Everyone’s taxes are going up. And that includes you.

Taxmageddon, taxpocalypse, the fiscal cliff, the largest tax increase in the history of the universe. That’s how the coming tax increases have been described. And they aren’t inaccurate descriptors. Everyone’s taxes are going up and that includes you. Yes, you.

 

“But wait,” you say, “We’re a two income MFJ family with two kids making $75,000/year. We’re as ordinary as it gets. Surely our taxes aren’t going up.” They are. Only the 15% bracket is staying the same, all of the other brackets are going up. In addition, every wage earner gets an automatic 2% increase in taxes when the FICA/SECA tax break ends on 12/31/12. That’s everyone who gets a W-2 and every self-employed person. And the marriage tax penalty is coming back. And AMT hasn’t been patched. And there is an additional .9% Medicare tax on certain taxpayers. And the list goes on.

 

“But wait,” you say, “I’m a single mother of three earning $25,000/year. I don’t pay income taxes so mine can’t go up.” Wrong. As mentioned above you will be making two percent less on 1/1/13. And you are actually going to be hit the hardest of any taxpayers (proportionately) because the refundable child tax credit is getting cut in half from $1000/child to $500/child. And the dependent care credit is getting trimmed back. And the earned income credit will be harder to qualify for. And the “educator expense” deduction is gone. And the residential energy property credit is gone.

 

“But wait,” you say, “I don’t earn wages. All of my income is from interest, dividends and capital gains. I’ve positioned myself to avoid this very thing.” All of the long-term capital gains rates are going up. Qualified dividends will now be treated as ordinary income meaning that they will be taxed at higher rates. And there is an additional Medicare tax of 3.8% on some investment income. And personal exemptions will be limited. Itemized deductions will be subject to the Pease “haircut”. And the college expense credits will get smaller.

 

You see, the Bush tax cuts were truly tax cuts for everyone. They have been characterized as tax cuts for millionaires and billionaires, but it’s the lowest earners who will feel the hit the hardest when they expire. The single parent in the example above was used to paying no income taxes AND receiving a check for $3000 every year. No longer. That amount gets cut to $1500 and she’ll take home 2% less. That’s an 8% effective increase on an already very tight budget.

 

The good news is that no member of Congress wants to be responsible for letting this happen. Many of these provisions will be extended. But nothing will be fixed until Congress faces its spending issues and makes some difficult and unpopular changes. More on that in a later post. In the meantime, sit back and prepare for a fight like 2010.

Why hiring assessments are a great idea: from A,B,C to 1,2,3

If you’re like most business owners, you’ve hired and fired many people and you are characterized by the following traits:

A) You have high expectations for your employees

B) You think that you read people well

C) You are beginning to think that high turnover rates are the price for excellence

Bad news: you are wrong on all three accounts. Here’s why:

1) Rarely do employers with high expectations convey those expectations well to their new hires. I’m not just talking about during the interview process and their first day of work, I’m talking about regular meetings after that to continue to refine their understanding of your expectations. Too often we assume that they will get themselves up to speed and everything will be fine. Regular interaction is necessary.

2) If you really read people as well as you think you do, you wouldn’t be experiencing the turnover that you are currently dealing with. In fact, if you really read people as well as you think you do, you might consider a change of careers…to something like hiring assessments.

3) Turnover stinks. It costs a lot of time/money and gives your business a bad reputation. Don’t settle for high turnover.

The solution: do what I did and find a great company to handle your hiring assessments. I was tired of having turnover issues and “surprises”. I use http://www.strategictalentmanagement.com/ for my hiring assessments and have been very pleased with the results. They will run assessments on all my future hires and have permanently changed the way that I interact with new hires.

Do your self a favor, invest a little up front to save a bundle down the road.

A case for networking with just one person

When I started my own tax and consulting practice I set out to network with the local business community so that I could grow my business. Not being a natural networker, I had to learn the hard way how to go about using networking opportunities to grow my business. I figured a good place to start was with the local Chamber of Commerce. After my first Chamber function I returned home triumphantly with a large stack of business cards. I had figured out the game of exchanging business cards and I had a handsome pile of cards to my credit.

What I hadn’t figured out was what to do with them. Should I call everyone who gave me a card? Send them all an email? Nervously avoid them the next time I saw them? I didn’t want to be the guy flooding everyone’s inbox with emails, nor did I want to avoid people at the next event. I had to do something different but what?

Not knowing what to do differently, I went to the next Chamber event and hung out with the 3-5 people that I was friends with and could engage in unimportant conversation. I didn’t want to meet new people because I couldn’t see how their business card could put money in my pocket (the ultimate goal of networking) and I didn’t want to talk to the people whose cards I got last time because I already had their cards! Something had to change.

After taking some time to consider my strengths, my needs as a business owner and my networking comfort level, I decided upon a very simple strategy: network with just one person. Don’t get overwhelmed by the sea of people, focus on just one potentially valuable relationship. Here’s what it looks like:

 

1) I’m at a big networking event with dozens or even hundreds of people.

2) Say hello to the people that I’m friends with (it can’t be avoided, but shouldn’t be prolonged).

3) Look for someone I haven’t met.

4) Introduce myself and find out what they do.

5) If I perceive that there could be some value in getting to know more about them and letting them know more about what I do, schedule a meeting with them. Don’t delay. Try to set it up for the next 3-5 business days.

6) Follow up with an email as soon as I’m back at the office.

 

That’s it. I’m done. Now look at what I just did:

1) Set a SMART goal (Simple, Measureable, Achieveable, Relevant, Time-sensitive)

2) Met my goal (we all love that feeling)

3) Showed the new contact that I value their time and am serious about learning about them.

4) Avoided wasting time.

5) Still had a chance to talk with friends.

6) Started a relationship that could be valuable to both of us, instead of adding to that business card stack that we all try to hide.

 

Maybe your personality is different than mine. Maybe you can effectively network (read: add real value to your business) with dozens of people in an evening. But that’s not me. This is the plan that I have used ever since and it works. In addition to this, I’m a member of a local Business Networking International chapter. My time in BNI has given me two very important skills: 1) how to effectively tell someone about my business in a very short time (30-60 seconds) and 2) how to make the most of the longer meeting.

Let me know what you think. Do you have a similar strategy? What works for you?

The Red Sox collapse & your company culture

This was a sad year for Red Sox fans. On September 3rd the Sox lead the Tampa Bay Rays by 9 games in the AL wild card race. By September 28th they had lost 18 of 24 games and were eliminated from the wild card race. What happened? Is the curse back?

No. Not unless stupidity and arrogance can be considered a curse. The Red Sox epic collapse can only be blamed on the Red Sox and their management. As the days go by we learn more and more about players partying during games (if beer, fried chicken & video games can be considered partying), management turning a blind eye and players caring only about themselves. From possible World Series contender to the brunt of late night jokes in three and a half weeks.

What can we as business owners learn from this disaster? Simply this: culture matters. What you tolerate at your workplace speaks volumes of your character and will directly impact the performance of your organization. I work with a small town retail store that gets it. From the day they opened four years ago the owners made sure that everything was done a certain way. Their establishment is always clean, well-stocked and staffed with knowledgeable and polite salespeople. As a result, they’re growing. Their second retail location will open next month and their products are now sold in dozens of outlets throughout New England. The business has the potential to take off and reach a level of success rarely seen by a Maine-based business.

How do they do it? Culture. Everyday they make sure that their corporate values are lived by. If someone slacks off, they are corrected and reminded of the standards they are expected to meet. They understand that their corporate culture could make or break their company.

What is your corporate culture like? What do you tolerate? Where do you draw the line? Are you poised for growth or will you be the next 2011 Red Sox?

Uncomfortably agreeing with Big Brother…

I have long been a proponent of smaller and simpler government. While I don’t self-identify as a Libertarian, I do lean that way. So it is with some sheepishness and reluctance that I have to say I agree with one area in which Big Brother is increasing it’s oversight and control: regulating tax preparers.

Anyone can prepare taxes and anyone can be paid to prepare taxes. Prior to this year there have no restrictions or requirements placed on unenrolled tax preparers (those that aren’t CPAs or Enrolled Agents). Starting this year, however, unenrolled preparers will be required to pass competency tests and to register for a PTIN (Preparer Tax Identification Number) with the IRS. They will also be required to pay a $64.25 for the privilege of acquiring this new identification number.

You may ask, “Isn’t this the same as states and municipalities requiring people to register to be a barber or requiring the cute kids to have a permit for their lemonade stand?” Yes and no. It’s similar in that the government is grabbing more control and money. It’s different in that the tax code is far more complex than lemonade stands and barber shops. Because of this complexity it makes sense that there be some standard for return preparers. After all, not just anyone can practice law (or remove lead paint).

The bottom line: the government has created an extremely complex tax code and is now telling us that because they have made it so complex, we now have to register and pay for the right to competently interpret it. It makes me uneasy, but it needs to be done.

Barber shops, however, that is entirely different and….never mind…..I’ll save that for another post.

What the Chilean miners can teach us about money

As I write this post the Chilean miners are being extracted from the depths of the Earth. CNN tells me that 17 have been rescued and 16 remain underground. This wonderful story can teach us three important lessons about money:

1) What you think is really important might not be important at all. So you really think it’s crucial to get a new car? Buy a new toy? Purchase a larger house? What if that money was spent on something else? Something more lasting? A date with your significant other? Time alone with one of your children? A donation to your favorite charity? These are the things that we can’t undo, the things that will last.

2) As important as money is, time is more valuable. First of all, I understand the premise that time IS money. I get it. What I’m talking about is finding balance for your life. Even as I write this post, time is ticking away. Time that I will never get back. I love my work and I enjoy spending time helping my clients. But at some point I need to say, Enough” and return to the more important things in my life: faith, family, friends. True, I need some amount of money to enjoy these things but I’d rather get to the end of my life with all three of these and some money left over than to get to the end with a large mountain of cash and none of them.

3) Work matters. Having said all of that, our jobs matter. They matter to others and they should matter to us. The miners were working when this disaster started, they had to work to help clear rubble and most of them will be working again within a few weeks. Because our work matters, lets do work that we enjoy and can be proud of.

I am thankful that the miners are being rescued and I am confident that they will take lessons from this ordeal that will permanently shape the way they live their lives. And I hope that you and I don’t need to get trapped underground for two months in order to learn those same lessons.

So you want to sell your business…

In the past few months I’ve had clients come to me that have expressed an interest in selling a business and want to know what steps to take. Here are some basic principles to consider. Bear in mind that I am not offering legal advice and I am not a business broker.

1) What’s it worth? For most owners of small businesses the answer is, “less than you think.” Someone who has worked for 25 years as a plumber, taken home $75,000/year for the last three years and has steady work lined up for a few months might want to get $250,000-$400,000 for their business. After all, they’ve been building this for 25 years! The reality will be much lower than that. What is actually being sold? Equipment? The company name? A book of business? Each of these can be valued (some with more difficulty than others). In the case of the plumber, there might not be a lot of equipment, the business is probably the name of the plumber and there are probably no regular recurring customers. What exactly does the purchaser get? I don’t say this to discourage the sale, only to bring the expectations down. You need to have an accountant and an attorney advise you in this regard. What are the liabilities and assets of the business? What are the tax implications of selling the business?

2) What does a buyer need to know? Two years ago I looked at buying a small manufacturing business. It was in an industry that I knew, the owner was willing to finance it and the company was successful (according to the owner). When I asked to see financial statements and tax returns, the owner brushed off the idea. When I insisted that it would be necessary if I was going to seriously consider a purchase of this size, they were produced. As I looked over the documents, the owner could sense my concern/irritation and said, “Well, we don’t really want to make any money because then you have to pay taxes.” The reality was vastly different than how things had been presented and I walked away.

I tell that story because the first thing you will need to do will be to pull together 3 years of tax returns and financial statements. This is especially important for business owners who report their income on a Schedule C. If there are relevant statements that go back further than 3 years, gather those together as well. You will also want to spell out any existing contracts with customers and vendors that are currently in place, any future work that you are certain to get and a client list. You want to show without any doubt that the business is viable (if, in fact, it is.)

3) Get ready to answer questions. Why are you selling? What’s wrong with the industry? Why now? Why such a high price tag? Will you finance it? Etc. An informed buyer will have many questions for you. That’s okay. If they are serious about buying the business they should be asking lots of questions.

4) Who do we sell it to? I tell my clients to start with the easiest potential sales: employees, family involved with the business, local competitors. These three groups are most likely to have an interest in the business. If those don’t seem like a good fit or if they aren’t interested, I recommend listing the business for sale in a trade publication. This will give you a broader audience of individuals/businesses that would be interested in your company. From there, talk to a business broker about listing the business for sale. I should note that a solid argument can be made for talking to a business broker at the outset and using their services. A good business broker should be able to help you value the business appropriately and should bring more for the business than the cost of their commission.

5) Why are you selling? One of the questions that a prospective buyer will have is one that you need to have thoroughly considered yourself. Why are you selling this business? Are you moving? Retiring? Changing careers? Getting rid of a messy situation? If the business is profitable, why not stay involved? If the business isn’t profitable, who would want to buy it? Is it possible to remove yourself from ownership and stay on in an advisory or part time role? Is this what you really want to do? These questions must be answered and they must be answered well. You need to be in a comfortable position when you sell your business. If you are under duress or are uncertain, you probably won’t get enough for the business.

After reading all of this, I hope I haven’t discouraged you from selling your business. What I tell my clients is this, “Make your money now from the business and if you sell it someday, consider that an unexpected bonus. Don’t make plans based on what you might get for the business!”

I hope this helps you.