hit in April.

It’s more important this year than any recent year to run projections, particularly for high-income earners. About 90 percent of taxpayers probably don’t need to worry about this, but that top 10 percent could see tax rates going up 6 to 8 percent because of the new add-ons and new top tax rate. Income tax surprises usually aren’t a good thing. Start planning now for what will be coming in April 2014.

Christopher Axene, CPA, is a Principal in Tax Services at Rea & Associates Reach him at (614) 889-8725 or

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No one wants workplace injuries. But accidents can happen, particularly when projects need to be finished right away.

“That’s usually where the breakdown occurs. If you have to rush a project through and you’re potentially cutting corners for the sake of efficiency, that’s generally when injuries happen,” says Derek M. Hoch, president of Leverity Insurance Group.

Smart Business spoke with Hoch about complying with Occupational Safety and Health Administration (OSHA) standards, which can result in a safer overall workplace.

Do most manufacturers have workplace safety programs?

Larger corporations usually do. Some smaller operations may not have any program in place, as they have had the same employees for a long time and, while they know the equipment and systems very well, they don’t necessarily follow established procedures.

Employees may take shortcuts because they’re comfortable with equipment they’re using. They can lose sight of the fact that doing something in a hurry and not in the proper manner can result in a workplace injury.

How is a workplace safety program developed?

The best way is to sit down with your risk manager — your insurance broker — to develop a program because it’s really about managing and controlling risk. You should work with an expert who can guide you through proper policies and procedures that should be in place.

This plan should be followed by a legal review to ensure that everything complies with OSHA regulations.

A good safety program includes appointing a company inspector who will routinely evaluate the workplace and conduct self-audits to make sure employees are following standards and adhering to policies.

The company inspector asks the same questions and uses the same checklist that an OSHA compliance officer would. These items include required employer postings, record keeping, medical services and first aid, fire protection, personal protective equipment, lockout/tagout, company evacuation plan, tools and equipment, environmental controls, electrical safety and accident investigation.

How often do programs need to be updated?

Programs need to be updated accordingly to comply with workplace and regulation changes. But, more importantly, you need to educate employees by providing refresher courses and holding quarterly or semi-annual safety meetings. The staff should have knowledge of OSHA standards and what the regulations are within their specific industry.

Revisit the program and make it real, because there is a tendency to get complacent in a job you’ve been doing for a long time. Spot checks help to ensure that everyone is complying with company procedures.

What are particular areas of risk?

OSHA’s most frequent citations are for violations of standards covering fall protection, hazard communication and respiratory protection.

Problems are particular to industries. For example, a manufacturing facility presents potential respiratory hazards if employees aren’t wearing the proper protective masks, or losing limbs if they are not wearing protective guards or guards aren’t properly installed on the equipment.

Powered industrial trucks, like forklifts, also can pose potential risks if proper training is not established. Another issue involves lockout/tagout procedures — having machines shut off and started up properly when there is maintenance or servicing work.

If violations exist, what are the potential costs and penalties?

Penalties can be significant, but not valuing a workplace safety program will lead to larger issues beyond OSHA citations, like employee injuries, fires and mechanical failures. Unfortunately, many companies wait until there is an accident before focusing on implementing, correcting or amending a safety plan.

Derek M. Hoch is the president of Leverity Insurance Group. Reach him at (216) 861-2727 or

Insights Business Insurance is brought to you by Leverity Insurance Group

At this point last year, Congress was debating a “fiscal cliff” deal that included the elimination of Bush-era tax cuts and several tax provisions favorable to businesses. Many of those provisions, extended for 2013, are now due to expire unless further action is taken.

“Based on what has occurred in Congress recently, I can’t say I’m optimistic that a lot will be accomplished,” says Terry Silver, CPA, J.D., a partner at Skoda Minotti.

Smart Business spoke with Silver about expiring tax provisions that affect owners of small and midsize businesses.

What key tax provisions are set to expire?

From a business standpoint, most are related to depreciation. Other changes impact individuals, but for businesses the important one is the Section 179 deduction for tangible personal property. For 2013, you can expense up to $500,000 for property placed into service during the year. That starts to phase out if you have property additions of more than $2 million, and basically doesn’t apply once you reach $2.5 million. At that point, you must capitalize purchases of property and equipment and depreciate them over a period of years. That taxpayer-friendly treatment is substantially reduced in 2014 to $25,000, with the phase-out limit falling to $200,000.

Taxpayers can claim Section 179 write-offs for qualified real property as part of that $500,000. You can write off up to $250,000 in qualified leasehold improvements.

Another favorable provision in 2013 is bonus depreciation, which doesn’t contain the taxable income limitations and phase-out provisions attached to Section 179. This 50 percent bonus depreciation allows half of the cost to be expensed without limitations. The only restriction is that it has to be original use with the taxpayer; it doesn’t cover used equipment. Bonus depreciation also is going away in 2014, except for certain aircraft and long production period property.

One other tax provision extended through 2013 is the research tax credit. If your business spends money on research and development (R&D), there’s a tax credit for increasing expenditures related to that activity.

Any chance these might be extended?

Section 179 and bonus depreciation have been extended a number of times in recent years. Given the concerns about the economy, there’s some likelihood that something will be accomplished. While it doesn’t seem likely to happen by the end of the year, it is possible an extension could be put in place in 2014, retroactive to 2013. The most apt to return is the R&D credit, which has been extended numerous times.

Is it too late to take advantage of these expiring provisions?

With some of these, a business may be looking at equipment purchases planned for 2014 and accelerate a purchase to the end of 2013. It is important to note that the property must not only be purchased, but placed in service before the end of the year.

There also are other strategies business owners can follow to reduce their tax burden. Many small business owners, for whatever reason, don’t have a retirement plan. If you put in a profit-sharing plan with a 401(k) feature, careful planning can allow a significant amount of the employer contribution to be skewed toward the owner.

Depending on the nature of your business, you might consider paying out bonuses. But be careful to remember the new additional 0.9 percent Medicare tax related to earned income over $250,000 for couples filing jointly, $200,000 for single taxpayers.

If you’re the owner of an S corporation with a $250,000 salary and have substantial profit for the year, you may want to consider taking distributions in lieu of additional salary. Although the shareholder will still pay income tax on the profits, the 1.45 percent Medicare tax paid as an employee, the 1.45 percent paid by the company and additional 0.9 percent Medicare tax can be avoided. However, the IRS may look at distributions relative to the salary you’re taking — the salary has to be reasonable for the services you provided.

Overall, as 2013 winds down and we head into 2014, owners and executives in the highest tax brackets will face higher tax rates on taxable income, qualified dividends and a 3.8 percent tax on net investment income. Whether Congress passes legislation to provide tax relief and spur the economy will no doubt be a topic of much debate.

Terry Silver, CPA, J.D., is a partner at Skoda Minotti. Reach him at (440) 449-6800 or

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It’s difficult to know for certain what your clients want if you never ask them.

“Businesses should be asking their customers: What are we doing right? What are we doing wrong? What could we do better? If they’re not asking these questions, apparently they do not care about their customers,” says Rick Voigt, president of Today’s Business Products.

Smart Business spoke with Voigt about ways to gather customer feedback and how to use the results.

How do you find out about customer needs and wants?

You want to conduct surveys, usually at the end of the year. In order to encourage responses, offer an incentive like an entry into a drawing for an Apple iPad. We did that and had about a 20 percent return rate.
With surveys, you want people to be absolutely open and frank. You can’t improve and address problems if no one tells you about them. Another reason to do surveys is that 99 percent come back with praise for the great job being done. When customers put that on paper, it’s really ingrained in their minds. Then if a competitor comes in their door, they’ve just finished saying how great you are. Why would they want to talk to someone else?

What types of questions should be included in a survey?

It’s important to keep surveys short and to the point. When you’ve answered 20 questions and see the survey is only 7 percent complete, you’re not going to finish it.

Two questions we ask are to name their sales representative and driver. That reveals how effectively the sales consultant is at developing a relationship. If they don’t know the salesperson’s name, they don’t have a great relationship. The same goes for the driver — if they know the driver’s name, they have a relationship. Every point of contact with a customer should form a relationship to help establish your business with the client.

We also structure questions to get more information about the customer, such as how many employees work at that location or if they use other suppliers for furniture or office products. This information indicates the customer’s needs and if there’s an opportunity to generate more business with them. Surveys also can be used to determine ways to expand your business into a different product category. If it’s something else the customer uses, they’ll want to purchase it from someone they know and trust.

Our survey asks respondents to rate customer service regarding accuracy of orders, pricing, ease of placing orders and overall satisfaction, as well as what changes can be made to better serve their needs.

One issue that was brought up was the speed of our website. After seeing the responses, it was imperative to upgrade speed of ordering to better suit customers’ needs. We listened and that issue was resolved.

What else can be done to generate customer feedback?

For larger accounts, you can conduct business reviews that show them your performance. It’s like a report card — how is the fill rate, average order size, product categories purchased, method of purchases, etc.

Customers like the reviews because all the cards are out on the table. There’s a list of the top items ordered, and they can see opportunities to save money by going with substitutes. Changing brands can save a customer about 15 percent on average. Or maybe they can save by ordering a larger quantity at one time.

That helps when a competitor comes into the office and says they can save the business money; the client already knows they could save 15 percent if they changed brands. You have to tell customers this information because if you don’t, someone else will.

It’s important to show clients you’re working on their behalf, as a business partner rather than a vendor. You can replace vendors at any time, but you can’t replace a trusted business partner very easily.

Rick Voigt is the president of Today’s Business Products. Reach him at (216) 267-5000 or

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States looking to add revenue to tight budgets are upping efforts to collect sales and use taxes from businesses that may not know they owe money.

“Sales tax is one of the largest revenue producers for many states, second only to personal income tax. Since there are so many transactions involving the exchange of property and services, the states are getting more creative in their attempts to collect the tax due on these transactions,” says Susan Nunez, J.D., LL.M., a principal in Tax Services at Brown Smith Wallace.

Smart Business spoke with Nunez about who owes the taxes and what to do to ensure you’re complying with state laws.

How are sales and use taxes different?

Sales tax is a transaction tax imposed on sales of tangible property and certain services. Use tax is a compensating tax to sales tax. If a transaction isn’t subject to sales tax, it will be subject to use tax.

Typically the sales or use tax is due when the final consumer purchases and uses the asset. A company that buys components or machinery and equipment to manufacture a product may be able to purchase them exempt from tax, but ultimately someone will pay the tax when the product is made, sold and consumed.

How are states trying to collect these taxes?

One way is by sending out nexus questionnaires to out-of-state sellers. These notices are used to determine whether an out-of-state company has a filing responsibility. For example, if a manufacturing company from another state is selling product to customers in Missouri, the state may send that manufacturer a letter to determine whether it has sufficient presence in the state to require a tax filing. The state can also obtain federal records of imported products to determine if they were shipped into a state and, regardless of whether the company paid tax on that asset, send a notice that says tax is owed.

These are fishing expeditions; you may not owe tax. But it can be threatening to get a letter saying you owe $100,000.

Is not remitting taxes owed common?

Usually we see it in reverse — clients overpay taxes because of the complexity of the tax laws. Taxpayers err on the side of being conservative and pay tax on items that may very well be exempt.

It is difficult to determine what state has the right to the tax and who is responsible for remitting it. For example, drop shipments are particularly problematic. Say a Missouri company has a customer and a supplier in Illinois. An order is shipped directly from that supplier’s Illinois facility. It’s taxable in Illinois, but the question is, who is liable for that tax? It varies on whether the Missouri company is registered in the destination state, whether the supplier has a valid resale certificate from its customer and other factors.

Should companies determine if they owe tax or wait until they receive notification?

It’s best to calculate your liability and make a decision. If a business has a nexus in a state and its tax liability is $30, the amount is most likely immaterial to the company. But if the company is making $10 million in sales in a state, it should want to take action and ensure it’s in compliance.

Many states are conducting amnesty programs to bring in more money. Amnesty periods are attractive to taxpayers not only because they often abate penalties, but they also limit the number of years the state can assess tax.

The most important steps for businesses to take is to get a handle on how tax decisions are made, and to develop efficient processes to manage and streamline their sales and use tax compliance burden. People making tax decisions aren’t usually in operations and don’t understand how purchases will be used, so they can’t apply the laws to see if those items will fall within an exemption.

You can increase tax compliance, and ensure you’re not overpaying, by developing a customized sales tax decision tool. This enables the person who procures items or prepares the invoices to determine what is taxable and what may be exempt. It also provides your company the control needed to make good tax decisions.

Susan Nunez, J.D., LL.M., is a principal in Tax Services at Brown Smith Wallace. Reach her at (314) 983-1215 or

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“Planning for an exit can be a very emotional event in a business owner’s life. There are feelings of mortality — not only with one’s health, but also his or her role as the leader of a business. Businesses that achieve long-term success typically do a good job planning for succession,” says Steven E. Staugaitis, a director in Audit & Accounting at Kreischer Miller.

“It makes sense that companies that effectively plan leadership transitions will do better because they can sustain positive momentum when a leader is properly groomed and allowed to rise within the organization,” he says.

However, many business owners and executives don’t properly plan for an orderly exit. Less than 20 percent of organizations are well prepared for the departure of a key individual, according to the American Management Association.

“We see that particularly with first-generation business owners. One day they realize they’re 65 and ready to retire. They expect to be able to turn a key and exit the business. In those cases, it is rarely a successful exit,” Staugaitis says.

Smart Business spoke with Staugaitis about planning for succession and what business owners should be considering to increase their chances for success.

What steps should owners consider?

The succession process involves evaluating several steps. These steps include, but are not exclusive to:

  1. Identifying potential candidates.
  2. Training those qualified candidates.
  3. Publicly affirming the decision.

These action items are necessary to set the right tone and expectations for the organization and those around them.

When should owners start thinking about exit planning?

Successful transitions occur where sufficient planning takes place — five to 10 years from a planned exit is best. This time frame allows for potential ‘false starts’ as circumstances change. These changes can be a shift in the operations of the business, the unplanned departure of candidates or candidates simply not demonstrating the necessary qualifications to take over. It is important to start the process early in order to keep your options open.

Who should be involved in the selection process?

Certainly the current owner or owners should be involved as well as any identifiable candidates. These candidates need to confirm their intention of really wanting to take over.

Also, having an outside, independent entity such as a board of directors or advisory board can be helpful. The board can help balance decisions by removing the emotion, since they don’t work as intimately with the candidates on a daily basis. Board members are able to provide outside perspective and new, innovative ways for evaluating candidates.

What about contingency plans?

It’s always a good idea to have what is sometimes referred to as a ‘disaster plan’ in place. These plans are a set of key instructions for a spouse or the management team of a business to act upon in the event something happens to the owner. Unfortunately, there are situations where a key owner of a business passes away suddenly. If there is no clear direction left to anyone either in the family or in the company, the company may go out of business as a result.

Are there any other things an owner should be thinking about?

A leader who is planning to leave the organization should think about what he or she is going to do once he or she actually leaves. The most successful transitions occur when the owners take up an active hobby or they participate on advisory boards of other companies. Showing up at the business every day can undermine the whole process and give the perception that a succession has never really occurred.

The succession process needs to be mapped out like you would any other aspect of the business. Even if you’re not planning on exiting the business in the near future, being prepared ahead of an actual event sends a positive message to employees and customers that you’ve built a strong company that is focused on long-term success.

Steven E. Staugaitis is a director in Audit & Accounting at Kreischer Miller. Reach him at (215) 441-4600 or



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