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Family Business Succession Planning

The business section of the March 20th issue of the Arizona Republic had a front page article titled “Families Passing Business Torch”. My practice often involves working with families on the subject and I found the article very timely, particularly since studies tell us that during the next several years 30 to 40 percent of both family, as well as non-family owned businesses will “attempt” to transfer ownership. I say “attempt” because 2 in 3 family businesses fail after transition to the second generation. As business owners approach retirement age, they are dealing with several complex questions and conflicting goals.

The business owner wants to monetize his equity in his corporation, and in many cases there is a desire to maintain family ownership of the business. If the business is sold to outsiders to achieve personal financial security, the children are left without the legacy of the family business. Alternatively, if the owner decides to transfer the business to family members, then the owner will likely be without the same personal financial security and may have to deal with a significant gift or estate tax liability.

In many cases, business owners adhere to what I call the “avoidance of the unknown syndrome”, which translates into: if I don’t think of the problem it doesn’t exist. Statistics tell us that these situations often wind up resulting in a forced sale of the business by the owner’s estate in order to settle the estate taxes. One very notable example is the Robbie family’s compelled sale of their ownership interest in the Miami Dolphins and Joe Robbie stadium. The cover page of the March 26th issue of the Wall Street Journal mentions that treasury officials continue to be opposed to a reduction or elimination of the estate tax contending it would be too costly and a sop to the rich.

There are many different options to accommodate the objectives of business owners relative to succession planning, but some of them are necessarily more painful than others and/or more tax expensive than others. One strategy that has been around for about fifty years and is currently employed by about 12,000 U.S. corporations is the Employee Stock Ownership Plan (ESOP). Simply stated the most notable advantages to a business owner are:

He can sell a portion of the business to the employees in a very tax-friendly manner,
Keep or retain actual control of the company in the family; and
Significantly reduce his income, gift, and/or estate tax liability.
The ESOP strategy is often used as an ongoing tax shelter to be used later for succession with much additional tax benefit.

This represents the best of all worlds since the business owner is able to (1) to achieve personal financial security by liquidating a portion of his single largest asset and (2) to keep the family business in the family. When properly structured, the ESOP can enable the business owner to obtain greatly enhanced liquidity and diversification — with far more real value. Approximately fifty years ago, Louis Kelso was successful in convincing Senator Russell Long, the then chairman of the Senate Finance Committee, to propose legislation that would provide very dramatic tax and cash advantages to business owner ESOP sponsors.

Congress enacted the legislation and today, fifty years later, those benefits remain available to business owners of closely held companies. Under Internal Revenue Code Sec. 1042, a shareholder who sells stock to an ESOP is able to forego the payment of any capital gains taxes due — if the sale meets the specified conditions. Essentially the business owner has a year to reinvest the cash from the sale of his stock to his ESOP into some alternate type of security.

This provides a superb means of income during the retirement years and if held until his death the business owner’s family will never have to pay capital gains tax on the ESOP stock sale. An aggressive gifting program to family members can produce significant income and estate tax savings for the closely held business owner. If the business owner has a philanthropic inclination, by using a strategy called “CRUT” (charitable remainder unitrust) a significant amount of annual income can be guaranteed for Mr. Business Owner during his and his spouse’s lifetime in addition to a large upfront tax deduction. And in fact, structured properly the family wealth can be magnified, as well as providing a significant sum of money to the charity.

Currently, the U.S. gift and estate tax rates are significantly higher than capital gains and even ordinary income tax rates. Combining an ESOP with estate planning techniques can result in business owners successfully keeping the business within the family or where this is not the intent, provide a very unique mechanism to transfer ownership to non-family members. In both cases, because of the dramatic tax and cash advantages it makes good sense for business owners to explore their options and the ESOP strategy is certainly worth looking at.

The Finer Points of Internet Auctions

WHAT IS A PENNY AUCTION?

Penny auctions have exploded in popularity with the massive growth of the internet. However, few people know the true origins of penny auctions.Beginnings actually stretch back to the Great Depression. Those were hard times for everyone, but even harder for farmers. Farmers struggled to bring in steady income because of droughts and crops not selling as well as they had previously. As a result, the banks would foreclose on the farmers who couldn’t keep up with their mortgage payments.

The banks weren’t satisfied with just repossessing the house, they wanted to raise as much capital as possible, so they resorted to selling off the possessions of the owners of the repossessed houses. There was not much the farmers could do about it so they began bidding ridiculously low prices, pennies, on the items while threatening others who dared to bid higher than a few pennies.

The auctions of today hardly resemble their tremulous beginnings. Being part of a penny auction today is exhilarating, fun, and addictive. It combines the selling format of auctioning with a little bit of chance factored in.Auctions are a game of strategy but also a game of luck.

The premise behind penny auctions is giving people the chance to win an item at a drastically reduced price.Auctions make that possible by spreading out the cost of the product among multiple bidders. In order for a person to take part in an auction, they must pay a set price for each bid. For example, if a person wanted to bid on a fifty dollar Amazon gift card then he would spend a dollar for each time a bid placed. If he ended up winning the gift card, then he would only have spent a few dollars for a fifty dollar gift card. Usually penny auctions sell bids in packages.

HOW PENNY AUCTIONS WORK!

The main foundation of penny auctions is the pay-per-bid format. It is the key that allows bidders to win items at the fraction of their retail value and allows the auction owners to keep their site profitable. Most y auction sites run on the same premise: people pay a set amount for each bid, whenever a person places a bid within the closing seconds of the auction time will be added, the last person left with a unique bid after the clocks runs out will win the item. There are a large variety of items that can be won, but they tend to be popular electronics or gift cards to popular stores.

There are two types of auctions: lowest unique bid auction and highest unique bid auction. Lowest unique auction sounds confusing but it is actually quite simple. A unique bid is when only one person has a bid at a certain price. Bids usually start at one penny, a bidder can then place a bid at two pennies. Until another bidder places a higher bid, the most recent bidder will be the lowest unique bid because that was the only bid at two cents and nobody bid higher. However, penny auctions generally don’t stop at one penny. It is not uncommon to find auctions that end up at a couple hundred dollars based on the popularity of the item being auctioned. However, the same principles apply for those auctions. Highest unique bid auctions follow the more traditional auction format such as eBay. The person with the highest bid at the end of the auction wins the item.

Auction site owners turn a profit by selling bids. Say twenty people are bidding on a ten dollar gift card at one dollar per bid, at the end of the auction if there were twenty bids placed in total then the site owner would have made twenty dollars with a ten dollar profit.Auctions do seem like a win-win situation:The site owner makes money while the bidder gets an item for dirt cheap. However, not everyone wins in penny auctions. The people who paid one dollar each bid but left with nothing to show for their investments will not be so happy.

HOW TO WIN!

Penny auction has a lot of chance mixed into it, but one can incorporate strategy that will help raise the chances of winning. Playing smart can make all the difference between gambling and auctioning.

The first crucial tip to winning penny auctions is to know how to manage your bids. Your goal should be to win as much as possible without spending a ton of money buying bids. Managing your bids means that you should already know how much you are willing to risk in order to win an item. The amount of capital you are willing to risk will determine how many bids you can use. Once you know how many bids you have to spend on an item, then you will be better able to manage how and when you place a bid. That will keep you from blowing away all of your bids in the first few seconds of the auction.

The next tip is to practice time management. When fighting in the trenches of penny auctions, you have two enemies: other bidders and time. Knowing when to bid is a must if you want to have success. Placing a bid when there is a lot of time left on the clock is never a good idea. You have to remember that the key to winning a penny auction is being the last one standing when the clock runs out and that each bid increases the amount of time left. It would be a good practice to wait until the last few minutes of the auction before you begin to bid.

The final tip for successful auctioning is to keep your emotions under control.Auctions have a lot of similarities to gambling, and just like gambling, your spending can get out of control. If you keep your emotions level, it will keep you from making rash decisions and blowing loads of cash. Keep your mind clear so that you can gage the behavior of the other bidders and outsmart them.

HOW TO AVOID SCAM SITES!

Penny auctions are a great addition to the web whether you want to win an item that otherwise you wouldn’t be able to afford or if you simply enjoy the thrill that comes with bidding in auctions. Unfortunately, scam sites have tarnished the reputation of the legitimate penny auction sites. However, there are ways that you can protect yourself from scamers and enjoy your auctioning without having to worry about losing your money due to dishonesty.

Checking the reputation of the auction site before you start spending your hard earned money is always a good idea. Chances are other people have tried the site before you and some of them have left reviews. The reviews are your way to gage whether a auction site is trustworthy or not. If a site is getting overwhelmingly negative reviews, then that is a clear indication that you should steer your business elsewhere.

Another tool you can use to protect yourself is checking the Alexia ranks of the auction sites. Alexia rank will give a solid view of how much traffic the auction is getting. If you see a huge difference in the amount of traffic Alexia is projecting and the amount of active bidders on the site, then warning signals should be ringing in your head. Some auction sites have been known to set up robots that automatically bid on projects in order to keep the auction going and inflate the price. That is known as shill bidding. You can sniff out those sites by comparing the traffic the site should be getting to the amount of users using this site.

CONCLUSION!

New legislation may come out later down the road that will officially make penny auctions gambling, but until then, it is a fun, exciting auction that allows one to win the item they’ve always wanted but couldn’t afford.Auctions are also quite lucrative for the site owners because of the pay-per-bid strategy they’ve incorporated. Penny auctions had humble beginnings with farmers who just wanted to get back at the banks who kicked them out of their house. More recently, auctions have enjoyed an explosion in popularity with the rise of the internet.

There are two main formats fora auctions, lowest and highest unique auction, however they both run on the same premise where the last unique bid wins the item. Winning a penny auction will require a certain amount of mental tactic and a bit of luck. However, you can increase your odds of winning by practicing certain techniques such as managing your bids wisely, learning how to work with the time, and keeping a level head and your emotions under control. When you combine those three strategies to your bidding plan, you will find that you win a lot more often.

It is important that you do your due diligence to protect yourself when participating in auctions. Not every auction is run by honest and trustworthy people. There are people out there who just want to take your money. You can protect yourself by ensuring that you only bid on sites that already have a very positive reputation from real users.

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A Home Based Business – Five Things You Should Know About

Over the years of working as an Internet Marketer I have come to learn that it takes a lot more than just knowing the methods and strategies of Internet Marketing to run a successful Home Based Business.Most people don’t seem to talk about these things or they simply forget. So here are a few of my observations.1. You are now the boss.When you start a Home Based Business, you are the boss, so you don’t have to answer to anyone, except yourself, of course. You need to be disciplined and force yourself to do the work that needs to be done. Sure, you’re not going to get fired if you don’t do your work, but you also won’t get things done which could be the downfall of your business.Quite often people think anything goes when you work from home, but you should treat it no different than any other business, online or offline.One good idea is to figure out the time of day that is your most productive and set a work schedule for yourself. Set aside those hours and make sure you schedule in breaks. Try and stay as productive as possible during those hours and limit the work you do outside of that schedule.Stay focused and on track. Create a “to-do” list for each day. Outline tasks you’d like to have finished by the end of your work day. The feeling of accomplishment you get when you cross of an item will keep you motivated all day long.If you need inspiration for an idea or just need to take a break, get away from the computer. Quite often good money making ideas come when you’re not sitting staring at the screen. I’ve never had success by trying to force an idea and believe me, I’ve tried that.2. Your home is now your office.Create a dedicated workspace for yourself. Slouching on your couch in front of the TV, with your feet up on the coffee table working on your laptop, does not count as a workspace. Get yourself a real desk and keep it organized. Not doing this could lead to distractions which ultimately affects your work schedule. Oh, and keep it clean.Eliminate distractions before you start working. Finish up whatever small chores you need to do for the day so you don’t have to take care of them when you’re on a roll. Only do work related tasks while on your work schedule.3. Make sure you take care of yourself.If you’re not feeling well, take sick days. You’re human, and just like everybody else, you need time off to rest. Grab a blanket and take a nap on the couch. You may be capable of sitting up, but that does not mean you need to be working. Take time to rest your mind and body. Trying to work when you’re sick is only frustrating and unproductive.Speaking of staying healthy, you need to exercise. It’s easy to let yourself go when your only commute is from your bed to your computer chair. Take care of yourself and get a gym membership or at the very least spend some time walking outside. Keeping fit allows you to stay focused and energized all day.One of the hardest adjustments to make when starting a Home Based Business is dealing with being alone for extended periods of time. You need to find ways to stay social. Working alone can get depressing and having a social outlet is a vital part of success.Try and find someone local who is also working from home to meet with every now and then for lunch or to discuss ideas. At the very least, invest in a web cam and keep in touch with your friends and family through Skype. If all else fails, get a pet. Pets make the day less boring, and yes, you will start to talk to your pets.4. Don’t work 24 hours a day.Although you work at the same place that you live, you need to find a way to still keep these lives separate.Often people think they can work 12 to 14 hours per day, 7 days a week simply because they have nothing else to do. There’s no easier way to burn out than trying to work such long hours. You simply can’t stay focused and productive for so long every day.Respect the weekends and take time off on holidays. It’s okay to let an email wait until the morning. It’s okay to have a personal life. You do not have to be readily available every minute of the day.5. You get to live an awesome life.If you reach a point in your Home Based Business where you can work full time, that is amazing. It’s a very big accomplishment that very few people can achieve.People often tell me how they envy that lifestyle. No more working 10-hour days in an office building and often coming home stressed about your job, boss, deadlines, salary, or any number of things that accompany an office job. Limited to the amount of sick days you’re allowed to take! I’m forever grateful that I don’t have to deal with any of that.If you have an opportunity to start a Home Based Business, definitely give it a try. It will be challenging at first, but there’s nothing that can match the feeling of running a successful Home Based Business.So, these were just a few things I’ve learned over the years. I’m sure you have things to add to this list.

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