As a long-time business consultant and value growth advisor to middle-market companies, I frequently met business owners who didn’t recognize the urgency to plan for an eventual business ownership transition.  Such business owners commonly find themselves catastrophically unprepared when the time comes to sell their business, costing them millions of dollars in lost value.  I truly believe business owners are the heroes of our American economy, and they deserve to be fully rewarded for their many years of blood, sweat and tears building a business, employing our friends and neighbors, and supporting their local communities. I got to know the Exit Planning Exchange back in 2019 from a colleague who founded XPX Atlanta.  I was very impressed how XPX members would educate each other about ways their clients could prepare for a better exit outcome.  I saw how they would develop trusting relationships with other XPX members, combining their unique talents and expertise as a team to help a business owner meet or exceed their exit goals, leaving with a sense of fulfillment and the financial resources to enjoy the next phase of their life. I knew we had nothing like XPX in North Carolina, and our local business owner community would benefit greatly if we did.  I was inspired to lead a small group of talented and committed business professionals to launch XPX Charlotte as a NC non-profit organization in 2021. Today, I’m proud that XPX Charlotte has become the area’s premier organization for business professionals with a passion for knowledge sharing and a commitment to help improve exit outcomes for business owners in the Charlotte region.  If you share that passion and commitment, I hope you’ll join us! Tom Bixby XPX Charlotte Founder, Past-President CEO, EvaluSys LLC

The economic rebound has made the competition for skilled, technical professionals more challenging. A May 2021 report from Robert Half stated that 93% of companies are struggling to find skilled staff—meanwhile, current conditions for business growth and transformation can’t be missed. In finance, talent shortages have been no small challenge for today’s CFO. Dynamic companies are seizing low-interest rates to pursue M&A growth. Finance teams are racing to embrace tax savings opportunities brought on by new legislation. At the same time, there are more pressing risks in the new operating environment as information security protocols catch up to the ever-increasing use of technology and management grapples with the ramifications of hybrid work models. How to manage talent shortages requires a new plan of action. As finance teams work to become more dynamic, they have to focus more on the big picture than ever before, leading to another trend – supplementing teams through co-sourcing and outsourcing. IBISWorld published a sector report in April 2021 that states that outsourcing will grow to a mammoth $143.5 billion business by 2024. What’s driving that? Growing complexity with accounting standards Changes in tax codes, domestic reporting, and compliance requirements Needs to streamline and automate processes Changing requirements for management reporting from myriad systems to inform decision making The uptick in M&A and transaction activity Staffing shortages or lack of resources with specialized knowledge or expertise Need for financing to fuel growth Significant expansion of the hybrid work model Increasing phishing scams, ransomware, and cyber-attacks Reduction in internal audit budgets and staff The boom of companies going public The talent shortage in cybersecurity Join other CFOs looking for alternate ways to maintain their core functions while finding time and resources with the knowledge to evolve processes and systems to stage the next chapter for their company. Download the full guide to assess what ideas and solutions will benefit your company. CFO_Outsourcing_Guide_2_Digital (2).pdf

A stay bonus provides an incentive for an employee to remain with the company after a sale. They’re designed to protect the company in times of change. Recognize that a business transition can create a lot of uncertainty and anxiety for employees. Some managers may wonder if they’ll be let go after a sale. Or, more likely in this talent market, valuable team members may feel the timing is right to pursue new opportunities—rather than put themselves through the uncomfortable process of an ownership change. READ MORE at Stay-Bonuses-Add-Value-When-Selling-A-Business

Good morning Jack, Sometimes you have good conversations but not too many are great ones.  I thoroughly enjoyed yesterday’s call and it is unusual to find someone who has a track record and the competence that you display as it relates to your practice. Please let me know how you would like to proceed as it relates to our company.   What information is needed, etc. Looking forward to our next conversation. Regards, Les

Donna Beatty, Tax Partner with Frazier & Deeter, and Robert Stephens, Managing Partner of CFO Navigator, were Bill McDermott’s guests on this episode of Profit Sense with Bill McDermott. Donna provided timely advice about taxes, new laws, and advice for business owners. Robert Stephens talked about how he helps businesses as a financial guide, how he speaks about both accounting and business, the advice he gives his clients on the current economy, and much more. Bill closed the show with a commentary on how to transition from employee to owner. ProfitSense with Bill McDermott is produced and broadcast by the 

Filing taxes can be complicated and burdensome. There may come a time when what was once a plain vanilla tax return becomes too complex to file on your own or even for your current tax preparer. Sophisticated tax advisors can be crucial in assisting with complicated tax planning and compliance issues. Engaging a sophisticated tax advisor can save time, reduce stress, avoid errors, and uncover potential tax savings. Many situations can trigger a need to seek help, but today we will look at five (5) of the more common signs you may need to engage a more sophisticated tax advisor. Click

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  COREnology is the first behavioral finance tool developed to help advisors identify, track and grow clients’ core values, beliefs and goals.   Soon after David York and Andrew Howell started their estate planning law firm they noticed a glaring disconnect between what mattered most to their clients’ and how their clients were managing their wealth. Families were preparing wealth for their children, but were not preparing their children to have wealth.  They knew how to gain wealth, but not how to be wealthy. When David and Andrew looked at the families that were successful at growing and transferring their wealth, they noticed some consistent trends. These families knew: Who they were What they valued What they believed Together David and Andrew wrote a book titled “

You have been working on the transaction for months.  The business has gotten healthy with great valuation increase.  Now is the time to get it across the finish line.  Then… The owner struggles with the emotions of relinquishing the business. The owner gets overwhelmed with the process and gets cold feet. The owner’s health starts to decline changing the parameters of the sale. The owner’s spouse or child has an emergency or health crisis distracting from the final steps of the sale. The owner backs out due to fear of how to stay relevant and influential without the business. In the past most of the emphasis has been on financial planning and finance-related goals.   When you have an expert on your team focused on the Wellness Portfolio alongside the owner’s financial and the business’s M&A portfolio, these delays are prevented and addressed.

Qualified Small Business Stock is a type of stock that includes immense tax relief for investors. Those benefits serve to stimulate investment in small businesses by mitigating the tax consequences that attach to their returns. Below is an article that discusses the definition of QSBS, the relevant IRC section at play, the tax benefits flowing from QSBS, the standards for obtaining QSBS, and the costs and importance involved in gaining a QSBS certification. What is Qualified Small Business Stock? Qualified Small Business Stock is that class of stock issued by a small C corporation that meets specific qualifications specified in the Internal Revenue Code. It enables the investor in QSBS to exclude from federal income taxation up to 100% of the capital gain realized upon the sale of such stock, provided certain requirements are met. The provision is meant to incentivize investment in startups and small businesses as a means of promoting innovation and driving economic growth. Governing Section of the Internal Revenue Code Treatment of QSBS is given under Section 1202 of the Internal Revenue Code. This section was enacted as part of the Revenue Reconciliation Act of 1993 and has undergone several amendments to expand the benefits available to investors. Section 1202 outlines those requirements that must be satisfied for stock to qualify as QSBS, along with particular tax benefits available to the investors. Examples of Qualified Small Business Stock Tax Benefits Investing in QSBS offers substantial benefits in terms of tax. Example: Exclusion of Capital Gains: Depending on when the QSBS was acquired, up to 100% of the capital gains from the sale of QSBS can be excluded from federal income tax. The exclusion percentages are as follows: 50% of the stock acquired from August 11, 1993 to February 17, 2009. 75% for stock acquired between February 18, 2009 and September 27, 2010. 100% for stock acquired after September 27, 2010. Limitation on Gain: The amount of gain to be excluded is limited to the greater of $10 million or ten times the adjusted basis in the stock. The generous cap allows for significant tax savings by investors. The Alternative Minimum Tax (AMT) stipulates that gains exempted under Section 1202 do not qualify as preference items for the purposes of AMT, potentially offering supplementary tax relief. State Tax Benefits: Some states follow federal QSBS exclusion rules, giving additional state tax benefits. Investors should check the particular rules of the state pertaining to QSBS. How to Meet the QSBS Requirements To qualify for QSBS treatment, certain requirements must be met: Qualified Small Business: The issuing corporation must be a domestic C-corporation and it must meet the definition of a “qualified small business.” A qualified small business is one in which the corporation’s aggregate gross assets do not exceed $50 million at any time before and immediately after the issuance of the stock. Active Business Requirement: During at least 80% of the period the investment is held, assets of the corporation must be used in the active conduct of one or more qualified trades or businesses. The following types of businesses specifically do not qualify:. The stock must be obtained directly from the corporation when the stock is originally issued, in exchange for money, other property but not stock, or as compensation for services. Holding Period: The investor must hold the QSBS for more than five years to qualify under the capital gains exclusion. These requirements are often complex to navigate, and guidance is usually sought from a tax specialist to ensure compliance with the law. What is a Qualified Small Business Stock Attestation? A Qualified Small Business Stock Attestation is the declaration of a corporation; a formal statement that the stock of the particular corporation meets all the qualifications necessary for the classification to be deemed a QSBS under Section 1202 of the Internal Revenue Code. This certification gives assurance of qualification both to investors and the tax authorities, confirming the eligibility for the tax advantages to the owners. Importance and Cost of a Qualified Small Business Stock Attestation Investor Confidence: It enhances investor confidence because the attestation is basically a documented proof that the stock is qualified for favorable tax treatment; thus, making it more attractive to prospective investors. Tax Compliance: An attestation plays a crucial role in confirming adherence to tax regulations and can promote more efficient engagement with tax authorities. It functions as proof that the corporation satisfies the QSBS requirements, which may streamline the tax reporting procedure. Risk Mitigation: The attestation works by giving a risk mitigation of disputes or challenges in the future that may develop in the mind of the IRS about the stock’s QSBS status. Cost The costs for obtaining a QSBS certification will depend on many factors, such as the extent of complexity of the company’s organizational structure and how much any given professional services company charges for providing the certification. In most cases, the costs range between several thousand to tens of thousands of dollars. Regardless of the monetary investment, the tax advantages likely to be gained for the backers, coupled with increased certainty of conformity, could make the expense a wise investment. Conclusion Qualified Small Business Stock provides substantial tax advantages to investors in the interest of enabling small businesses to energize the economy. Controlled by Section 1202 of the Internal Revenue Code, QSBS enables considerable exclusions from federal income taxation of capital gains. However, fulfilling these requirements can be tricky, and the ability to get a QSBS attestation may provide much value through assurance with compliance and qualification for huge tax benefits. Although obtaining such certification does involve some costs, the potential tax incentives and reduced liabilities make it an important consideration for companies and investors alike.

Depending on who you are talking to, Private Equity is either the Great Satan or the savior of small and mid-market companies in the United States. The stories depend a lot on the personal experience of the speakers. Once a vehicle for high-risk investment plays in corporate takeovers (see Bryan Burrough’s Barbarians at the Gate,) Private Equity has morphed into tranches where specialists seek opportunities in everything from a Main Street entrepreneurship to multi-billion-dollar entities. What is Private Equity? The term itself is relatively generic. According to Pitchbook, there are currently 17,000 Private Equity Groups (or PEGs) operating in the US. The accepted business model for our purposes is a limited partnership that raises money to invest in closely held companies. The purpose is plain. Well-run private businesses typically produce a better return on investment than publicly traded entities. The current Price to Earnings (or PE – just to be a little more confusing) ratio of the S&P 500 is about 27.5. This is after a long bull market has raised stock prices considerably. The ratio is up 11.5% in the last year. That means the average stock currently returns 3.6% profit on its price. Of course, the profits are not usually distributed to the shareholders in their entirety. Compare that to the 18% to 25% return many PEGs promise their investors. It’s easy to see why they are a favorite of high net worth individuals, hedge funds and family offices. As the Private Equity industry has matured and diversified, they have even drawn investment from the usually more conservative government and union pension funds. Private Equity Types Among those 17,000 PEGs the types range from those who have billions in “dry powder” (investable capital,) to some who claim to know of investors who would probably put money into a good deal if asked. Of course, which type of PEG you are dealing with is important information for an owner considering an offer. private equity moneyThe “typical” PEG as most people know it has a fund for acquisitions. It may be their first, or it may be the latest of many funds they’ve raised. This fund invests in privately held businesses. Traditionally PEGs in the middle market space would only consider companies with a free cash flow of $1,000,000 or greater. That left a plethora of smaller businesses out of the game. For a dozen years I’ve been writing about the pending flood of exiting Boomers faced with a lack of willing and able buyers. I should have known better. Business abhors a vacuum. Searchfunders Faced with an overabundance of sellers and a dearth of capable buyers, Private Equity spawned a new model to take advantage of the market, the Searchfunders. These are typically younger individuals, many of whom graduated from one of the “EBA” (Entrepreneurship By Acquisition) programs now offered by almost two dozen business schools. These programs teach would-be entrepreneurs how to seek out capital, structure deals, and conduct due diligence. Some Searchfunders are “funded”, meaning they have investors putting up a stipend for their expenses. Others are “self-funded.” They find a deal, and then negotiate with investment funds to back them financially. Both PEGs and Searchfunders seek “platform” companies, those that have experienced management or sufficiently strong operational systems to absorb “add-on” or “tuck-in” acquisitions. The costs of a transaction have bumped many seasoned PEGs into $2,000,000 and up as a cash flow requirement. Searchfunders have happily moved into the $500,000 to $2,000,000 market. In the next article we’ll discuss how PEGs can promise returns that are far beyond the profitability of the businesses they buy.

Early last month, the Occupational Safety and Health Administration (OSHA) proposed the Heat Injury and Illness Prevention in Outdoor and Indoor Work Settings rule. The aim is to curb heat related injuries or death which OSHA identifies as “the leading cause of death among all hazardous weather conditions in the United States.” The proposal places new responsibilities on employers: establishing heat thresholds, developing Heat Injury and Illness Prevention Plans, regularly monitoring temperatures, and establishing safety measures when heat thresholds are met. This rule is yet to be finalized however, it is a sign of what’s to come. The standard applies to all employers except for the following: Work activities for which there is no reasonable expectation of exposure at or above the initial heat trigger. Short duration employee exposures at or above the initial heat trigger of 15 minutes or less in any 60-minute period. Organizations whose primary function is the performance of firefighting and other certain emergency services. Work activities performed in indoor work areas or vehicles where air conditioning consistently keeps the ambient temperature below 80°F. Telework (work from home). Sedentary work activities at indoor work areas that only involve some combination of the following: sitting, occasional standing and walking for brief periods of time, and occasional lifting of objects weighing less than 10 pounds. Heat Thresholds There are two heat thresholds which will trigger employer action: An “initial heat trigger” means a heat index of 80°F or a wet bulb globe temperature (defined below) equal to the National Institute for Occupational Safety and Health (NIOSH) Recommended Alert Limit; and A “high heat trigger” means a heat index of 90°F or a wet bulb globe temperature equal to the NIOSH Recommended Exposure Limit. The “heat index” is calculated by measuring the ambient temperature and humidity. Wet bulb globe temperature is a heat metric that considers ambient temperature, humidity, radiant heat from sunlight or artificial heat sources and air movement. Employers may choose either method of measuring the temperature.   Heat Injury and Illness Prevention Plan (HIIPP) Requirements If an employer does not fall under the exceptions, it must develop a HIIPP with the input of non-managerial employees and their representatives for occasions when the heat threshold is surpassed. This plan may vary on the worksite but must be written if the employer has more than 10 employees and use a language employees will understand. The HIIPP must contain: A comprehensive list of the type of work activities covered by the HIIPP Policies and procedures needed to remain compliant with the standard. Identification of which heat metric the employer will use heat index or wet bulb globe temperature. A plan for when the heat threshold is met. Along with creating the HIIPP, employers must designate one or more “heat safety coordinators” responsible for implementing and monitoring the HIIPP. The HIIPP must be reviewed at least annually or whenever a heat related injury or illness results in death, days off work, medical treatment exceeding first aid, or loss of consciousness. Employers must seek input from non-managerial employees and their representatives during any reviews or updates. The definition of “representative” is not defined; if this is broadly defined, this could be a major complexity employers must face. Identifying Heat Hazards Employers must monitor heat conditions at outdoor work areas by: Monitoring temperatures at a sufficient frequency; and Track heat index forecasts or Measure the heat index or wet bulb globe temperature at or as close as possible to the work areas. For indoor work areas, employers must: Identify work areas where there is an expectation that employees will be exposed to heat at or above the initial heat trigger; and Create a monitoring plan covering each identified work area and include this work area in the HIIPP. Employers must evaluate affected work areas and update their monitoring plan whenever there is a change in production processes or a substantial increase to the outdoor temperature. The heat metric employers choose will affect the thresholds. If no heat metric is specified, the heat metric will be the heat index value.  Employers are exempt from monitoring if they assume the temperature is at or above both the initial and high heat trigger, in which case they must follow the controls below. Control Measures When Heat Triggers are Met When the initial heat trigger is met, employers must: Provide cool accessible drinking water of sufficient quantity (1 quart per employee per hour). Provide break areas at outdoor worksites with natural shade, artificial shade, or air conditioning (if in an enclosed space). Provide break areas at indoor worksites with air conditioning or increased air movement, and if necessary de-humidification. For indoor work areas, provide air conditioning or have increased air movement, and if necessary de-humidification. In cases of radiant heat sources, other measures must be taken (e.g., shielding/barriers and isolating heat sources). Provide employees a minimum 15-minute paid rest break in break areas at least every two hours (a paid or unpaid meal break may count as a rest break). Allow and encourage employees to take paid rest breaks to prevent overheating. At ambient temperatures above 102° F, evaluate humidity to determine if fan use is harmful. Provide acclimatization plans for new employees or employees who have been away for more than 2 weeks. Maintain effective two-way communication between management and employees. Implement a system to observe signs and symptoms of heat related problems (e.g., a Buddy system). When the high heat trigger is met, employers are additionally required to: Provide employees with hazard notifications prior to the work shift or upon determining the high heat trigger is met which includes: the importance of drinking water, employees right to take rest breaks, how to seek help in a heat emergency, and the location of break areas and water. Place warning signs at indoor work areas with ambient temperatures exceeding 102° F. Other Requirements Training: all employees and supervisors expected to perform work above the heat thresholds must be trained before starting such work and annually.   What’s Next? The rule is yet to be published in the Federal Register. Once this happens, there will be a 120-day comment period when all members of the public may offer OSHA their opinion about the rule. Whether this rule comes to fruition may also depend on which party wins the White House. Furthermore, if finalized this rule would likely be challenged in the courts, which now have more discretion to overrule agency rules following the US Supreme court case of Loper Bright Enterprises v. Raimondo and Relentless Inc. v. Department of Commerce (overturning the Chevron deference decision). Employers should review their heat illness prevention policies to maintain compliance with regulations. If you have questions, call competent labor and employment counsel. Brody and Associates regularly advises management on complying with the latest local, state and federal employment laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560  

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