Archive for March, 2020
SPECIAL ALERT: $2 Trillion C.A.R.E.S Act Executive Summary
By: Patrick Ungashick
To help our clients and other business owners and leaders respond to the unprecedented leadership disruptions caused by the coronavirus (COVID-19) outbreak, the team at NAVIX offers the following crisis management information series.
Responding to Coronavirus: C.A.R.E.S. Act Executive Summary
The U.S. federal government today authorized a $2 trillion stimulus package, the largest emergency aid package in U.S. history. It was enacted in response to the social, economic, and health crises created by the coronavirus (COVID-19) pandemic.
The legislation contains hundreds of provisions impacting consumers, specific industries, and U.S. employers of all sizes. This executive summary highlights 11 of the stimulus elements, tax provisions, and business benefits that are most likely to be relevant for our clients and related parties.
Click here for a free PDF of the report.
The NAVIX team has helped hundreds of business owners prepare for exit. We have also helped countless owners and leaders deal with recessions, liquidity crises, and economic upheaval. Our experience and perspective enable us to guide our clients through difficult times, such as these.
Contact Tim 772-221-4499, to discuss strategies for your business.
Business Response to the Coronavirus Crisis – $50 Billion from the SBA
By: Patrick Ungashick
To help our clients and other business owners and leaders respond to the unprecedented leadership disruptions caused by the coronavirus (COVID-19) outbreak, the team at NAVIX offers the following crisis management information series.
Responding to Coronavirus Crisis: $50 Billion from the SBA
In response to the coronavirus crisis, the U.S. Small Business Administration (“SBA”) has made available $50 billion in lending to eligible small businesses through the Economic Injury Disaster Loan Program. Eligible companies can borrow up to $2 million for a term of up to 30 years.
If approved, the SBA may loan up to $2 million with a term of up to 30 years for repayment. Annual interest rates currently are 3.75% for small businesses and 2.75% for non-profits. Loans in excess of $25,000 require collateral. However, the SBA has stated it will not decline a loan simply because of a lack of collateral. Loan proceeds can be used for working capital, payroll and other expenses the qualifying small business could have paid had the disaster not occurred. However, these proceeds are not intended to be used to replace lost profits or to finance business expansion. To learn more and potentially apply for a disaster assistance loan, visit the SBA site.
In addition to this Disaster Loan Program, additional federal legislation is under consideration that would make available other SBA loan programs directed toward assisting small businesses impacted by the COVID-19 pandemic. Enroll in our news updates to stay fully informed.
At times like these, cash is king. If you are already a NAVIX client, your advisor stands ready to help you model your cash flow needs and discuss your company’s financial alternatives during this crisis. If you are not a NAVIX client, work with your advisors or contact us about our services.
The NAVIX team has helped hundreds of business owners prepare for exit. We have also helped countless owners and leaders deal with the recession, liquidity crises, and economic upheaval. Our experience and perspective enable us to guide our clients through difficult times, such as these.
If you have a question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.
Business Response to the Coronavirus Crisis – Tax-Free Aid for Employees Share
By: Patrick Ungashick
To help our clients and other business owners and leaders respond to the unprecedented leadership disruptions caused by the coronavirus (COVID-19) outbreak, the team at NAVIX offers the following crisis management information series.
Responding to Coronavirus: Tax-Free Aid for Employees
With the coronavirus crisis continuing to evolve, employees across the country are facing increased financial stress and uncertainty. Now that the coronavirus crisis has been declared a national emergency, employers have access to a little-known tool called “qualified disaster payments” to aid their employees. These payments can be tax-deductible to the company and income-tax-free to the employees.
Under Internal Revenue Code (IRC) Section 139, companies potentially can reimburse or provide employees with tax-free qualified disaster payments for expenses not covered by insurance, such as:
- Over-the-counter medications
- Hand sanitizers and home disinfectant supplies
- Child care or tutoring due to school closings
- Work-from-home expenses (like setting up a home office, increased utility expenses, higher internet costs, printer, cell phone, etc.)
- Increased costs from unreimbursed health-related expenses
- Increased transportation costs due to work relocation (such as taking a taxi or ride-sharing service from home instead of using public mass transit)
Section 139 expense reimbursements or payments should not replace wages, nor used for non-essential or luxury items or services.
Qualified disaster payments are federal tax-free to employees and are deductible to the employer. There is no federal reporting or disclosure, so these payments are not reported on Form W-2 or 1099 and are not subject to federal income or payroll tax withholding. However, qualified disaster payments may still be treated as wages under state unemployment insurance tax. Employers should determine on a state-by-state basis whether income tax withholding and/or unemployment insurance tax contribution obligations may arise in connection with Section 139 payments.
Additionally, Section 139 does not cap the amount or frequency of qualified disaster payments that can be made to any individual employee or all employees in the aggregate. Employers are not legally required to have a formal program to utilize Section 139. Still, some written plan is recommended to communicate the plan and set guidelines on how and when payments to employees may be made.
Like with any tax matter, employers should consult their tax advisors to discuss how Section 139 applies to them and their situation.
If you are already a NAVIX client, your advisor stands ready to help you discuss additional strategies to protect against the loss of key employees. If you are not a NAVIX client, work with your advisors or contact us about our services.
The NAVIX team has helped hundreds of business owners prepare for exit. We have also helped countless owners and leaders deal with recession, liquidity crises, and economic upheaval. Our experience and perspective enables us to guide our clients through difficult times such as these.
If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.
Business Response to the Coronavirus Crisis – Manage & Secure Cash
By: Patrick Ungashick
To help our clients and other business owners and leaders respond to the unprecedented leadership disruptions caused by the coronavirus (COVID-19) outbreak, the team at NAVIX offers the following crisis management information series.
Responding to Coronavirus: Manage & Secure Cash
In response to the economic uncertainty created by the coronavirus outbreak, we suggest you take steps necessary to ensure that your company does not run into a cash crunch. In times of crisis, cash is a company’s lifeblood. Consider these steps to assess your company’s financial position:
- Identify the company’s immediate cash needs and demands.
- Calculate the cash needed to cover the business’s core operations for at least the next 45 days.
- Run and update each week a cash flow forecast to monitor the company’s short-term cash position carefully.
If your company’s cash position is sufficiently fragile or uncertain that you risk a shortfall, consider the following actions:
- Make a maximum effort to collect on accounts receivable—now is not the time to let others hold onto your company’s cash.
- Draw on your line of credit (if available) to establish at least a 45-day liquidity cushion. Depending on the risks to your revenue presented by this outbreak, an even larger cushion may be prudent.
- If you do not have a line of credit or have already fully drawn it down, consider making a list of cash outlays which can be cut or deferred in the near term if cash becomes tight.
At times like these, cash is king. If you are already a NAVIX client, your advisor stands ready to help you model your cash flow needs and discuss your company’s financial alternatives during this crisis. If you are not a NAVIX client, work with your advisors or contact us about our services.
The NAVIX team has helped hundreds of business owners prepare for exit. We have also helped countless owners and leaders deal with recessions, liquidity crises, and economic upheaval. Our experience and perspective enable us to guide our clients through difficult times, such as these.
If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.
Eight Tactics to Escape the Dark Side of Owner Dependency
By: Patrick Ungashick
In one of the Star Wars movie’s pivotal scenes, Darth Vader attempted to lure his son Luke Skywalker to the dark side of the Force, warning “You don’t know the power of the dark side.” Luke’s skill and talent with the Force made vulnerable to the dark side, and thus the target of his nefarious father’s attention.
There is a powerful lesson here for business owners like you. Your skills and talents may come back to haunt you when you ultimately try to exit from your businesses. Within many companies, the owner is the most valuable and vital employee. Your knowledge, relationships, and vision are what drives the business. Undoubtedly you have help—no CEO/owner build a sustainable business by himself or herself. However, for years or even decades, much of your company growth has mostly been due to your personal presence and efforts. Then, one day, you wish to exit. If at that time you remain an essential employee, you may be unable to achieve commonly held exit goals: financial freedom, a sustained business legacy, and an exit on your own terms. You may find yourself in the dark side, trapped inside the company.
To overcome this, owners must build businesses that are not dependent on them. You must create a business that has the leadership, resources, and plan not merely to survive a transition, but to thrive after you have exited. Reducing owner dependency is, like resisting the dark side’s temptations, easier said than done. Most owners enjoy what they do, and understandably do not wish to become irrelevant within their own companies. Additionally, the company is accustomed to tapping the owner’s talents and skills to the fullest. Yet, as you move closer to exit, owner dependency, if left unaddressed, becomes a serious obstacle to exit success.
Listed below are eight tactics to reduce dependency between now and your future exit.
1.Build a leadership (and/or management) team that can handle day to day operations without you. Ideally, the team can run the company for at least thirty days’ normal operations without your involvement.
2.Collaborate with your leadership to devise and follow a written business growth plan for the next two to three years. Meet periodically during the year to measure performance against the plan’s waypoints and address any lagging results.
3.Conduct leadership team meetings according to a set published schedule. Make sure meetings are run effectively and occur even when you are absent. Meetings should lead to clearly defined and documented decisions.
4.Ensure that the leadership team members have current, written job descriptions and that their job performance is measured against clearly defined and tracked benchmarks.
5.Create a business development team and systems that perform effectively, all the way from lead generation to closing the sale, without your involvement.
6.Verify that your normal daily/weekly duties are either not essential to the business or could be readily filled by other employees cross-trained in those areas.
7.Brief the company’s top employee leaders on your exit goals. These employees must be sufficiently trustworthy for you to share your exit goals in confidence with them. In return, you must create the win-win for them. This can be accomplished using specialized compensation plans to incentivize top leaders to build company value and stay with the organization up to and beyond your exit.
8.Avoid meeting alone with important external relationships, such as customers, prospects, vendors, and lenders. It sends a message that you are the company. If you must participate in these meetings, delegate as much of the conversation as possible to others from your team.
Maximizing Business Value
Creating a company that can survive and thrives without you typically takes several years of focused effort; another reason why preparing for exit must begin no later than five years prior to your intended exit age. The good news is that a company that can operate independently of you is usually a more valuable business if you intend to sell, and a more stable business if you want to exit by way of turning it over to family or employees.
To help, download our popular free ebook: Your Last Five Years: How the Final 60 Months Will Make or Break Your Exit Success. Then, contacts us to schedule a free phone conversation to learn how we have helped hundreds of business owners plan for and achieve a happy exit.
If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499,
The Five Years’ Fallacy: Exit Planning Facts vs Fiction
By: Patrick Ungashick
Much of the conventional wisdom suggests you should start serious planning no earlier than five years before you are ready to exit. This misperception is so common; we call it the Five Years’ Fallacy. This approach gets owners in more trouble than perhaps any other mistake.
There are four major flaws with this approach:
1. Many exit planning tactics require at least five years or more to implement fully or to see the full benefits of implementing that tactic. Therefore, if a business owner is less than five years away from exit, some exit tactics become unavailable, or their positive effects may be diluted. Consider the following examples:
- Selecting the ideal business entity is an important consideration, especially in the event of a sale, because the type of business entity may greatly impact taxes. For example, owners of C corporations, in some cases, may reduce taxes upon a sale by converting to S corporation status prior to sale. However, the tax savings are reduced if the company is subsequently sold within a five-year holding period after conversion. In another example, the reverse may be true—owners of S corporations seeking to implement an ESOP as an exit strategy may secure tax-free proceeds from the sale if they convert to a regular C corporation. Matching up your exit plan with the appropriate business entity may require years to implement.
- Business owners seeking to pass a business down to the next family generation often desire to make tax-free gifts of business interests to the successor generation. Congress limits the value of gifts that can be made without triggering gift or estate taxes, including annual gift limits. As a result, passing down a large family business can take many years to accomplish. Too little time inhibits the effectiveness of gifts and other family-business transfer strategies.
- If you intend to sell to a third-party buyer, your business’s brand and intellectual property may be an important factor in driving value. US law sets timelines required to register, file, and protect your intellectual property. If you wait until five years or less to develop an intellectual property strategy, you may have forfeited many of the opportunities available to create brand value.
- Owners seeking to sell their business to one or more employees need to hire, train, and groom a key employee or entire team prepared to run your business after your departure. Developing successor leadership may take many years.
- Many exit tactics benefit from the “miracle of compound growth” on invested assets. For example, funding an income tax-deductible retirement plan creates potential future income outside the business. If you have only a few years to implement this tactic, your results likely will be significantly diminished.
2. Waiting until the last five years to prepare for exit, reduces your control over many factors that influence the business’s sale price.
Road market conditions, interest rates, capital markets, your industry’s health, and other external forces influence the availability of cash, the cost of capital, and the demand for businesses in your industry or market. Many economists note that these cycles can take as long as ten years to complete. If you are restricted to exiting within a specific time frame such as five years, you may choose a time when your business’s price is lower due to external conditions. Your investment advisor probably has been telling you, “Don’t try to time the market,” when investing in publicly traded stocks, bonds, and mutual funds. But when it comes to selling your business, you must carefully consider market conditions. Leaving only a few years’ preparations to sell may limit the ability to achieve the most favorable external climate.
3. Limiting your exit planning preparations to the last five years is you simply cannot predict the future.
A prospective buyer with a large checkbook may walk through your front door tomorrow. Your industry may go through an unexpected consolidation (often called a “rollup”,) which heats up your potential market price but only for a window of time. You may become seriously disabled and unable to work. You may die. Who guarantees how much time you have? Life happens.
4. The fourth and final reason why you cannot wait to start serious exit planning is that if you have not clearly defined where you want to end up, then you do not know if the decisions you are making today will get you there.
In Stephen Covey’s best-selling book, The 7 Habits of Highly Effective People, the second habit is to “Begin with the End in Mind.” His lesson applies here. To paraphrase Mr. Covey, the successful owner must be able to visualize the desired outcome and concentrate on activities that help achieve success in the end.
Align your business growth plan with your business exit plan. Every day, you are making decisions that in some small or big way will impact your success at exit. Making today’s important business decisions without considering the ultimate impact on your exit, causes great difficulties down the road.
The bottom line is that if you are a business owner telling yourself you want to exit (or have the option to exit) sometime within the next five years, then you are already in the homeward stretch. It’s now time to start serious and effective planning and preparation for your exit. To help, download our popular free ebook: Your Last Five Years: How the Final 60 Months Will Make or Break Your Exit Success. Then, contact us to schedule a free phone consultation to learn how we have helped hundreds of business owners plan for and achieve a happy exit.
If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499,
Tim Kinane
Tim is a Consultant to Business, Government and Not-for-Profits Organizations specializing in innovative and challenging ways for organizations to survive, to thrive and to build their teams.
