Category: Business Law Blog

Compliance with the Fair Labor Standards Act is Good Business

Have you heard about the Department of Labor’s latest rule change? In this week’s blog, Epiphany Law attorney Sarah Coenen breaks down what the Fair Labor Standards Act means for your business.

Q: Can a salaried employee be entitled to overtime pay?

A: In general, regardless of whether an employee is paid an hourly or salary rate, he or she may be entitled to overtime pay. The Department of Labor (“DOL”), however, created an exemption under the Fair Labor Standards Act (“FLSA”) allowing certain employees to be exempt from receiving overtime pay.

Q: How do you know if an employee is qualified for the exemption?

A: To qualify for this exemption, the employee must:

  1. be salaried, meaning that he or she is paid a predetermined and fixed salary not subject to reduction because of variations in the quality or quantity of the work performed;
  2. be paid at least a specified weekly salary level; and
  3. primarily perform executive, administrative, or professional duties, as defined in DOL regulations.

Q: How will the Department of Labor’s 2019 update affect the rule?

A: The update raises the annual standard salary level from $23,660 to $35,568. This equates to the weekly rate increasing from $455 to $684. Therefore, an employee must have an annual salary level above $35,568, to be exempt from receiving overtime pay.

Q: Does the DOL update affect highly compensated employees (HCEs)?

A: Yes, the rule also increases the total annual compensation level for highly compensated employees (“HCEs”) from $100,000 to $107,432. HCEs are employees whose primary duty includes office/non-manual work and who customarily/regularly perform one or more of the exempt duties of an executive, administrative, or professional employee. For example, an employee may qualify as an HCE if he or she customarily and regularly directs the work of two or more other employees, even though he or she does not meet all of the other requirements in the standard exemption test.

Q: Are employers allowed to use commissions and incentive pay toward the employee’s salary?

A: Yes, the rule allows employers to use nondiscretionary bonuses and incentive pay (including commissions) to satisfy no more than 10 percent of an employee’s salary in order to qualify that employee under the exemption.

Q: What happens if the employee has not earned enough in nondiscretionary bonuses and incentive payments to retain his or her exempt status?

A: Then, the rule allows for the employer to have a “catch-up” payment at the end of the 52-week period. If the employer does not make up the “shortfall” during that one pay period, the employee is entitled to any overtime pay earned during the previous 52-week period.

Q: When does the new rule go into effect?

A: The new rule goes into effect on January 1, 2020.

Q: Why does this matter for me?

A: If you have any employees who are receiving a salary rate, you will need to re-evaluate those employee classifications to ensure that your business is in compliance with the new Fair Labor Standards Act rules by January 1, 2020.

Epiphany Law attorney’s can help you make sure your business is protected. For more information, contact us here.

Employment and Compliance Attorney
Sarah Coenen

About the Author

Sarah M. Coenen is an experienced business attorney with Epiphany Law. She focuses her practice on employment services including non-competition agreements, employee handbooks, compliance, hiring and termination. Sarah enjoys educating and empowering her clients to help them achieve their personal and business goals. You can learn more about Sarah’s background here.

Before You Hire a Lawyer, Answer these 4 Questions

The life of a business owner or business executive is typically filled with big decisions. And no decisions loom larger than whom to work with. Working with the right people will propel your business forward, while making the wrong hire will negatively affect your company’s culture, efficiency and ultimately, your bottom line.

Hiring the right lawyer is just as important as hiring the right employees, and when you’re hiring a lawyer to represent your business interests, there’s a lot to consider.

As a General Counsel to multiple companies, I’ve hired a lot of lawyers.  I’ve made some great decisions, and some that I’d rather not think about too much… But here are four questions that I found helpful when I was hiring outside legal counsel for the companies I worked for.

1. How well does the lawyer communicate?

A lawyer’s communication skills, more than anything else, will positively or negatively impact your relationship.  If you and your lawyer can’t communicate well – for whatever reason, be it style or substance, your relationship will be a failure.  Whomever you select needs to have superior communication skills and understand the importance in building a solid client-attorney relationship.   And, they need to be able to communicate however you like to communicate – be it over the phone, in person, email or text – you’re the client. And, they need to be able to adapt to your style or the relationship will be a failure. Before you hire a lawyer, you’ll want to make sure your communication styles are a good fit.

2. What is the lawyer’s style?

Are they aggressive?  Deliberate?  Inquisitive?  What is their risk tolerance?  In order to make informed decisions, you need to hear and embrace opposing viewpoints. But, you won’t have a good relationship with a lawyer whose style differs greatly from your own – that will only lead to frustration and confusion.  In particular, finding a lawyer who understands your risk tolerance is a key to being on the same page, but don’t underestimate other “personality” driven factors as well.

3. What is their experience level?

Assuming you’ve found a lawyer you “click” with, now it’s time to get into substance.  Ask yourself if you need a generalist or a specialist?  Are you looking for a long-term partner that can understand and work with your business on a variety of issues, or a specialist that can help fix a significant, pressing issue that you’d already identified?  Both can be business-savvy partners. But, you’ll want to make sure the lawyer you hire has significant experience in the role you’re looking to fill.

4. What is the best type of service agreement and fee schedule for my company?

There’s a lot of options for procuring legal counsel, and there are no right or wrong answers here. Here are four common solutions.

  • Hourly rate – probably the most common attorney fee arrangement on the list. The lawyer will track his or her time in fractions of an hour (usually six minute increments) and bill accordingly. These kinds of arrangements may result in a mis-match of incentives, since your lawyer gets paid more the longer they take, which is why other fee arrangements are gaining popularity.
  • Flat retainer agreement – This payment structure is ideal for businesses that have on-going legal needs, and the retainer can cover almost all your legal needs, or only specific subjects, like employment law. Having a dedicated attorney on-call will help you reduce risk and stop legal disputes before they even begin. It is often the most cost-effective way to procure convenient, expert legal assistance.
  • Flat fees – this is more common with attorneys who handle large volumes of a specific kind of case. Flat fees may be offered for will preparations, tenant evictions, mortgage foreclosures and more – each individual matter is a fixed fee, no matter how long it takes. Flat legal fees can be an attractive solution, but keep in mind litigation will almost never fall into this category.
  • Risk Sharing– most people have heard of contingency fees in litigation, where a lawyer might get 30 percent of 40 percent of the recovery if the client wins, but nothing if the client loses. However, they are gaining in popularity for other kinds of matters as well.  For instance, many firms will handle a merger or an acquisition on a similar arrangement, taking a smaller fee if the deal fails to close, and a larger fee if the deal is successful.  These types of fees help to align the lawyer’s incentive with your own.

Once you decide on the best fit for your company, it’s critical to make sure to clarify expectations. Ultimately, the client is in charge and the client-attorney relationship works best when there is a clear understanding about services rendered and the associated costs.

To learn more about how to hire a lawyer, contact us here.

How to Hire a Lawyer – About the Author

Lawyer Rob Macklin

 

Rob is a business attorney with Epiphany Law. He has over 20 years of experience offering businesses top-notch legal service and practical, actionable advice. Rob has served as General Counsel to several successful companies, ranging from $5 million to $1 billion in global revenue. In addition, Rob took time from his legal career to serve with the US Navy as part of Operation Iraqi Freedom, running intelligence operations for SEAL Team 8. As a trained lawyer, small business owner and Department of Defense certified interrogator, Rob’s diverse skill set can help you navigate any challenge your business may face.

Business Owners : Limit Financial Stress in 4 Simple Steps

By now, most of us understand how harmful stress can be to the body. It affects your heart health, breathing, muscles and even your brain function. But, according to the American Psychological Association, 26 percent of U.S. adults report feeling stressed about money most or all the time. And, for the average business owner, the stats around stress are even more surprising. Small business owners report that managing their business is at least 4 times more stressful than raising children.

One of the best things you can do to protect yourself from stress is to take a more proactive approach to your long-term planning. It’s been said that procrastination breeds stress and when it comes to finances, that’s certainly true. To help minimize stress, it’s essential to think about the long term.

Step 1 – Get a Trust-Based Estate Plan for Business Owners

As a business owner, you’ll have unique needs when it comes to estate planning. Proper estate planning is important in order to:

  • Provide continuity for the business, its other owners, and employees
  • Ensure adequate liquidity to enable transitions due to disability or death
  • Minimize transfer, gift, estate and income taxes
  • Reduce costs and burdens associated with settling affairs
  • Provide protection for the Business Owner’s spouse and family
  • Maximize likelihood that intended legacy is achieved

If you do not currently have an estate plan, or you simply have a will, you will need to take action. To protect your business and your own best interest, it’s important that you get a trust-based plan. Your will indicates who you want to have access to your assets, and how you want your assets distributed, but it does not keep your family out of Court. No one wants to go through Probate if they can avoid it. A trust-based plan allows your family to access your assets in the event you become incapacitated or pass away.

Step 2 – Get a Valuation

Understanding the value of your business is critical for proper business planning and achieving personal goals. Completing a Valuation on a regular basis allows you to manage and measure value growth. A quality report will also list your value drivers – the items on which you should focus to achieve value growth.  Even if you’re not considering exiting your business for years, knowing that the value of your business is the amount someone will pay for your business, will keep your end goal in mind.

Step 3 – Get a Succession Plan

Business succession planning is necessary for any business owner, especially those close to retirement. And, it is something you don’t want to put off. Planning ahead can help ensure you don’t leave money on the table. The vast majority of small business owners in the United States are never able to monetize the value of their business.  In other words, they are never able to “transition” their business successfully. Business owners can help avoid this problem with a well-designed business succession plan.

Step 4 – Consider a Business Succession Trust

If you have a transferable business with value, you will want to consider a Business Succession Trust. One of the key benefits of trusts is tax avoidance, specifically the federal estate tax. Another important benefit is creditor protection. Trusts can be used to shield the family and spouse from creditors or business-related debt.

Benjamin Franklin once said, “An ounce of prevention is worth a pound of cure.” That’s a good way to think about financial planning for the business owner. If you take some time to think about your long-term financial goals and your legacy now, you can avoid complications, like probate, in the future.

For more information, call Epiphany Law at 920-996-000 and we can set up a time to assist you with the estate planning process. Or, contact us here.

About the Author

Kevin Eismann, Business Law Attorney

Kevin L. Eismann brings a unique, multi-point perspective to his clients because he is a business owner, Certified Exit Planning Advisor, as well as an attorney. Kevin enjoys building comprehensive strategies with his clients that allow them to reach their personal and business goals. Kevin has provided business owners practical, cost-effective solutions for over 20 years.

Three Common Myths about HR and the Attorney’s Role

Most people understand the attorney-client privilege is a rule that protects the confidentiality of communications between lawyers and clients. This rule encourages transparency and allows an attorney to provide effective representation. But, not everyone understands that there are limitations and that the rule may be applied differently depending on a specific situation.

The attorney-client privilege rule can be especially complex in the world of human resources. There are some common misconceptions among employers. The following can help clear up some of the confusion.

Myth Since the head of our HR department happens to be an attorney, any of her notes from internal investigations will be protected.

Reality – Not exactly. Employers sometimes believe that having an attorney as the head of their HR department will protect their internal investigations from being disclosed. However, the privilege only applies to confidential communications between attorneys and their clients made for the specific purpose of obtaining or providing legal advice. This rule can not be applied to documents that were created in order to comply with a company’s policy or procedure. So, there is a chance that internal documents prepared by the HR department may be disclosed during litigation procedures.

Myth – My company has taken the appropriate steps to ensure that HR issues within the company will not become public knowledge.

Reality –Probably not. While thorough planning is essential and can certainly help limit your company’s liability, it still can’t guarantee that any documents created during an internal investigation will remain private. You’ll want to keep that in mind while creating all communications. Information from interviews that took place during a discrimination or harassment investigation could very well be considered ‘discoverable’ should there be a subsequent lawsuit.

Myth – Since my company has invested in knowledgeable and experienced HR professionals, hiring an outside attorney is unnecessary.

Reality – The best way to protect against legal claims is to hire a lawyer. Employers should keep in mind that discrimination and harassment suits are on the rise. But, when you hire an attorney for the specific purpose of providing legal counsel surrounding HR concerns, then all those communications between your company and lawyer would not be allowed to be disclosed.

The relationship between an employee and employer is heavily regulated and often difficult to navigate. Employment attorneys can help make sure you are in compliance with state and federal laws and often stop matters from escalating. To learn more about how an attorney can help protect your company’s best interest, visit https://epiphanylaw.com/contact-us/

Sarah Coenen, Employment Attorney

About the Author

Sarah M. Coenen is an experienced business attorney with Epiphany Law. She focuses her practice on employment services including: non-competition agreements, employee handbooks, hiring and termination. Sarah enjoys educating and empowering her clients to help them achieve their personal and business goals.

Key Benefits of Outsourced General Counsel

Put simply, Outsourced General Counsel is an extension of your team. Like an in-house general counsel, an outsourced general counsel is a business’ chief lawyer or legal advisor. And other than the fact they don’t typically work ON the premises of your business, an outsourced general counsel really owns the same duties and responsibilities of an in-house counsel. Those duties and responsibilities include (but are not limited to) the identification and oversight of all legal issues across the company and its various departments, as well as the provision of key advice to the business’ key decision-maker

This proactive approach to the law solves business’ needs  by providing a cost-effective solution. It’s a way to have an experience closer to the in-house model while also getting a broader knowledge base.

Some of the key reasons to consider outsourcing your general counsel include:

  • Fixed Budget and No Surprise Legal Bills – your business’ legal budget for next year does not need to be a guess. When outsourcing your general counsel, you know, with certainty, what you will spend next year on legal services.
  • Responsive Service – Your outsourced general counsel will become an integral part of your team. Fr example, contracts can be reviewed before signed, HR questions can be discussed, and HR policies would always be up to date in one flat rate.
  • Proactive Risk Management – Imagine having your attorney on speed dial, for answers to issues before they become problems. Imagine being proactive rather than reactive. Being proactive ultimately saves time and money.

Typically clients who utilize these services develop a close relationship with one attorney but have access to all attorneys in the firm to handle specialized needs. The close relationship ensures priority service and the backing of the firm ensures broader expertise.

An outsourced general counsel will protect your company and ensure your business is staying on the right side of the law.

If you have questions or would like to learn more, you can contact us here. 

 

About the Author

Attorney Kevin Eismann

Kevin Eismann

Kevin is the founding partner at Epiphany Law, LLC. He enjoys building comprehensive strategies with his clients that allow them to reach their personal and business goals. Kevin has been providing business owners practical, cost effective solutions since for over 20 years.

 

Reasons to Outsource Your General Counsel

Put simply, Outsourced General Counsel is an extension of your team. Like an in-house general counsel, an outsourced general counsel is a business’ chief lawyer or legal advisor. And other than the fact they don’t typically work ON the premises of your business, an outsourced general counsel really owns the same duties and responsibilities of an in-house counsel. Those duties and responsibilities include (but are not limited to) the identification and oversight of all legal issues across the company and its various departments, as well as the provision of key advice to the business’ key decision-maker

Outsourced general counsel services solves business’ needs  by providing a cost-effective solution way to have an experience closer to the in-house model while also getting a broader knowledge base.

Some of the key reasons to consider outsourcing your general counsel include:

  • Fixed Budget and No Surprise Legal Bills – your business’ legal budget for next year does not need to be a guess. When outsourcing your general counsel, you know, with certainty, what you will spend next year on legal services.
  • Responsive Service – Your outsourced general counsel will become an integral part of your team. Fr example, contracts can be reviewed before signed, HR questions can be discussed, and HR policies would always be up to date in one flat rate.
  • Proactive Risk Management – Imagine having your attorney on speed dial, for answers to issues before they become problems. Imagine being proactive rather than reactive. Being proactive ultimately saves time and money.

Typically clients who utilize Epiphany Law’s outsourced general counsel services develop a close relationship with one attorney but have access to all attorneys in the firm to handle specialized needs. The close relationship ensures priority service and the backing of the firm ensures broader expertise.

An outsourced general counsel will protect your company and ensure your business is staying on the right side of the law.

Epiphany Law Welcomes Attorney Robert Macklin

Appleton, WI – Epiphany Law, LLC, is pleased to announce that Attorney Robert Macklin has joined the firm. The addition of Robert Macklin is due to the firm’s ongoing growth and commitment to provide valuable service offerings to its clients.

Rob brings over 20 years of experience advising clients of all sizes, both domestic and international on complex business matters. Serving as General Counsel to several successful private and public companies, in industries including manufacturing, medical, telecommunications, healthcare and consumer goods has given Rob knowledge on what a business needs to be successful. In addition, Rob took time from his legal career to serve with the US Navy as Part of Operation Iraqi freedom, running intelligence operations for SEAL Team 8.

Epiphany Law’s founder, Kevin Eismann said, “The volume and complexity of our transactional work continues to grow. Our clients can benefit tremendously from the vast business experience that Rob brings to the team.”

As an experienced lawyer, small business owner and Department of Defense certified interrogator, Rob’s diverse skill set can help business owners mitigate risks and promote business success. More specifically, Rob focuses on the areas of proactive law, commercial contracting, mergers and acquisitions, compliance and investigations, business processes, strategic governance and capital formation, and international law.

 

Attorney Robert Macklin

 

Rob earned his J.D. from the one of the top law schools in the country, the University of Chicago Law School and his undergraduate from UCLA. To learn more about how Rob’s expertise can benefit your business, please contact us.

Epiphany Law Business Litigation

5 Tips to Avoid Business Litigation

In business, lawsuits aren’t uncommon. Many successful executives and business owners will face a lawsuit at some point in their careers.  While you may not always be able to avoid litigation, there are steps you can (and should) take to best protect your interests when disputes arise.

1 – Improving Communication is Key to Avoiding Business Litigation 

If you want to avoid disputes with clients, employees and competitors, good communication is essential. You should always take time to clarify expectations and make a habit of doing the following.

  • Never over promise.
  • Keep the promises that you make. However, if you cannot keep your promise for some reason, let the person know. Offer a plan on how you will resolve the issue and make it right. Call first and then be sure to follow up with an email detailing whatever agreement was reached.
  • Be proactive. Don’t avoid difficult situations or conversations. Avoidance is more likely to cause the problem to escalate.
  • Evaluate how your tone may be perceived. And remember that email can make it difficult to effectively convey your desired tone.
  • Don’t be afraid to swallow your pride. Doing so could help you resolve an issue before it becomes a legal matter.
  • Evaluate and enforce best practices regarding how your employees should communicate.

2 – Make Documentation a Priority

To help protect yourself and your business, take time to document important communications and commitments. The following suggestions are some best practice tips for keeping up with appropriate documentation.

  • Keep all your emails organized in a good filing system.
  • Don’t do handshake deals this includes both business and personal agreements.
  • Avoid using templates you find via Google search to create your agreements/contracts. Each state has different legal aspects and you don’t know if the templates are accurate or current.
  • Be sure to have key contracts, including vendor agreements, reviewed by counsel, in order to help you understand the relevant provisions. It is also best to hire legal counsel for, at a minimum, reviewing and/or drafting of custom deal contracts, settlement agreements, employee handbooks, document retention policies, sexual harassment policies, and non-compete agreements.
  • Save what is important, such as contracts, loan documents, key documents underlying contracts and relevant negotiations, proof of payment, calendars, and tax information.

Important note – If you are anticipating business litigation, you must implement a litigation hold (also known as a preservation order or hold order).  Once you know of the existence of a dispute or even a potential dispute, hold onto all information so that nothing gets deleted. The loss of relevant evidence because of failure to institute a litigation hold can result in negative sanctions against you by the Court in any related litigation.

3 – Review Your Insurance Policies

Insurance isn’t a popular topic of conversation, but it is an important aspect of risk mitigation. Review the following points to help ensure your business is accurately covered.

  • Make sure that all current policies are correct and appropriate for your organization.
  • Investigate your options with multiple brokers.
  • Determine if the insurance company you are working with focuses on your niche business needs. Are they industry-specific to you?
  • Understand your potential need for multiple types of policies, including general commercial liability, errors and omissions, auto, property, workers comp, product liability, and other riders/endorsements.
  • Understand the obligations you owe to your insurance company, such as notice requirements, providing documents and cooperating fully in any investigation. Be sure not to settle with the other side without first getting your insurance company involved.

4 – Review Your Business Formation

Occasionally, business owners are surprised to learn their business structure is not appropriate to their type of work. To help minimize liability, you will want to engage counsel to help determine the appropriate corporate entity for your business. You will also want to keep corporate records, annual reports, and minutes if your business formation requires it. Make sure to follow all the formalities in order to ensure protection from personal liability. This step is key in avoiding business litigation.

5 – Work with the Right People

This is easily the most important tip on the entire list. The best way to protect yourself and your business is to make sure you are surrounding yourself with the right people. As the great Albert Einstein once said, “A clever person solves a problem. A wise person avoids it.”

To learn more about business litigation and how you can proactively protect your business, visit https://epiphanylaw.com/practice-areas/litigation/ or call us at 920-996-000.

 

About the Author

Heather J Macklin, Business Litigation Attorney

Heather J. Macklin

For nearly 20 years, Heather has focused her practice on complex commercial litigation. She has represented clients from a broad spectrum of industries, including financial institutions, luxury good retailers, real estate developers and small, closely held corporations. Contact Heather here. 

Avoiding the Top 7 Landmines in M&A

If you’re a baby boomer and you’re a business owner, chances are you’re starting to think about selling your business. So many unknowns surround the sale process, but one thing is for certain–you will want to be confident about whatever decision you make.  Confidence starts with knowledge of the sale process and an understanding of how costly shortcuts can be. You only have one chance to sell your business and there are no do-overs. What follows is a brief summary to help you learn–and avoid–the top seven landmines we see in Mergers and Acquisitions (M&A) transactions.

Landmine #1 – Not appreciating the state of the Mergers and Acquisitions market.

The M&A cycle has large ups and large downs. This is out of your control. However, understanding the market allows you to be proactive and take the best course of action. Currently, the market is hot and buyers are overpaying for desired targets.  The M&A market won’t stay like this forever and the time to sell may very likely be now.

Landmine #2 – Not Understanding Business Valuations

Could a mother or father put a price tag on a child? For the owner, selling their business almost seems like a similar struggle. Owners have poured their blood, sweat and tears into building and running their company; making it difficult for them to be objective.  A Business Valuation, even a short form valuation, will help the owner get a true understanding of what value a buyer would attribute to the business.

Landmine # 3 – Not Understanding Net Value

Much time is spent negotiating the purchase price, but what should really matter to a seller is how much money they will put in their pocket at the end of the transaction.  The net value should always be computed on the front end. To avoid disappointment, you need to keep in mind how different the sales price can be from the net value. Just some examples of items that needed to be deducted from the sales price are as follows:

  • Transaction expenses (including broker, lawyer and accountant)
  • Equipment financing
  • Lines of credit
  • Working capital
  • Taxes (including depreciation and recapture)
  • Escrow
  • Seller Note

Landmine #4 – Not Understanding Risk Allocation

Warranties and representations are the promises the seller makes to the buyer as to the condition of the business. They tend to make up the bulk of the long purchase agreement that will be signed between the parties.   Common examples include:

  • Ownership of Intellectual Property
  • Proper Classification of Employees
  • Binding Contracts
  • Environmental Condition of Property

Another important aspect of risk allocation is indemnification.  Sellers must pay attention and heavily negotiate how much post-closing risk they will bear.  The seller and the buyer must negotiate complicated matters such as a cap on post-closing liability, how long representations and warranties will continue after closing, and if a deductible applies to minor claims that arise following closing.

Landmine #5 – Not Planning Ahead

The value of proactive planning cannot be overstated.  Identifying and fixing a problem before a buyer discovers it will have very real positive impact upon the value the buyer will pay and the amount of post-closing risk a seller will bear.  If you plan to sell your business in three years, the time to start planning is now.  (Somewhat) simple steps you can take to increase value include:

  • Increase EBITDA
  • Reduce working capital
  • Lock in key employees
  • Reduce long-term contractual obligations/buy-outs
  • Eliminate risks found in due diligence
  • Clean up financials
  • Ensure contacts are binding and assignable

Landmine #6 – Short cutting the process.

It is also essential to let an experienced advisor guide you through the sale process. Short-cutting the process can lead to leaving money on the table or blowing up the entire deal.

Landmine #7 – The Wrong Players

Understanding the nuances of the M&A world takes years of learning.  Buyers can identify an educated and committed Seller by the team they assemble around them.  Do not leave the sale of your most important and valuable asset to a general practitioner.  Having an experienced M&A attorney will translate into improved economic consequences, less risk, and a smooth closing.  A buyer’s counsel will spot an inexperienced advisor a mile away. And, they’ll negotiate accordingly.

If you are thinking of buying or selling a business, it’s important to be proactive. Advanced planning now will mean the difference between achieving your business goals or missing the opportunity. To learn more, you can email info@epiphanylaw.com or call us at 920-996-000.

 

About the Author – Kathryn M. Blom is an attorney with Epiphany Law. Her practice focuses on complex business law, contracts, exit planning, securities, mergers and acquisitions. She advises her clients on how to identify effective solutions and achieve their business goals.

There’s No Time Like the Present

Business Owners: There’s No Time Like the Present

I’ll figure it out when I’m ready to retire, which is the day after never …. That is the response we get from business owners when we ask how much their business is worth.

The wealth of nearly two-thirds (70%) of all small business owners is tied up in their business. For many of those individuals, the business becomes the personal retirement savings vehicle. Those individuals, however, could be driving blind. Without knowing the value of the business, how will they know when they can stop working or the lifestyle to expect in retirement?

Having the information needed to prepare adequately for retirement is just one of the many benefits to a business valuation. Here are several others:

  • Increase value. What is measured improves, and valuation is no different than establishing and overseeing a sales quota. A comprehensive business valuation will provide owners with a clear explanation of the value of the business along with evidence to support the result. It can tell an owner if efforts need refocusing, or … even better .. if the company is headed in the right direction. The data helps guide strategic decisions and business development plans and can even help an owner determine whether the right people are in place to support long-term goals.
  • Mergers, acquisitions or share-swaps. A business valuation facilitates a negotiation between entities entertaining a possible merger, acquisition or share-swap.
  • Dissolution of partnership or partial exit by an owner. When a business partnership goes bad or partners agree to part ways, the parties have to find a fair and equitable split of interests. Whether the weighting shares changes, one partner buys the other out, or the partnership gets dissolved, a business valuation will facilitate the process.
  • Business interests represent marital assets and could become part of an owner, partner, or shareholder’s divorce settlement. Both spouses may approach the settlement proceedings with independent business valuation reports, so historical valuations could provide valuable insights.
  • Tax strategies. A valuation report can lead to tax benefits an owner might not otherwise claim. A current valuation is also required for estate tax settlements, to calculate capital gains tax liabilities, and for income or property tax disputes.
  • Employee incentive programs. A company must disclose its value to employee to satisfy annual requirements for Employee Stock Ownership Plans.
  • Insurance planning. Nearly three-quarters (70%) of small businesses do not have adequate insurance coverage. When an owner doesn’t know the value of his/her business, it is challenging to determine how much insurance is needed. Also, if an owner is injured or wrongfully distracted from business, a historical valuation could help recover losses.

The real reason most business owners put off knowing the value of their business could have less to do with timing than an error in perception. Traditional business valuations involved an extensive, expensive, and seemingly invasive process. Thanks to innovative technology, however, those barriers no longer exist. An online valuation cost a fraction of what traditional business valuation specialists charge, and can be completed in minutes, not weeks.

While business owners are often stretched for time, when it comes to discovering how much the business is worth, there’s no time like the present.