Blair, whose mother is a breast cancer survivor, has already signed up for the 2-Day Walk next year scheduled for the first weekend in October 2013. For more information about the Atlanta 2-Day Walk Against Breast Cancer, please Follow This Link to Blair’s personal walker web page.  

Blair, third from left, at the finish line on Saturday, October 6, 2012 with some of her Breasta Fiesta teammates.

Thank you. We have just passed the one year mark for our firm, and the honor of that milestone goes to you, our fabulous friends, clients and dedicated professionals. Without you, we would not be here. We remind ourselves of this every day and are thankful for you every day.

Over the past year, in response to our client growth, we have added over 100 new clients, eight new attorneys and two new support team members. Additionally, we are now in the process of expanding our office. We are so grateful to find ourselves as partners with some of the most fun and enthusiastic premier companies and entrepreneurs in the world. We are especially proud to say that we have accomplished this all while adhering to our goals of top notch service, maintaining a family focus and having fun on a daily basis.

Thank you for your support during our first year and here’s to many more!

As a small business owner myself, I understand the importance of finding ways to save money whenever practical. You also want to invest in your company’s growth. Sometimes saving money and investing in your company don’t seem to go in hand, but this is not necessarily the case. Many owners don’t realize that there are plenty of opportunities to receive tax credits for the very investments that can help their businesses expand and thrive.

Below is a list of current tax credits for which you may qualify, pulled from the Georgia Department of Revenue’s more detailed list. This is just a quick summary of credits and does not include all the pertinent details on qualifications. To get further details, visit the Georgia Department of Revenue for specifics. Should you need help evaluating whether your company would qualify for any of these credits now, or figuring out how to make adjustments in order to earn them, give us a call; we’d love to help you.

101: Employer’s Credit for Basic Skills Education: Businesses that provide or sponsor basic skills education that enhances reading, writing, or mathematical skills up to and including the 12th grade, or classes to receive a GED certificate, may receive a tax credit.

102: Employer’s Credit for Approved Employee Retraining: The retraining tax credit allows employers to claim certain costs of retraining employees to use new equipment, new technology, or new operating systems.

103: Employer’s Jobs Tax Credit: This credit provides for a statewide job tax credit for any business or headquarters of any such business engaged in manufacturing, warehousing and distribution, processing, telecommunications, broadcasting, tourism, or research and development industries, but does not include retail businesses. If other requirements are met, job tax credits are available to businesses of any nature, including retail businesses, in counties recognized and designated as the 40 least developed counties.

104: Employer’s Credit for Purchasing Child Care Property: Employers who purchase qualified child care property will receive a credit totaling 100% of the cost of such property.

105: Employer’s Credit for Providing or Sponsoring Child Care for Employees: Employers who provide or sponsor child care for employees are eligible for a tax credit of up to 75% of the employers’ direct costs.

106: Manufacturer’s Investment Tax Credit: It allows a taxpayer that has operated an existing manufacturing or telecommunications facility in the state for the previous three years to obtain a credit against income tax liability. The credit is calculated on expenses directly related to manufacturing or to providing telecommunications services.

107: Optional Investment Tax Credit: Taxpayers qualifying for the investment tax credit may choose an optional investment tax credit within a designated tiered system.

108: Qualified Transportation Credit: This is a credit of $25 per employee for any “qualified transportation fringe benefit” provided by an employer to an employee as described in Section 132(f) of the IRC of 1986.

109: Low Income Housing Credit: This is a credit against Georgia income taxes for taxpayers owning developments receiving the federal Low-Income Housing Tax Credit that are placed in service on or after January 1, 2001.

110: Diesel Particulate Emission Reduction Technology Equipment: This is a credit given to any person who installs diesel particulate emission reduction equipment at any truck stop, depot, or other facility.

111: Business Enterprise Vehicle Credit: This credit is for a business enterprise for the purchase of a motor vehicle used exclusively to provide transportation for employees. In order to qualify, a business enterprise must certify that each vehicle carries an average daily ridership of not less than four employees for an entire taxable year.

112: Research Tax Credit: A tax credit is allowed for research expenses for research conducted within Georgia for any business or headquarters of any such business engaged in manufacturing, warehousing and distribution, processing, telecommunications, tourism, broadcasting or research and development industries. The credit shall be 10% of the additional research expense over the “base amount,” provided that the business enterprise for the same taxable year claims and is allowed a research credit under Section 41 of the Internal Revenue Code of 1986.

113: Headquarters Tax Credit: Companies establishing their headquarters or relocating their headquarters to Georgia prior to January 1, 2009 may be entitled to a tax credit if the following criteria are met: 1) At least fifty (50) headquarters jobs are created; and 2) within one year of the first hire, $1 million is spent in construction, renovation, leasing, or other cost related to such establishment or reallocation.

114: Port Activity Tax Credit: For taxable years beginning before January 1, 2010, businesses or the headquarters of any such businesses engaged in manufacturing, warehousing and distribution, processing, telecommunications, broad- casting, tourism, or research and development that have increased shipments out of Georgia ports during the previous 12-month period by more than 10% over their 1997 base year port traffic, or by more than 10% over 75 net tons, five containers or ten 20-foot equivalent units (TEU’s) during the previous 12-month period are qualified for increased job tax credits or investment tax credits.

115: Bank Tax Credit: All financial institutions that conduct business or own property in Georgia are required to file a Georgia Financial Institutions Business Occupation Tax Return, Form 900. Effective on or after January 1, 2001, a depository financial institution with a Sub S election can pass through the credit to its shareholders on a pro rata basis.

116: Low Emission Vehicle Credit: This is a credit, the lesser of 10% of the cost of the vehicle or $2,500, for the purchase or lease of a new low emission vehicle. Also there is a credit for the conversion of a standard vehicle to a low emission vehicle which is equal to 10% of the cost of conversion, not to exceed $2,500 per converted vehicle.

117: Zero Emission Vehicle Credit: This is a credit, the lesser of 20% of the cost of the vehicle or $5,000, for the purchase or lease of a new zero emission vehicle. Also there is a credit for the conversion of a standard vehicle to a zero emission vehicle which is equal to 10% of the cost of conversion, not to exceed $2,500 per converted vehicle.

118: New Facilities Jobs Credit: For business enterprises who first qualified in a taxable year beginning before January 1, 2009, $450 million in qualified investment property must be purchased for the project within a six-year period. The manufacturer must also create at a minimum 1,800 new jobs within a six-year period and can receive credit for up to a maximum of 3,300 jobs.

119: Electric Vehicle Charger Credit: This is a credit for a business enterprise for the purchase of an electric vehicle charger located in the State of Georgia. The credit allowed is the lesser of 10% of the cost of the charger or $2,500.

120: New Manufacturing Facilities Property Credit: This is an incentive for a manufacturer who has operated a manufacturing facility in this state for at least 3 years and who spends $800 million on a new manufacturing facility in this state. There is also the requirement that the number of full-time employees equal or exceed 1,800. However, these do not have to be new jobs to Georgia.

121: Historic Rehabilitation Credit: A credit will be available for the certified rehabilitation of a certified structure or historic home. Standards set by the Department of Natural Resources must be met.

122: Film Tax Credit: Production companies which have at least $500,000 of qualified expenditures in a state certified production may claim this credit. Certification must be approved through the Georgia Department of Economic Development. The credit is equal to 20 percent of the base investment in the state, with an additional 10 percent for including a qualified Georgia promotion in the state certified production.

123: Teleworking Credit: Employers who permit their employees to telework will be allowed an income tax credit for expenses incurred up to $1,200 per participating employee. The percentage of the credit for allowed expenditures ranges from 100%, 75% and 25% depending upon whether the business is located in a federal “nonattainment” area, and number of telework days per month required by the participating employees telework agreement.

124: Land Conservation Credit: This provides for an income tax credit for the qualified donation of real property that qualifies as conservation land pursuant to Chapter 22 of Title 36. Property donated to increase building density levels or property that will be used, or is associated with the playing of golf shall not be eligible.

125: Qualified Education Expense Credit: This provides a tax credit for qualified educational expenses. A corporation is eligible for a credit amount that can equal up to 75% of its income tax liability. The credit is allowed on a first come, first served basis.

126: Seed-Capital Fund Credit: This provides tax credits for certain qualified investments made on or after July 1, 2008.

127: Clean Energy Property Credit: This provides a tax credit for the construction, purchase, or lease of clean energy property that is placed into service in Georgia between July 1, 2008 and December 31, 2012.

128: Wood Residuals Credit: This provides a tax credit for transporting or diverting wood residuals to a renewable biomass qualified facility on or after July 1, 2008.

129: Qualified Health Insurance Expense Credit: Effective for taxable years beginning on or after January 1, 2009, an employer (but only an employer who employs 50 or fewer persons either directly or whose compensation is reported on Form 1099) is allowed a tax credit for qualified health insurance expenses in the amount of $250.00 for each employee enrolled for twelve consecutive months in a qualified health insurance plan.

130: Quality Jobs Credit: For tax years beginning on or after January 1, 2009, a taxpayer creating at least 50 “new quality jobs” may be entitled to a credit provided certain conditions are met. A “new quality job” means a job that: 1) Is located in this state; 2) Has a regular work week of 30 hours or more; 3) Is not a job that is or was already located in Georgia regardless of which taxpayer the individual performed services for; and 4) which pays at or above 110 percent of the average wage of the county in which it is located.

131: Alternate Port Activity Tax Credit: O.C.G.A. § 48-7-40.15A provides an alternate port tax credit. The definitions of “base year port traffic” and “port traffic” include imports and exports of product.

Acceptance. To quote the words of Bob Dylan, “The times, they are a changing.” In order to survive, or better yet, prosper, construction companies must change with them. Frankly, I tell my clients that business in this industry has changed forever. It’s time to embrace that fact and move forward. The previous decade was built on false numbers and unhealthy economic patterns, and those times are not likely to return in our lifetimes. Face the inevitable and accept the change for your company. Take the best of the old methodologies, the strategies that grew from solid practices that led to efficient productivity, and scrap the rest. If it’s unsupportable, let it go.

Management. Changing management is often the hardest for a company to make in the process of turning things around because it frequently requires some difficult and emotional decisions. Nevertheless, it’s also the most important one. If you don’t address your management team’s effectiveness then none of your other steps are likely to work. So if you make only one change, make it this one. I recommend taking an objective look at the strengths and weaknesses of your management team. It’s harder than you think, partially because these may be your friends. Utilize management consultants from outside the company to assist with this objective review and analysis. Tie salary and bonuses to performance – it can happen even in construction. When the analysis is complete, get rid of toxic or underperforming execs, and start fresh with seasoned and aggressive managers.

Advisors. Your trusted advisors (CPA, business attorney, financial planner, business consultant, etc.) should be more than situational firefighters – they should be a part of your management team! These advisors can do, and usually enjoy, more than just solving problems as they arise. Use their capacities for planning and strategizing for growth. Think of it as preventative maintenance and insurance for your company. The best part is that many advisors do not charge for these strategy sessions (attorneys included)! Additionally, you will get the opportunity to reap the benefits of the knowledge that your advisors have gained from working with other companies in your industry. For more information on how to best utilize your advisors, please check out our upcoming blog posting on Advisory Boards.

Training. The best education starts at home, so remember what has made your organization great and go back to those roots. Train your employees traditionally but also look to new ideas, technologies and techniques. These people are your bottom line, so you want them at the top of their game. When you invest in good training for your employees, you’re investing in the company’s future. Good education doesn’t have to be expensive, either. Our law firm alone offers over 30 different free training seminars, yet fewer than 10 percent of our clients utilize them. Help is out there if you want it, so look around and you may be surprised to find exactly what you need.

Plan. The old saying “Failure to plan is planning to fail” may be cliché, but it’s true. Create a plan. Share the plan to others in your organization and to your advisors, and make sure everyone is on board. Set measurable goals, and then stick to the plan. Hold everyone accountable. Measure progress and reward success. Learn from mistakes along the way. It’s basic stuff and it makes a world of difference.

These strategies can’t change the world or the economic climate, but they can definitely change the way your company interacts with them. Success boils down to observation and adaptation, both things that you and your business can handle.

Observe. Learn. Adapt. Repeat.

Is Your Company Ready for Georgia’s New Immigration Mandate?

by Todd Stanton, Principal, Stanton Law LLC & Of Counsel, MJ Patel Law Group

Starting January 1, 2012, Georgia employers with 500 or more employees must enroll and use E-Verify, the online federal work authorization program that determines the immigration status of new hires. The mandate will trickle down to companies with between 100 and 499 employees on July 1, 2012, and companies with 10 to 99 employees must begin using E-Verify by July 1, 2013.

For the purposes of the Georgia law compelling the use of E-Verify, the number of employees is measured on January 1 of each year. E-Verify does not eliminate, but is in addition to the requirement that an employer complete the federal Form I-9 for each newly hired employee.

The E-Verify process

The United States Citizenship and Immigration Service (“USCIS”) implemented the E-Verify System to help ensure that employees (both private and public) are legally authorized to work in the United States. Several states, including Arizona, Arkansas, Mississippi, Colorado, Oklahoma, Rhode Island, and now Georgia, require (to some extent) that private employers use the system. Other states “encourage” employers to use E-Verify, and more than dozen states are considering legislation that will affect E-Verify usage. Some federal laws also obligate certain companies to enroll in and use the system

To use E-Verify, employers must register online with the Department of Homeland Security (“DHS”) and the USCIS (http://goo.gl/jsr8). The registration process requires the employer to enter into a contract, called a Memorandum of Understanding or “MOU,” with the federal government by which the employer commits to use E-Verify for all newly-hired folks.

Once enrolled, employers must submit every new hire’s work authorization information to E-Verify within three days of the hire date. The system electronically cross-checks the information against Social Security Administration (“SSA”) and DHS databases to determine work eligibility. The authorization process is designed to be completed in a matter of minutes.

When employment eligibility is confirmed through E-Verify, the employer’s proper use of the system creates a rebuttable presumption that the employer has taken good faith steps to comply with federal (and, presumably, state) immigration law.

If the SSA and/or DHS are unable to initially confirm an individual’s work authorization, the system issues a tentative nonconfirmation response (“TNR”). Using a specified form, the employer notifies the employee of the TNR and the employee has eight days to resolve the issue with the appropriate agency. If the employee does not follow-up on the TNR, or the issue cannot be resolved, E-Verify issues a final nonconfirmation. Sometimes this process takes several hours. It has also been known to take several weeks.

Employers are generally advised not to take adverse employment action against an employee for whom only a TNR has been issued. But if a company continues to employ an individual for whom it has received a final nonconfirmation, the law presumes that the employer is knowingly employing an unauthorized worker, and the company subjects itself to fines or other penalties under federal and state law. As with any termination, however, an employer should consult with employment counsel to determine the company’s rights and obligations associated with the action.

It should also be noted that employers are, subject to only a few exceptions, not permitted to use E-Verify to inquire into the work authorization status of current employees. Only new hires should be run through E-Verify, and even then, only in the first three days of their employment.

Effect on the I-9 process

As noted, employers who use E-Verify (either voluntarily or because of a legal obligation) must still complete Forms I-9 for every employee, though the rules are a bit different. For instance, E-Verify employers may only accept I-9 “List B” documents that have a photograph of the individual, and even though employers are prohibited from requiring the employee to provide a Social Security Number when completing an I-9, E-Verify companies must obtain the Social Security Number to enter it into the E-Verify System.

Be patient and do your best

The E-Verify System is a work in progress and problems are to be expected. Snafus are doubly likely as more laws require employers’ use of the system. It appears, however, that the system is largely sound, so any hiccups will hopefully be resolved in short order. The USCIS website addresses many of the most common questions and bottlenecks (as well as some very specific potential problems), but employers are encouraged to consult their employment or immigration attorney as they navigate the process.

How much time and effort do you put into hiring a new employee? Between writing the job description, reviewing resumes, interviewing candidates and discussing your options internally, it adds up to quite a bit of time, right? So how much time and energy did you put into choosing your company’s business attorney? I’ll argue that if it wasn’t a similar process, you may not have gotten the right fit.

Having a company attorney on “standby” as an advisor for those quirky legal and business issues has always been, and is especially now, a prudent decision for private business owners.  New potential clients interview us on a weekly basis, and I always tell them that finding the right “fit” is extremely important. How you personally define “fit” may be different than how others define it, but it is vital to find the right match in terms of experience and personality. You may find an attorney who is perfect on paper, but simply rubs you the wrong way every time the two of you interact. My advice – don’t hire her! You don’t want to dread picking up the phone any more than you have to, so you should find someone with whom you enjoy talking and to whom you can trust your most important business matters.

To help with this attorney selection process, below I’ve listed a few things to consider during your due diligence:

• Communication. Your lawyer should be able — and willing — to explain even the most complex legal situation in terms you can understand. And you should feel comfortable enough asking him or her to explain something further if you simply don’t get it the first time. If your conversations are full of jargon and legalese, you’ll quickly grow frustrated with your choice.
• Fees. Before you hire an attorney, make sure you understand his or her fee structure. Ask for the cost for specific items, like drawing up legal documents. Some attorneys bill strictly by the hour, while others are now providing project pricing for some tasks. Ask as many questions as you need to thoroughly understand how a particular firm works. Now, are these fees within your budget? Can you afford what you’ll pay for this attorney? It’s an important question to ask, and one that may eliminate a few options from your list.
• Personality. Simply put, like anyone else you choose to work with, you should enjoy working with your lawyer.  After all, he or she is your advocate! Ask yourself if you’d feel comfortable calling this person for advice. Would you trust this person with the intimate details of your business? Would you sit down and have a drink together? Your attorney need not be your best friend, but should be someone with whom you feel comfortable and like.
• Teaching. When considering your options, I recommend looking for someone who will be willing to teach you about the legal issues you are facing, or could face, so you are fully aware and can make informed decisions. In the end, it’s your business, so your attorney should be willing to spend the time necessary to not only deal with your legal issues, but also explain what he or she is doing and how it will affect your company.
• References. Always ask for references from similar small business owners. Don’t just put the list in a folder, but call each of them and ask them any questions you have. At the end of the call, ask them to convince you that their lawyer will do a good job for your company. If you are not convinced, keep looking.
• Attention. If your candidate seems rushed or preoccupied during your meeting, move on. While we all have bad days, if you can’t get the attention you need as a prospect you probably won’t get it as a client either.
• Experience. Make sure your candidate has experience with businesses similar in size and structure to yours. Every business is different. A home-based Web designer won’t encounter the same legal issues as a restaurant owner. The same goes for an engineering firm and an international construction company. You need a lawyer who understands your industry and business thoroughly enough to come to the table with knowledge and suggestions right away, and as you grow and change over the years.
• Foresight. You deserve an attorney who is always looking out for your best interests and can anticipate and avoid issues before they arise.  A company attorney should provide proactive advice just as much as, if not more than, reactive problem solving.  To find out if the one you are considering is comfortable with this, ask these two key questions:
  • What problems am I likely to have?
  • How can you help me avoid them?

  With this information on each candidate, you should be able to make an informed decision and choose an attorney who will be a valued partner for your business for many years to come.

  Do you have any additions or stories to share? Please feel free to add your thoughts in the comment section below.

  ]]> http://www.mjpatellaw.com/tips-for-choosing-the-right-business-attorney-2/feed/ 0 http://www.mjpatellaw.com/tips-for-choosing-the-right-business-attorney/ http://www.mjpatellaw.com/tips-for-choosing-the-right-business-attorney/#comments Wed, 14 Sep 2011 08:51:27 +0000 admin http://www.mjpatellaw.com/?p=615 Read more »]]> In my last post, I discussed ways to prepare for the loss of your key talent as an owner. Today, I will focus on how to prepare your company for the loss of employees and customers in response to your death.

  LOSS OF EMPLOYEES AND CUSTOMERS

  
  

  Problem:

  Sole Owner Company

  A common and natural consequence of an owner’s death is the speedy emigration of employees and customers unless an existing continuation plan is immediately implemented. Without such a plan, the key and non-key employees will wonder where their next paychecks will come from. Typically, they leave for greener and more secure pastures. When the workforce leaves, contracts cannot be completed and are breached, work is unperformed and creditors call in their paper. Of course, the resulting losses often require payment by the owner’s estate.

   

  Multi-Owner Company

  Companies with multiple owners must cope with the normal lifetime retirement of their owners. In most cases, retirement imposes a significant cash drain upon a company. In a death scenario, the surviving owners must be capable of keeping both the employees and the customers. Simply having a successor owner is not sufficient. These successors must be able to maintain cash flow as well as the confidence of the business’s employees and customers. Confidence is best gained by having a written, well-capitalized continuity plan.

   

  Solution:

  The death of an unprepared owner can ignite a cascading series of events for the business. Chief among these are the departures of employees and customers. The loss of employees is followed immediately by defaults under contracts. Because of the inability to perform promised work, customers inevitably leave.

   

  Why do employees leave? Usually they fear that the business will not survive, thus jeopardizing their salaries and future employment. Additionally, when the owner’s leadership role is hastily transferred to anyone but a recognized successor, employees and customers grow uneasy. With uneasiness comes migration to a new employment and to other vendors.

   

  These financial and personal concerns must be quickly quelled by implementation of a preconceived, funded continuity plan. Employees must know that a plan exists that guarantees their compensation and clearly names your successor. With these assurances, most employees and customers will stay with the company.

   

  Sole Owner Company

  In a solely-owned business, financial and personal concerns about succession are handled through:

  • A written (funded by life insurance) Stay Bonus Plan (described here) communicated to employees when it is prepared;
  • A succession of management plan that you prepare, now, naming the person to be in charge; and
  • A decision made now, by you, regarding the sale, continuation or liquidation of the business in the event of your demise.

   

  Multi-owner Company

  In a multi-owner company, loss of employees and customers does not usually present a problem because of the presence of other owners.

   

  If you’d like to get a copy of a Business Continuity Form, or talk about how to plan for the continuation of your business, reach out to me at 678.466.7885 or mpatel@mjpatellaw.com.

   

  ©2007 Business Enterprise Institute, Inc., Business Continuity Planning White Paper.

  
  

  ]]> http://www.mjpatellaw.com/tips-for-choosing-the-right-business-attorney/feed/ 0 http://www.mjpatellaw.com/business-continuity-planning-part-3/ http://www.mjpatellaw.com/business-continuity-planning-part-3/#comments Wed, 08 Jun 2011 05:41:28 +0000 admin http://www.mjpatellaw.com/?p=359 Read more »]]> In my last post, I discussed a ways to prepare for a company’s loss of financial resources. Today, I will focus on how to prepare your company for the loss of your key talent.

  LOSS OF KEY TALENT – YOU

  Problem:
  Sole Owner Company
  Your death likely has the same impact upon your business as does the loss of any key person. Your talents, experience, relationships with customers, employees and vendors may be quite difficult to replace, especially in the short term. Without planning, few businesses have the financial resources or successor management to weather this storm.

  Multi-Owner Company

  Multi-owner companies seemingly avoid many of the problems endemic to single-owner companies. But, as it relates to the loss of key talent, this is only true if surviving owners can readily compensate for your loss. To the company, your death is the same as the loss of the key person. If the remaining owners do not have your experience or particular talents, the business suffers as sorely as if it had been solely-owned. Unless there is a key employee (co-owner or not) to fill the void, the business is wounded–perhaps mortally–upon the death of a co-owner who:

   

  • Was the marketing guru on whom the other owners were dependent to provide new clients;
  • Oversaw the operations of the company; or
  • Maintained most of the industry, customer or other key relationships./li>

   

  Solution:
  Sole and Multi-Owner Companies

  In a solely-owned business, the key employee is almost always the owner. Usually, it is the owner’s entrepreneurial drive, experience and dedication that stimulate a business. Losing its key employee, you, is a blow from which many businesses do not recover. If your business is a mirror image of you, it is unlikely that any amount of key person life insurance or other source of cash will suffice. You must create value (within the company and distinct from you) in the form of successor management capable of filling the void left by your unexpected departure.

  In a co-owned business the loss of an owner is not as drastic, provided your co-owner can carry on without you. If your co-owner cannot replace you, train employees to perform the same or parts of the same role as the dearly departed. You must take the same step if you desire to sell the business for top dollar during your lifetime. In either scenario (a lifetime sale or transfer caused by the death or disability of an owner) the underlying need is the same: capable employees must be available to assume the responsibility of running the business. In a lifetime transfer, if the owner is ready to leave the business but the business cannot thrive or at least survive without him, the owner is forced to remain operating the business until successor management is located and trained.

  When an owner dies, however, the absence of the successor management is more devastating because you are not available and the best hope is to provide the company with adequate cash, in the form of life insurance proceeds, so that the business can survive until replacement management is located and trained. That cash is also used to produce a cash-based incentive plan designed to motivate and retain the new management.

  In a co-owned business, the loss of an owner can severely strain the business but the remaining owner can, especially with sufficient life insurance proceeds, find and train replacement management as well as provide that replacement management with a significant cash incentive plan.

  As you well know, finding and training your replacement can take years. Why not prepare your company today for an ownership transition? Remember, at some point you won’t be in your business. We hope your absence will be due to a sale to an outsider or perhaps to the very key employee you have brought into the company. Perhaps, however, it will be due to death or disability. No matter the cause, your business will survive and thrive only if you have found, trained and motivated your replacement before you leave the business.

  In a real sense the continuity of a business is a transition of ownership from you to equally capable individuals of an operationally and financially sound company. In the situations we have discussed here, (primarily death or disability of an owner) life insurance can instantly provide significant financial strength. But the business also requires talented, motivated key successor management. And for that, there are no quick fixes. The benefit of starting today to find that key successor management is that you will be building value within the company that will be converted to cash when you leave it. Leave it, we hope, alive and healthy.

  In my next post, I’ll discuss how to prepare the company for the loss of employees and customers. Until then, if you’d like to get a copy of a Business Continuity Form, or talk about how to plan for the continuation of your business, reach out to me at 678.466.7885 or mpatel@mjpatellaw.com.

  ©2007 Business Enterprise Institute, Inc., Business Continuity Planning White Paper.

  ]]> http://www.mjpatellaw.com/business-continuity-planning-part-3/feed/ 0 http://www.mjpatellaw.com/business-continuity-planning-part-2/ http://www.mjpatellaw.com/business-continuity-planning-part-2/#comments Wed, 25 May 2011 08:07:58 +0000 admin http://www.mjpatellaw.com/?p=277 Read more »]]> In my last post, I discussed business ownership continuity. Today, I will focus on what happens if your company loses financial resources and how to plan for that event should it happen.

  COMPANY’S LOSS OF FINANCIAL RESOURCES

  Problem:
  Sole Owner Company

  Sole owners typically give little thought to the loss of financial resources (represented by the owner and his financial statement) used for the benefit of the business. Without a replacement for that financial strength, the business may well not survive despite a plan in place for its continuity of ownership. More specifically, an owner’s sudden death or incapacity can cause other “stakeholders” to discontinue their relationships with the business. These situations include:

   

  • Bank Financing. If you have personally guaranteed the company’s line of credit or permanent financing, your sudden death or departure will make the bank re-examine its lending relationship with your company.
  • Bonding Capability. Construction companies are just one example of firms that need and rely upon bonding capacity to bid and obtain much of their work. Your sudden death will likely cause the bonding companies to refuse to extend bonding unless the financial statements of those left behind are as strong as yours. Inability to secure bonding can mean the end of your company.
  • Obligations Under the Lease. If you lease space or equipment, it is likely that you personally guaranteed the lease. While the lessor may be unable to do anything to terminate the lease (provided payments stay current), he is unlikely to renew the lease without the successor owner’s guarantee backed by personal assets.
  • Capitalization Shortfall. Business owners periodically personally capitalize their companies because they keep little money in their companies. There can be sound liability and financial reasons for doing so. Your exit, however, may prevent your company from obtaining ongoing and adequate capitalization from any other source. Your deep pockets go out the door when you do.

  Multi-Owner Company

  If you, personally, are a principal source for financial funding (bond guarantees, line of credit guarantees, etc.), your death can put enormous pressure on the business to perform or face the risk of third parties refusing to lend or make guarantees on behalf of the company.

  Solution:
  Sole Owner and Multi-Owner Companies

  The problem of dealing with unexpected losses or unexpected financial complications in the business can best be met in two ways. First, simply use life insurance to fund for the anticipated need. Although life insurance is part of the solution, it is a means to an end; by itself it is simply a source of cash. Realistically, if the business is to succeed long term, after your death, it needs more than life insurance. It will need successor management, motivated by ownership or cash (current and deferred). The only way to make certain the business continues without you is to make certain that the business is more than just you.

  But any long-term solution, such as having a successor management in place today, cannot succeed without having adequate funds from the outset. And it is precisely this point that owners and their advisors overlook. The loss of an owner usually dries up the company’s financial wellsprings:

   

  • Bank financing, usually guaranteed by you;
  • Equipment and other financing, guaranteed by you;
  • Bonding capability, guaranteed by–guess who?–and
  • Adequate capitalization, supplied by you.

  These resources propel the business through difficult times into a brighter future. It is highly unlikely that successor management or ownership can replace your balance sheet with theirs.

  A company’s loss of financial resources can be mitigated by placing money, and lots of it, in the company coffers when you depart. A fully funded (with life insurance) buy/sell agreement (including a current valuation) just buys out the deceased owner’s interest. By itself, it does not place one penny in the company’s bank account. For that reason, few companies have adequate cash to survive an owner’s death.

  To address the loss of financial resources, a business, for its own current and future needs, requires insurance on your life in an amount sufficient to replace its immediate losses and to provide it with adequate ongoing capitalization. These insurance proceeds will enable the business to grow and prosper without you and your personal balance sheet.

  In my next post, I’ll discuss how to prepare the company for the loss of your key talent. Until then, if you’d like to get a copy of a Business Continuity Form, or talk about how to plan for the continuation of your business, reach out to me at 678.466.7885 or mpatel@mjpatellaw.com.

  ©2007 Business Enterprise Institute, Inc., Business Continuity Planning White Paper.

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