Quick Bites - November 23

New tools provide a wider use for social media. Employee theft is a huge concern for small businesses. What you can learn from Joe Paterno’s estate plan. Relating a business sale and Thanksgiving might seem like a stretch, but check out the similarities in this round of Quick Bites.

Raymond James Makes Its Social Media Move
By: Davis D. Janowski, Investment News

It’s inevitable. The legal barriers to business use of social media are evolving and companies are finding new tools to help them jump compliance hurdles.

“The firm is using the Socialite platform from Actiance Inc. so that its financial advisers can use social media to prospect for new clients and connect with existing clients while still being compliant with Finra rules.”

Is Your Small Business at Risk of Employee Theft?
By: Rieva Lesonsky, Network Solutions

We all want to work where we are trusted, but there is nothing wrong with your business having systems in place to be sure trust isn't abused. As President Reagan said: Trust, but verify.

“Worldwide, businesses lose an average of 5 percent of their annual revenue to internal fraud, according to a study by the Association of Certified Fraud Examiners (ACFE) reported in MarketWatch. Nearly one-third (30 percent) of companies affected by embezzlement have under 100 employees. And companies that size lose an average of $150,000 to the crime. Could you afford a loss that big?”

Inside Joe Paterno’s Estate Planning Play
By: Liz Skinner, Investment News

Whatever the true motivation, there are valid estate planning reasons for high net worth individuals, whether business owners or football coaches, to transfer assets. Consult an estate planning attorney to make sure your plan is up-to-date.

“Joe Paterno's transfer of homeownership to his wife in July most likely wasn't an attempt to shield assets before a sexual-abuse scandal hit Pennsylvania State University's football program. Instead, the move was by the legendary coach more likely made to take advantage of expiring estate tax rules, lawyers said.”

5 Reasons Selling Your Business is Like Thanksgiving Dinner
By: Barbara Taylor, The New York Times

The analogy is a bit of a turkey, but there's enough here to make it worth a quick read. Missing is the concept of tradition. Parties, buyers especially, want the deal done a certain way because they've always done them that way. They, like your great aunt's insistence on canned cranberries, can get over that and try something fresh.

“Thanksgiving dinner without the pumpkin pie would be a major letdown. Building a successful business that has no transferable value seems equally disappointing. Selling your business and cashing out after years of hard work is the ultimate reward. Prepare yourself and your business well for the day you will leave, and when you do, you will savor a slice of success that many business owners never enjoy.”

Four Ways to Get Out of Your Lease, in Two Parts. Part 1

The best time to think about getting out of a business lease is before you sign it. For the many companies with leases signed, perhaps too casually, before the economy tanked, that’s little help. While their numbers are down from recent highs, businesses still come to my law firm looking for the magic bullet out of their leases. (Spoiler alert: there is no magic bullet.)

A lease is the most common, yet least understood, contract a human-owned business will sign, so a post on exit planning for leases is going to be helpful whether you are trying to get out of or in to a lease. Exit planning, by the way, isn’t limited to just the owner’s exit from the business. How key relationships, including the one with your landlord, end is a subject deserving forethought in any business.

I blame professional sports for the unrealistic expectations some businesses have toward contacts, including leases. If you regularly hear about the rising star athlete who gets out of the contract signed when he or she was a bit more humble, you might get the impression that your business can get out of a contract whenever a better offer comes your way.

That your business is suffering, or rent is lower across the street (or even in your building), is generally of no concern to your landlord--other than at renewal time. Supposing the landlord is willing to do something for you, chances are the landlord has its own contract it can’t get out of—a mortgage. Your lease is part of their collateral, so the landlord’s lender has much less interest in helping you out of the lease, than in helping you in.

If your business is viable, any change in your lease has to present some upside to both landlord and lender. Personal guarantees, commonly required in leases to human-owned businesses, give the landlord and lender still less reason to make a deal, even if your business is struggling. There are, however, still some options, though they are MUCH better discussed before the lease is signed.

Buyouts.

The typical lease gives the landlord the right to collect, upon a default of the lease, from your business (or you, if you are a guarantor) an amount equal to the sum of any past due rents plus all future rents for the remaining term, discounted to present value. If the landlord can re-let the space, the former tenant gets a credit for the rent paid, less the landlord’s costs—such as brokerage commissions and improvements to the space required for a new tenant. Thus, what you owe on default of your lease can be a huge number. But it doesn’t have to be.

When negotiating the lease, cap on your default liability in the form of a buyout—a fixed sum you pay to get out of the deal. If you can’t limit the business’s exposure, try to limit the terms of any personal guarantee. If you didn’t get a buyout in the lease, asking the landlord for a buyout now is asking them to weigh the bird in the hand against those in the bush. Depending on your financial circumstances and the market, trading your lease for cash in-hand, or even a little cash and a secured promissory note, might be a viable option for landlord and lender.

In Part 2, I’ll cover three more options for getting out of a lease: Assignments & Subleases, Landlord Take Backs, and Extending the Term.

Lip Service for Their Service? Veterans Day 2011

Effective at the 11th hour of the 11th day of the 11th month, the 1918 Treaty of Versailles marked the end of the Great War, the "war to end all wars." At the first anniversary of that event, Armistice Day became our national commemoration of those who served in what would too soon be renamed World War I, but it would not be a legal holiday until 1938.

Fort Logan National Cemetery

After World War II and the Korean "Conflict" (legal semantics for political purposes), Congress, in 1954, recognized the need to honor all who serve and gave this legal holiday its present name, Veterans Day. In 1971, Congress separated the holiday from its roots by moving the observance to the 4th Monday in October. The American people tolerated that for only a few years and the original date was restored in 1978.

Popular fascination with today’s palindrome date, 11/11/11, distracts some attention from this year’s holiday, but numerology isn’t what is on my mind. At the beginning of this week, the Westboro Baptist Church brought its odious "God hates America" campaign to Denver’s East High School, where my daughters are students.

Westboro’s hate crusade against homosexuals, Jews, and others is infamous for many reasons, but most of all for making the funerals of America’s war dead platforms for Westboro’s abhorrent messages. The East High community (including my family and I) came out in force to challenge the Westboro picketers, just as communities, faith groups, and many veterans do at locations all over the country.

Westboro’s messages, while hateful, were rote, delivered with no passion in their eyes or voices and ultimately ineffective. While I have never had to endure their detestable presence at a military burial, I have to wonder what’s the greater disservice to our servicemen and women, Westboro or public praises and recognitions of their service that fail to move beyond words.

As we express our gratitude, we must never forget that the highest appreciation is not to utter words but to live by them.

President John Kennedy included that idea in the Thanksgiving proclamation issued only days before his assassination, but it speaks to our observation of this legal holiday as well, especially at a time when the burden of defending our nation is borne by a very small portion of our population, when the costs of war, or even the very idea that we are at war, isn’t felt in the lives of the vast majority of Americans.

Less than 1 percent of Americans serve in uniform today, but they bear 100 percent of the burden of defending our Nation. Currently, more than 2.2 million service members make up America’s all-volunteer force in the active, National Guard, and Reserve components. Since September 11, 2001, more than two million troops have been deployed to Iraq and Afghanistan. Fifty five percent of the force is married and 40 percent have two children. Only 37 percent of our families live on military installations; the remaining 63 percent live in over 4,000 communities nationwide. Multiple deployments, combat injuries, and the challenges of reintegration can have far-reaching effects on not only the troops and their families, but also upon America’s communities as well. These challenges should be at the forefront of our national discourse.

The 11th hour of the 11th day of the 11th month ended World War I, but the 11th day of the 11th month of the 11th year ends my legal holiday series. I’ve been round the calendar more than twice on this journey. I began with Memorial Day; it seems fit to end with Veteran’s Day, which has always been my favorite in the series. More than the debt the nation owes our veterans, I owe two vets, my parents, for my existence and for inspiring me in everything.

This post and this series end with a photo of a standard government tombstone. This one is not in a national cemetery, but in a small graveyard near the northwestern shore of Lake Buchanan in the Texas Hill Country. Uniformity connects in death as in life; even the casual observer will know that an American hero is buried here. I am honored to call this hero Dad and I miss him very much.

Quick Bites - November 8

Preparation (and a great team of advisors) is key to a successful business sale. Advice for business owners on how to deal with online slander. Social media’s reach has expanded to include national intelligence.

Preparing for Business Battle

By: Chris Younger, ColoradoBiz Magazine

My firm has worked closely with Chris on a number of business sales. His thoughts on approaching this complex undertaking are spot on.

“Selling a business is a process - like any other business process, if it is executed according to well-defined and tested steps and procedures by someone with a lot of relevant experience, you tend to get predictable results. Conversely, if it is executed on an ad hoc basis by someone with limited or no experience, you also tend to get predictable results.”

How Business Owners Counter Online Slander

By: Karen E. Klein, Bloomberg Businessweek

A tough and growing problem for business. Your business should have a plan for dealing with it, and sue the $%^*! is rarely the best option – defamation suits can even backfire.

“While a crop of online reputation management services has surfaced in recent years, fighting back is costly and time consuming. It is difficult to find the source of many complaints, short of a federal court order, and when they surface they most often come from competitors or fired employees. Complaint boards and watchdog websites tend to repost content, so one grumble may appear like a systemic problem.”

CIA following Twitter, Facebook

By: Kimberly Dozier, Associated Press

National intelligence is making the most of social media – your business should too. The CIA can judge the mood of a region; you can judge the mood of your potential customers or the background of potential employees, only check with your lawyer for the limits on what you can do.

“From Arabic to Mandarin Chinese, from an angry tweet to a thoughtful blog, the analysts gather the information, often in native tongue. They cross-reference it with the local newspaper or a clandestinely intercepted phone conversation. From there, they build a picture sought by the highest levels at the White House, giving a real-time peek, for example, at the mood of a region after the Navy SEAL raid that killed Osama bin Laden or perhaps a prediction of which Mideast nation seems ripe for revolt.”

Giving Business a Fresh Start on Worker Misclassifications

The proper classification of a worker as an “employee” or “independent contractor” is one of the more important, but sometimes confusing, tasks faced by a business. In earlier posts, I’ve provided guidance on making the right classification and warned of enhanced efforts by governments looking to force reclassifications to increase tax revenues.

 Misclassification is often described in stories of unethical businesses or over-zealous law enforcement. Today’s post falls in between those extremes, where businesses struggle, but sometimes fail, to make the right decisions, and government agencies want not to punish but to create a reasonably level playing field.

Recently, the IRS, the U.S. Department of Labor, and eleven states (the initial group did not include Colorado, but Colorado joined the effort as announced in the December 6, 2011 Denver Post) announced agreements for the sharing of information and cooperation in the enforcement of classification laws.

Business models that attempt to change, obscure or eliminate the employment relationship are not inherently illegal, unless they are used to evade compliance with federal labor laws — for example, if an employee is misclassified as an independent contractor and subsequently denied rights and benefits to which he or she is entitled under the law. In addition, misclassification can create economic pressure for law-abiding business owners.

While that announcement seems less about helping, and more about hammering, out-of-compliance companies, in a separate announcement the IRS makes it clear that at least part of the federal government is interested in aiding the businesses that want to correct misclassification missteps.

The Voluntary Classification Settlement Program (VCSP) was announced as the latest part of the IRS Fresh Start initiative. Businesses that have misclassified employees as independent contractors may be eligible to reclassify the workers with limited tax liability.

Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

Not all businesses are eligible for VCSP; however, participation is limited to those employers who:
    
• Consistently have treated the workers in the past as nonemployees,

• Have filed all required Forms 1099 for the workers for the previous three years

• Are not currently under audit by the IRS

• Are not currently under audit by the Department of Labor or a state agency concerning the classification of these workers

Other factors should be considered before joining the program. VCSP isn’t a complete clean slate. A business that misclassified workers may still have exposure for state or local taxes as well liability to the workers for wages or benefits. Talk to your business attorney about any worker classification concerns and the opportunity of VCSP. Just don’t wait too long. If IRS/DOL/States initiative is successful, more businesses will be audited for misclassification and then it will be too late to apply for a voluntary settlement.