October 17, 2014

Family Businesses Lead Success Rate

Here’s a not-so-surprising fact: Less than 30 percent of family businesses are able to carry on to the second generation. A mere 10 percent remain through the third.  Interestingly enough, in spite of these gloomy figures, family businesses still lead the success rate well beyond those of sole proprietorships, partnerships or other arrangements. However, when family businesses do fail (for non-economical reasons), the cause generally comes down to poor planning and a lack of on-going maintenance thereof.

Want to know how family-owned businesses can improve their success rate?  Here are several things to consider:

Plan to Succeed From the Get-Go. Emphasize the importance of first developing a business agreement between key stakeholders that focuses on clear expectations by assigning specific roles and duties to your team. Inspiration, aspirations and goals should be the topic of thorough-going conversations.  Following through with a well-defined agreement emerges to reflect the discussion and, of course a business plan that clearly supports the agreement.

Perform Routine Maintenance on Your Long Term Plan. Important to the success of the family business preparations is the way in which agreements are reached and the context in which they are discussed. Within the framework of long-term planning, subject to regular review, each member can track, maintain or adjust as conditions change.  Knowing who each other is, recognizing traits, tendencies and preferences with honesty and openness allows the agreement to be written in a way to take advantage of and accommodate individual contributions. This sets up an organizational process that continues to focus on leveraging the strengths of individuals and addresses any challenges or shortcomings posed by members.  Thus everyone is on the same page and realistic expectations are set and met.

Proper business planning is a complex and on-going effort, requiring expert counsel—a professional knowledge and experience, familiar with the challenges that characterize an entrepreneur’s business ventures. Talley & Company shares the same entrepreneurial spirit that has helped propel our clients to their current level of success. With over 25 years experience in management consulting, Talley & Company has the expertise required to assist entrepreneurs throughout their entire journey, from formation through succession.

October 10, 2014

Is an S-Corp Structure Right for Your Business?

Choosing the right legal structure for your business involves careful consideration to find the best balance between liability protection, tax savings and the level of paperwork required by the IRS. This decision can be one of the most important ones made for a startup and may change as a business grows to accommodate different needs. The best way to evaluate all options, whether that includes a sole proprietorship, partnership, LLC or Corporation, is to get comprehensive advisement from knowledgeable legal advisors. For a quick look at the S-Corporation popular with entrepreneurs, here are some of the basic up-sides and down-sides.

Tax-Saving Benefits
The S-Corp allows owners to pass corporate profits, losses, deductions and credits to shareholders’ personal tax returns. This makes it possible to avoid double taxation (at the corporate and personal level), one of the major differentiators from a C-Corp.

While members of an LLC are subject to employment tax on the entire net income of the business, only the wages of S-Corp shareholders who are employees are subject to employment tax. The remainder is provided to the owner as a “distribution,” which is either taxed at a lower rate or not at all. But before lowering your salary to zero and classifying all earnings as a distribution to slash your tax bill, know that this comes with a caveat. Shareholders who work for the company must receive “reasonable compensation,” or the IRS may reclassify additional corporate earnings as wages. In some cases, the tax benefits of an S-Corp can also be combined with the legal advantages of an LLC.

At the state level, S-Corps are taxed in a variety of ways. Some states follow the federal government’s lead by taxing shareholders accordingly, some tax on profits over a certain threshold, and still others refuse to recognize the S-Corp structure altogether, taxing it like they would a C-Corp. instead.

Opportunity for Liability Protection
S-Corporations are “considered by law to be a unique entity, separate and apart from those who own it.” This separation limits the financial liabilities of owners and shareholders. It also makes it easy for the S-Corp to continue doing business without much disruption if a shareholder decides to leave the company or sell their shares.

A Longer Paper Trail
One of the significant downsides to the S-Corp is more rigid processes and paperwork. The IRS’ requirements include scheduled shareholder meetings, documentation from those meetings, and heavier records maintenance.

To see if your business qualifies as an S-Corp and whether it would benefit from this or another more favorable legal structure, consult with us today. Talley & Company has over 25 years of experience helping entrepreneurs successfully start and grow their businesses. From start-up to succession we maintain a proactive, tax efficient approach to our client’s business planning needs.

July 25, 2014
Crowdfunding is helping thousands of businesses acquire much-needed capital and build a core fan base. Businesses of all kinds and for many funding purposes are using crowdfunding platforms, from yoga studios looking to grow into larger spaces to tech innovators wanting to bring new gadgets to market.
If you’re considering a campaign to launch your business, expand a product line, or fund a special project, scheduling a few minutes with Talley and Company’s advisory team can ensure your campaign is set up properly from the start to avoid obstacles from a tax and legal perspective. (There’s nothing worse than obtaining hard-earned funding only to discover that federal and state tax obligations may keep you from fulfilling your vision.)
For businesses, there are two main avenues for crowdfunding, and depending on which you choose, the tax and legal implications will differ greatly. In the rewards-based approach, supporters are typically offered a chance to earn tiered rewards for different contribution levels. These can be anything from a branded T-shirt to pre-ordering a product still in development. Kickstarter and Indiegogo are two popular platforms.
With this option, the income you derive from your campaign will most likely fall under one or more of four categories: revenue, sales, investment or gift. In most cases, the money you earn from a campaign will have to be included as gross income for your business. If you’re offering a product or service in exchange for donations, you may also need to pay sales tax from customers in the state that you’re registered. The expenses you incur for fulfillment of rewards, products or services may be deductible against the income you earn. In some cases, funders will request nothing in return other than the joy of knowing they helped bring an ingenious idea to life. With meticulous records, these may be claimed as gifts. Just keep in mind that the IRS has stricter definitions for what falls under this category than you or I might.
In the equity-based approach, investors get a financial return or an ownership stake in the company for their support. Crowdfunder is one of the platforms in this newly developing category. If you’re using this option, the tax and legal obligations are a different animal entirely, since now we’re talking about investment money and not revenue. In fact, the laws in this area are still undergoing changes, so keeping in close contact with your legal team right from the beginning is essential.
No matter which option you choose, a successful campaign involves a lot of forethought, time and planning to reach funding goals and generate priceless media attention for your big idea. If you’d like to see the creative strategies and executions used by the most highly funded companies, check out the Top 100 Crowdfunded Companies
May 16, 2014
Big data has become as much of a game changer in the NFL as it has in business. Thanks to field sensors, multi-view cameras, statistical analysis and game planning software, performances can be measured and quantified in more ways than ever before. That means general managers of NFL franchises have a myriad of new information helping them make more informed draft picks.
Although the information may come from different sources (e.g., balance sheets, sales invoices, CRM software and operational insights), the same goes for business owners when it comes to making decisions that affect company profitability.
Still, all that data means little without the ability to match needs with the resources available and effectively distinguish between what’s important and what’s just white noise. This may have been part of the reason predictions for draft picks made by football analysts were so far off the mark from the actual first round of selections made by the NFL. ESPN’s Mike Maycock got just three of 32 names right, and Mel Kiper faired the same. (Of course, their fumbles also demonstrate the infinite permutations that can occur in a short period of time as teams sequentially select and react to choices made during the complex drafting process.)
For companies, the draft experience equates to top leaders evaluating both positive and negative trends, forecasting business performance based on forward-leaning indicators and nimbly making adjustments whenever and wherever necessary. Decisions may not be demanded as the second hand ticks like in the NFL, but timeliness is still incredibly important to avoid potential misses and take advantage of unexpected opportunities.
Translating a business’s infinite streams of data into decision-making tools that help increase growth and profitability is no easy task. To get it right, analysts need to sift through and consider a company’s operations from the inside, knowing what to look for in detail. Working closely with the data particular to your business, you and/or your advisors can pinpoint the right key performing indicators and accurately interpret information to ensure your company is on track to meet goals.
Talley & Company and its affiliate, Group 11 Advisors, offer a uniquely combined platform of services that give business leaders the ability to both analyze and decipher leading as well as lagging indicators. Talley & Company not only provides timely, accurate historical financial data, (where you’ve been) but also reporting metrics that can anticipate where your business is going. To determine whether your business is taking advantage of all metrics available to make the most informed picks for future success, schedule a time to talk with us today.

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