Company retreats can cost enormous amounts of time and money. Are they worth it? Sometimes. Large-scale get-togethers can involve considerable out-of-pocket costs. And if the retreat is poorly planned or executed, participants’ wasted time is the biggest expense.
But a properly budgeted, planned and executed retreat can be hugely profitable, producing fresh ideas, renewed enthusiasm and heightened employee morale. Here are a few ways to get your money’s worth out of a company retreat.
Create specific objectives
First, nail down your goals and objectives. Several months ahead of time, determine and prioritize a list of the important issues you want to address. But include only the top two or three on the final agenda. Otherwise, you risk rushing through some items without adequate time for discussion and formalized action plans.
If one of the objectives is to include time for socializing, recreation or relaxation, great. Mixing fun with work keeps people energized. But if staff see the retreat as merely time away from the office to party and golf, don’t expect to complete many work-related agenda items. One successful way to mix work and pleasure is to schedule work sessions for the morning and more fun, team-building exercises later in the day.
Set limits, allow flexibility
Next, work on the budget. Determining available resources early in the planning process will help you set limits for such variable costs as location, accommodations, food, transportation, speakers and entertainment.
Instead of insisting on certain days for the retreat, select a range of possible dates. This openness helps with site selection and makes it easier to negotiate favorable hotel and travel rates. Keep your budget as flexible as possible, building in a 5% to 10% safety cushion. Always expect unforeseen, last-minute expenses.
Company retreats are serious business in the sense that you’re sacrificing time and productivity to identify strategic goals and improve teamwork. But these events should still be fun experiences for you and your staff. We can help you establish a reasonable budget to help ensure an enjoyable, productive and cost-effective retreat.
If you run a business “on the side” and derive most of your income from another source (whether from another business you own, employment or investments), you may face a peculiar risk: Under certain circumstances, this on-the-side business might not be a business at all in the eyes of the IRS. It may be a hobby.
The hobby loss rules
Generally, a taxpayer can deduct losses from profit-motivated activities, either from other income in the same tax year or by carrying the loss back to a previous tax year or forward to a future tax year. But, to ensure these pursuits are really businesses — and not mere hobbies intended primarily to offset other income — the IRS enforces what are commonly referred to as the “hobby loss” rules.
If you haven’t earned a profit from your business in three out of five consecutive years, including the current year, you’ll bear the burden of proof to show that the enterprise isn’t merely a hobby. But if this profit test can be met, the burden falls on the IRS. In either case, the agency looks at factors such as the following to determine whether the activity is a business or a hobby:
Dangers of reclassification
If your enterprise is reclassified as a hobby, you can’t use a loss from the activity to offset other income. You may still write off certain expenses related to the hobby, but only to the extent of income the hobby generates. If you’re concerned about the hobby loss rules, we can help you evaluate your situation.
Like many business owners, you might also own highly appreciated business or investment real estate. Fortunately, there’s an effective tax planning strategy at your disposal: the Section 1031 “like kind” exchange. It can help you defer capital gains tax on appreciated property indefinitely.
How it works
Section 1031 of the Internal Revenue Code allows you to defer gains on real or personal property used in a business or held for investment if, instead of selling it, you exchange it solely for property of a “like kind.” In fact, these arrangements are often referred to as “like-kind exchanges.” Thus, the tax benefit of an exchange is that you defer tax and, thereby, have use of the tax savings until you sell the replacement property.
Personal property must be of the same asset or product class. But virtually any type of real estate will qualify as long as it’s business or investment property. For example, you can exchange a warehouse for an office building, or an apartment complex for a strip mall.
Executing the deal
Although an exchange may sound quick and easy, it’s relatively rare for two owners to simply swap properties. You’ll likely have to execute a “deferred” exchange, in which you engage a qualified intermediary (QI) for assistance.
When you sell your property (the relinquished property), the net proceeds go directly to the QI, who then uses them to buy replacement property. To qualify for tax-deferred exchange treatment, you generally must identify replacement propertyafter you transfer the relinquished property and complete the purchase after the initial transfer.
An alternate approach is a “reverse” exchange. Here, an exchange accommodation titleholder (EAT) acquires title to the replacement property before you sell the relinquished property. You can defer capital gains by identifying one or more properties to exchangeafter the EAT receives the replacement property and, typically, completing the transaction .
The rules for like-kind exchanges are complex, so these arrangements present some risks. If, say, you exchange the wrong kind of property or acquire cash or other non-like-kind property in a deal, you may still end up incurring a sizable tax hit. Be sure to contact us when exploring a Sec. 1031 exchange.
Many business owners are accustomed to running the whole show. But as your company grows, you’ll likely be better off sharing responsibility for major decisions. Whether you’ve recruited experienced managers or developed “home grown” talent, you can empower these employees by taking a more collaborative approach to management.
Not employees — team members
Successful collaboration starts with a new mindset. Stop thinking of your managers as employees and instead regard them as team members working toward the same common goals. To promote collaboration and make the best use of your human resources, clearly communicate your strategic objectives. For example, if you’ve prioritized expanding into new territories, make sure your managers aren’t still focusing on extracting new business from current sales areas.
You also must be willing to listen to your managers’ ideas — and to act on the viable ones. Relinquishing control can be hard for business owners, but keep the advantages in mind. A collaborative approach distributes the decision-making burden, so it doesn’t fall on just your shoulders. This may relieve stress and allow you to focus on areas of the company you may have neglected.
Confidence and development
Even as you move to a more collaborative management model and include employees in strategic decisions, don’t forget to recognize their individual skills and talents. You and other managers may have uncertainties about a new marketing plan, for instance, but you should trust your marketing director to carry it out with minimal oversight.
To ensure that managers know they have your confidence, conduct regular performance reviews where you note their contributions and accomplishments and explore opportunities for growth. Moreover, help them grow professionally by providing constructive, ongoing training to develop their leadership and teamwork skills.
An open mind
As you learn to trust your management team with greater responsibility, keep in mind that the process can be bumpy. In a crisis, your instinct may be to take charge and brush off your managers’ advice. But it’s critical to keep your mind open and be receptive to input from people who may one day run your company. Let our firm assist you in assessing the profitability impact of your management team
Some business owners make major decisions by relying on gut instinct. But investments made on a “hunch” often fall short of management’s expectations.
In the broadest sense, you’re really trying to answer a simple question: If my company buys a given asset, will the asset’s benefits be greater than its cost? The good news is that there are ways — using financial metrics — to obtain an answer.
Perhaps the most common and basic way to evaluate investment decisions is with a calculation called “accounting payback.” For example, a piece of equipment that costs $100,000 and generates an additional gross margin of $25,000 per year has an accounting payback period of four years ($100,000 divided by $25,000).
But this oversimplified metric ignores a key ingredient in the decision-making process: the time value of money. And accounting payback can be harder to calculate when cash flows vary over time.
Discounted cash flow metrics solve these shortcomings. These are often applied by business appraisers. But they can help you evaluate investment decisions as well. Examples include:
Net present value (NPV). This measures how much value a capital investment adds to the business. To estimate NPV, a financial expert forecasts how much cash inflow and outflow an asset will generate over time. Then he or she discounts each period’s expected net cash flows to its current market value, using the company’s cost of capital or a rate commensurate with the asset’s risk. In general, assets that generate an NPV greater than zero are worth pursuing.
Internal rate of return (IRR). Here an expert estimates a single rate of return that summarizes the investment opportunity. Most companies have a predetermined “hurdle rate” that an investment must exceed to justify pursuing it. Often the hurdle rate equals the company’s overall cost of capital — but not always.
A mathematical approach
Like most companies, yours probably has limited funds and can’t pursue every investment opportunity that comes along. Using metrics improves the chances that you’ll not only make the right decisions, but that other stakeholders will buy into the move. Please contact our firm for help crunching the numbers and managing the decision-making process.
If last year your business made repairs to tangible property, such as buildings, machinery, equipment or vehicles, you may be eligible for a valuable deduction on your 2016 income tax return. But you must make sure they were truly “repairs,” and not actually “improvements.”
Why? Costs incurred to improve tangible property must be depreciated over a period of years. But costs incurred on incidental repairs and maintenance can be expensed and immediately deducted.
What’s an “improvement”?
In general, a cost that results in an improvement to a building structure or any of its building systems (for example, the plumbing or electrical system) or to other tangible property must be capitalized. An improvement occurs if there was a betterment, restoration or adaptation of the unit of property.
Under the “betterment test,” you generally must capitalize amounts paid for work that is reasonably expected to materially increase the productivity, efficiency, strength, quality or output of a unit of property or that is a material addition to a unit of property.
Under the “restoration test,” you generally must capitalize amounts paid to replace a part (or combination of parts) that is a major component or a significant portion of the physical structure of a unit of property.
Under the “adaptation test,” you generally must capitalize amounts paid to adapt a unit of property to a new or different use — one that isn’t consistent with your ordinary use of the unit of property at the time you originally placed it in service.
2 safe harbors
Distinguishing between repairs and improvements can be difficult, but a couple of IRS safe harbors can help:
1. Routine maintenance safe harbor. Recurring activities dedicated to keeping property in efficient operating condition can be expensed. These are activities that your business reasonably expects to perform more than once during the property’s “class life,” as defined by the IRS.
Amounts incurred for activities outside the safe harbor don’t necessarily have to be capitalized, though. These amounts are subject to analysis under the general rules for improvements.
2. Small business safe harbor. For buildings that initially cost $1 million or less, qualified small businesses may elect to deduct the lesser of $10,000 or 2% of the unadjusted basis of the property for repairs, maintenance, improvements and similar activities each year. A qualified small business is generally one with gross receipts of $10 million or less.
There is also a de minimis safe harbor as well as an exemption for materials and supplies up to a certain threshold. Contact us for details on these safe harbors and exemptions and other ways to maximize your tangible property deductions.
Most business owners spend a lifetime building their business. And when it comes to succession, they face the difficult decision of whether to sell, dissolve or transfer the business to family members (or a nonfamily successor).
Many complicated issues are involved, including how to divvy up business interests, allocate value and tackle complex tax issues. Thus, as you put together your succession plan, include not only your financial and legal advisors, but also a qualified valuation professional.
Various value factors
When drafting a succession plan, a valuation expert can help you put a number on various factors that will affect your company’s value. Just a few examples include:
Projected cash flows. According to both the market and income valuation approaches, future earnings determine value. To the extent that a business experiences decreasing, or increasing, demand and rising (or falling) prices, expected cash flows will be affected. Historical financial statements may require adjustments to reflect changes in future expectations.
Perceived risk. Greater risk results in higher discount rates (under the income approach) and lower pricing multiples (under the market approach), which translates into lower values (and vice versa). When selecting comparables, the transaction date is an important selection criterion a valuator considers.
Expected growth. Greater expected revenue growth contributes to value. In addition, there’s a high correlation between revenue growth and earnings (and thus, cash flow) growth.
Other determinants of discounts
In many cases, valuation discounts are applied to a company’s value. For example, decreased liquidity translates into higher marketability discounts, while increased liquidity reduces marketability discounts. Other factors that affect the magnitude of valuation discounts include:
Discounts vary significantly, but can reach (or exceed) 40% of the entity’s net asset value, depending on the specifics of the situation.
For best results
An accurate and timely value estimate can facilitate the succession process and prevent costly and time-consuming conflicts. Please contact our firm for more information.
Employers that hire individuals who are members of a “target group” may be eligible for the Work Opportunity tax credit (WOTC). If you made qualifying hires in 2016 and obtained proper certification, you can claim the WOTC on your 2016 tax return. Whether or not you’re eligible for 2016, keep the WOTC in mind in your 2017 hiring, because the credit is also available for 2017.
In fact, the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) extended the WOTC through 2019. The PATH Act also expanded the credit beginning in 2016 to apply to employers that hire qualified individuals who have been unemployed for 27 weeks or more.
What are the “target groups’?
Besides the long-term unemployed, target groups include:
How much is the credit worth?
Qualifying employers can claim the WOTC as a general business credit against their income tax. The amount of the credit depends on the:
The maximum credit that can be earned for each member of a target group is generally $2,400 per employee. The credit can be as high as $9,600 for certain veterans. Employers aren’t subject to a limit on the number of eligible individuals they can hire. In other words, if there are 10 individuals that qualify, the credit can be 10 times the amount listed.
Before you can claim the WOTC, you must obtain certification from a “designated local agency” (DLA) that the hired individual is indeed a target group member. You must submit IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit,” to the DLA no later than the 28th day after the individual begins work for you.
But if you hired long-term unemployment recipients between January 1, 2016, and May 31, 2016, the IRS extended the deadline to June 29, 2016, as long as the individuals started work for you on or after January 1, 2016, and before June 1, 2016.
The WOTC can lower your company’s tax liability when you hire qualified new employees. We can help you determine whether an employee qualifies, calculate the applicable credit and answer other questions you might have.
The most effective way to manage receivables is to put into place a system that allows management the ability to:
This allows for the majority of receivables to be managed in an orderly and efficient manner, while allowing problem accounts to surface immediately. If the system does not adequately address each step then receivables may become a major issue for the business.
Providing credit is a cash flow draining strategy for any business and should be viewed as a privilege provided to customers. A business may be able to expand revenue very quickly by extending lines of credit to customers that would have otherwise not been able to pay for items. Providing credit then becomes a risk-based decision and businesses should be aware that the risk may be passed on to external agencies such as credit card companies and financing institutions.
A business should make the payment experience as painless as possible for both the buyer and the business itself. If available, apply for credit card, debit card purchase, EFTPOS or PayPal as payment options.
Extending credit is therefore a decision that the business provides as a special case. To formalize this, assume that all customers that request credit terms first fill out a credit application form.
Creating a credit judgement criteria checklist
Once the business accepts the credit application form, a system will need to be put in place that allows for an evaluation of the potential customer’s ability to pay on credit terms. The business should therefore create a credit judgment criteria list.
One of the crucial points of the credit application form is the inclusion of credit references. It’s important to follow up each with a phone call to the referee. A lot of credit checking systems fail due to human error when credit referees are not followed up. Make sure this is part of the system and is adhered to by completing the credit judgment criteria checklist.
If a business is putting itself in a position to shoulder the cost of providing credit then it should think carefully about using credit terms as a advertising or marketing tool. Doing so may have the unfortunate effect of draining cash reserves and the business should only do so if it is acutely aware of the net cash flow loss that providing credit terms will entail.
Certain industries may have their own peculiar ways of using credit terms as marketing tools. Here are some examples:
A retail business should outline its different forms of payment at the point of sale, on the website, and in brochures (where applicable). Small retail shops with larger competitors may have to contend with “store credit cards” and “gift vouchers”. To counter, make sure that all major credit cards are accepted and ensure that gift voucher checks are sold in the store as well. A small business may not be able to match store credit to retail customers and will probably not have the infrastructure required to do so. That said, a smaller business will be able to differentiate in other ways.
One of the major hurdles of professional and service firms is the charge per hour framework that so many businesses find themselves in. Turn this around by providing fixed price agreements and pricing up front as a marketing tool. This alleviates the seamlessly endless struggle of getting customers to agree to pay for hourly work and minimizes the need to write-down invoices.
Credit terms are probably used most as a marketing tool in the manufacturing arena. This is where credit application forms have the most use and where businesses should take the most care in screening potential clients. Because capital requirements may be large with working capital tied up primarily in raw materials, receivables days becomes a crucial financial KPI to watch as well. If credit terms becomes the only way a manufacturing firm is able to differentiate itself from the competition, then the business is putting itself at great risk. Work with the business to establish another point of differentiation such as delivery time, product customization options, quality assurance. A business that does not differentiate in any of these arenas is purely a commodity and will be forced to fight on price and credit terms alone. A double hit as the first depletes net profit while the other depletes cashflow and working capital.
Running a business without a business plan is like rock climbing blindfolded. Your chances of making it successfully to the top are slim. And the process will surely be a death-defying one.
Contrary to popular practice, a business plan is not a means to securing financing. Instead it is a step-by-step guide to running your business and creating the product or service that will make it in the marketplace. And like any other map, your plan will have to be adjusted according to your vision for the company, conditions and opportunities in the marketplace and your business’ current condition.
Whether it’s formal or informal, every business has a plan. The local hair salon may not have formally written down the plan, but before setting up shop, a smart owner would have assessed the need for a shop in that area of town, the ability to attract clients there, the appropriate amount of chairs, whether to hire someone to do the shampooing and sweeping, the cost of utilities, the parking availability for clients. The owner who waits to figure these things out using trial and mostly error will be lucky to be left with his/her wits, much less any customers. A business plan helps to minimizes those pitfalls.
To many people, the concept of writing a business plan for their own business is a daunting one. Perhaps it would appear less daunting to view the process as simply writing the answer to three questions, namely:
THE FIRST QUESTION – ‘Where are you now?
– must be your starting point. This question seeks to provide a planning base. It looks at your business to establish such things as:
Answering the question, “Where are you now?” is often a major stumbling block because most people don’t know where to start. However, the answer is surprisingly simple if you divide your business planning into four key areas: Operational, Marketing, Employees and Finance. Such a division allows you to analyze your business (or assumed business) to create a solid planning base.
THE SECOND QUESTION – “Where do you want to be at a future date?”
- is simply asking you to visualize your business operation at a set date in the future. This visualization process is almost identical to the exercise of setting personal objectives. The difference, however, is that the focus here is on business objectives.
THE THIRD QUESTION – “How will you get there?”
- asks about the steps you need to take in order to achieve the business objectives you have set. These steps, or strategies, can be identified, written down and programmed. Additional things a business plan should consider:
While much of this may have occurred to you informally, it is very import to write it down. If you ever need to approach a bank or investors, you will need it. Writing it down will reinforce your vision, give you a reference point for checking your business’ progress and will most likely bring up factors you did not consider when creating the plan in your head.
Writing your business plan down:
Business plans are not only for those just setting out their journey in the marketplace. They are useful when acquiring a new business, forecasting growth, introducing a new product or service, entering a new market, responding to changes in the market or changing a significant aspect of your business.