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July 2012

Your brand should help you say "no" more often

Buttonsred_whiteImagine being able to cherry pick only the best clients. It would be like sifting through a box of options and selecting the exact right fit. You get to by-pass the almost right choices and the "no way" offerings -- all in pursuit of the perfect fit.

That's what branding does for your company. You get to walk away from business. The wrong kinds of business. The wrong kinds of clients. The wrong kind of growth.

When your brand is focused and strong, you are boldly saying exactly what you're about and by default...what you are not about.

It's the most powerful and valuable aspect of branding, but it's also why most companies choose a superficial brand -- they're afraid of leaving money on the table. They don't have enough confidence to let the "almost good fit" prospects go.

As a business owner, I get keeping your eye on the bottom line and it's every business' responsibility to be profitable. But the way to maximize those profits is to stay in your sweet spot. Customers who don't align with your brand may bring you a short term gain but in the long run, they'll cost you every time.

If you tie up your resources, energy, staff and systems to trying to please someone that you ultimately cannot delight -- you don't have those assets to offer the exact right fit customers when they come along.

On the flip side, if you say no to the wrong fit customers -- pretty soon the right fit customers will begin to tell others about you and you'll just keep attracting more and more of your very best customers.

But you need to be willing to say no to the wrong customers, to make room for the right ones.

Are you brave enough to say no?

Electrifying fabric

The United Airlines terminal always gets my attention when I fly into the Denver Airport. The majestic white canvas stretched over a steel frame echoing the snow capped peaks beyond. What if within the fabric was imbedded a solar film powering all the lights in the terminal? That is exactly what PowerFilm Inc. of Ames has in mind.

Mike Coon, VP of Building Integrated Products, says “PowerFilm is collaborating with a world leader in architectural fabrics to make the skin of a building produce electrical power.”

The electricity created could have a direct connection such as an entrance canopy powering the lights at the entry. An indirect connection to energy consumption would be to connect the film to the grid and just know you are reducing the amount of fossil fuel needed to generate electricity.

Experts say the average amount of full sun one can expect in Iowa is four hours per day. As Mike Coon explains, “One could expect five watts per square foot of active material at a full sun rating when the fabric is optimally oriented to the south.” Now let’s put that information in perspective. 

The offices of Architects Smith Metzger has a roof area of about 4,000 square feet. If fabric were stretched over the roof on the average day we could expect 80 kilowatt hours (4,000sf X 5 watts/sf X 4 hours /1000 watts per kilowatt). Over a month, about 2,400 kilowatt hours would be produced or about 25% of the electrical consumption in June.

If you want to learn more look them up at the Iowa State Fair on Expo Hill near the MidAmerican Energy wind generator.

Timing is important

TaxTax (Photo credit: 401(K) 2012)

Ownership transitions are never easy and the timing of the transition takes careful thought.  That being said, 2012 is creating a bit of a forced environment for ownership transitions.

There are two tax items (one noted in Steve Sink's post yesterday) that are driving this situation:

  • It appears that capital gains will increase in 2013
  • The $5 million gift tax exemption will change to $1 million in 2013

Taking these two tax items into consideration, an ESOP transaction in 2012 may be something to pursue. Starting the process right away is important if an ESOP transaction is to be completed this year.

Keep more of your money today and in the future - have an ESOP discussion today.

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Tax increases with the sale of a business

Many significant provisions of the Bush tax cuts are scheduled to expire at the end of 2012, which will result in significant changes to the tax laws. If Congress should fail to extend the cuts, income taxes, dividend taxes and capital gains taxes will all rise. The Long Term Capital Gains tax is the primary area that will affect most business owners thinking of selling their businesses. These affect the sale of stock.

There will no longer be a 15% tax bracket. It will rise to 20% as a result of the healthcare reform legislation. And it will rise an additional 3.8% via a Medicare tax beginning in 2013. This tax also will be added to dividend income taxes and even ordinary income taxes. In short, selling next year versus this year means the price received will need to be about 16% higher next year to net the seller the same amount as they would receive selling this year. How many owners will be able to increase the value of their business by that amount?

Some examples of possible scenarios:

Assumption: You net $1 million in the sale of your business and make less than $250,000 (AGI).

Option 1: If you sell the business before the end of 2012, the federal income taxes owed from the sale will be $150,000, you net $850,000.

Option 2: You hold out, but still sell for $1 million in 2013. Taxes will be 20% plus 3.8% or $238,000; $88,000 more in federal taxes ($238,000 vs. $150,000).

Option 3: You wait and capital gain taxes go up even more! Based on the government’s need for revenue this is a real possibility.

Plan well!

Steve Sink



Take advantage of the new LinkedIn page design

ImgresLinkedIn profile pages will be undergoing changes within the next few days. Before your page gets its makeover, you may want to give it a quick update.

  • Update the headline: Tell people what you really want them to know about your skillset. Your title often does not accurately describe your talents. So instead of "Account Manager" write "Accomplished Sales Professional." That description gives a more accurate view of what you do to someone you're never met.
  • Slim down older job descriptions: Just like a resume, you must treat more recent experience as more relevant than experiences you had ten years ago. YES, it's great that you were the editor of your college newspaper before the internet was even invented, but are those cutting table skills still relevant? Answer: Not so much.
  • Post a new photo: Update your photo so that when you run into contacts, they actually recognize you. I know that Glamour Shots snap of you is your favorite, but normal people don't pose with their hand in front of their chin.
  • Use the "Share an update" feature to appear in your contacts' news stream. And make comments on other people's updates. 

LinkedIn is particularily helpful for keeping in touch with professional contacts, but can be used much more proactively with just a little bit of attention. Log on to your profile once in a while and manage your public image. It's one of the most prominent things that people will find when they search for you on Google.

Keeping your focus - Make it better or shut it down

2012 Ford F-150 SVT Raptor Crew Cab2012 Ford F-150 SVT Raptor Crew Cab (Photo credit: MSVG)

I am a big fan of Jason Fried of 37Signals. I think what they have accomplished is not only amazing but sets a model for others to pursue. Recently Jason wrote a post for Inc. Magazine titled "Walking Away From A Product". In the post, he tells the story of his teams' decision to shut down a profitable product and the resulting reactions from others. Understand, the product was making a profit for them. And they are shutting it down or selling it. Why? In a word, focus. 

For many starting or growing a business, the highest pressure comes from having too much to do. There are so many things on your plate, some days you struggle just to get a list of all the things needing to be done finished. The second highest pressure is to grow revenue. Revenue is the life blood of a compay. So why would Jason suggest killing off a product that is making money? Simple. Focus! Focus the precious time you have on the products or projects that make money and have the greatest potential to grow. Say you have a total of 6 hours a week available to work on growing your products or services. You do not want to spread that 6 hours around too much. You certainly should not spend it on the lowest potential or performing product or service. 

Jason is correct is saying that if you are not making a product better, you need move away from the product. Beyond just focus, you need to recognize that these days competition is constant and relentless. If you are not going to improve your product, you may want to sell it to your competitor who does focus in the product's area.  At the end of the day, focus your precious time in the place with the most potential. This will increast you opportunity for success. 

Mike Colwell

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Will your 1040 help pay for your vacation home?

English: Sunburst Lake with Sunburst Ranger Ca...English: Sunburst Lake with Sunburst Ranger Cabin in Mount Assiniboine Provincial Park, British Columbia, Canada (Photo credit: Wikipedia)

People who buy a vacation home often need an excuse to help overcome their better judgment. Sometimes the idea that they will get some deductions out of that lake cabin is enough to push them over the edge. But is it so?

Yes, there are tax breaks for second homes. The biggest one is the home mortgage interest deduction, available for up to two homes, to a maximum of $1.1 million in debt. You can also deduct property taxes, at least if you aren't subject to alternative minimum taxes. But what about the home itself, and your out-of-pocket costs? Can you claim the cabin as a rental property, deduct depreciation, insurance, and maintenance, and move your property taxes to an "above-the-line" schedule E deduction? Probably not.

To get beyond home-mortgage and property-tax deductions, you need to claim rental losses. Under the "passive loss" rules, rental real-estate deductions are normally "passive." Short-term rentals can avoid this rule, but then you have to show "material participation" in the short-term rental activity. Unless you are on-site, that's hard to do, and probably impossible if you have an agent helping you with the rentals.

More problems arise if you actually use your vacation home. The tax law has a rule that limits "business" deductions from a rental property when you use the house personally for the greater of 14 days or 10% of the days the property is used or rented.  

There is one break that can be easily available. If you rent the vacation unit for less than 15 days, you get to exclude the rent from taxable income. But two weeks rent won't do much to make the monthly payments on the cabin.

The Moral? If you buy that north-country cabin, don't look for a lot of help from the IRS to help pay for it. If you really need the deduction to make it work, talk to your tax advisor before you commit.

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Handcuffed by perfection?

Bigstock-Handcuffs-409305Lack of consumer knowledge. Inadequate budget. Sales team isn't ready.

There are lots of reasons that marketing gets stalled. But one of the most prevelant and dangerous reasons is perfection paralysis.

You've probably seen it -- the business owner or marketing decisionmaker can’t pull the trigger when it comes to marketing tactics. 

Something about the website, brochure or direct mail piece, etc. is a little off. "It’s just not quite right," they’ll say with a rueful smile. And so the team tries again — revision after revision.

What was that sound?  It was handcuff slamming shut. There's no escaping the hunt for perfection. In many cases, the piece never gets completed and marketing dollars slowly swirl down the drain.

In the meantime, their prospects and customers wonder why they're being ignored.

Here's the truth. Pretty darn good trumps perfect every time, if it means you get to market faster (or at all) with your message.

Next time you feel your team (or yourself) begin to stall a project because perfection paralysis is taking hold, ask yourself these questions:

  1. Does it clearly communicate our key message? (no more than 2-3)
  2. Does it offer some response opportunity? (website, e-mail, phone number, etc.)
  3. Does it protect and respect our brand promise and look/feel?
  4. Is it error-free? (typos, grammar etc.)

If you can answer yes to all 4 — give yourself 24 hours to tweak it if you want and then get it out the door.

Perfect doesn't exist so stop chasing it.


~ Drew


Can you guess the number one complaint about buildings?

Think about your experiences within buildings from your office to the movie theater. What is your number one gripe? Do you agree with our number one?

If you answer "the temperature is too cold or too warm," you are in line with our experience. IFMA (International Facility Management Association) completed a survey and found thermal comfort issues even outweighed “high noise levels, limited space, and unpleasant odors”. More than half of those office workers who complain modify the conditions by bringing in their own fans, heaters, or even wearing gloves.

Seems like the most common way to deal with the complaints is for staff to check out the mechanical setttings, inform people things have been checked, and visit them later to see how they are doing. The funny thing is half the time no changes were ever made to the system, but people felt better thinking changes were made.

Jeff Buscher, Design/Construction Manager at Meredith, confirms the number one complaint. Jeff says “Heating and cooling is why people usually contact us. People sense temperature differently since they vary so much in age and body types. Distribution is also an issue since ceiling diffusers are spaced apart. If you are sitting directly under a diffuser your conditions are different than the person sitting ten feet away.” Jeff also added “Sometimes after a complaint, we find the mechanical system is clearly not working right.”

What I have learned is, if you don’t let those in charge of your environment know you are uncomfortable, you will continue to be uncomfortable.

Financing the business purchase

LoanLoan (Photo credit: Philip Taylor PT)

A buyer’s source of financing depends in part on the size of the business being purchased. The vast majority of businesses (and particularly the smaller businesses) are purchased with a significant portion of the purchase financed by the owner. The buyer, however, still must make a down payment and be sure that adequate working capital sources are available.

If the funds needed for the down payment are not readily available, the buyer must look for financing from an outside source. To grant such financing, an institutional lender is almost certain to require personal collateral for the loan as well as a wealth of financial and operating data of the business to be acquired. The most attractive types of personal collateral from the lender’s point of view are real estate, marketable securities and cash value of life insurance. In addition to personal collateral, it must also be demonstrated to the lender that the buyer is of good character, has a clear source of repayment, and has a good business plan.

Lenders for larger transactions may or may not require personal collateral from the purchaser; however, they will require a personal guarantee. Collateral for larger loans generally will consist of a first lien security interest in the tangible assets of the business, such as accounts receivable, inventory, equipment and real estate. The lender will set loan conditions and restrictions regarding certain activities of the business. In the case of insurance companies and venture capitalists, the lender may insist on an equity position in the business and a role in major management decisions. Insurance companies typically only participate in transactions above $10 million. Commercial finance companies make loans on much the same basis as banks. While the interest rate such companies charge is usually higher than that charged by the bank, they are often willing to take more risk.

It is rare for a privately-held business to be acquired without leveraging the business’s assets in some manner, pledging them as collateral for a loan made either by the owner of the business or an outside lender. The owner has a strong incentive to provide financing if he feels it is necessary to get the price he wants for the business and has confidence in the buyer. An outside lender must be convinced that the loan’s risk of failure is minimal and represents a profitable transaction. Institutional lenders are generally conservative and concentrate rate primarily on repayment. To obtain outside financing it is important to be well prepared and have information that a lender needs to make decision. This data should be submitted in the form of a loan proposal and should contain the following items:

1. Purpose of the loan

2. Amount required

3. Term desired

4. Source of repayment

5. Collateral available

6. History and nature of the business

7. Age, experience and education of management

8. Key advisors

9. Product

10. Market area and method of distribution

11. Major customers

12. Suppliers

13. Competition

14. Facilities

15. Employees and unions

16. Three years of business financial statements

17. Three years of business tax returns

18. Current personal financial statement

19. Pro forma business income statement, balance sheet and cash budget (for at least three years)

 In instances where obtaining bank financing on a stand-alone basis is not possible, an SBA guarantee or underwriting by a state or municipal economic development agency may be available.


Good Luck,

Steve Sink

Certified Business Intermediary

Merger and Acquistion Master Intermediary


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Naming your product

Business Plan Template - Product Box ShotBusiness Plan Template - Product Box Shot (Photo credit: IvanWalsh.com)

Many of my clients are creating a new product. Some of these clients are brand new companies and others are existing service providers who have recently developed a product. When you are a brand new company no matter what the company name, it will require an introduction. When you are an existing company that already has name recognition, don't change the name of your company just because you now have a product to compliment your services.  

Some companies consider renaming their company to their new product name. Beyond the reasoning above, there are a few additional reasons not to do this. First, keep in mind you may end up with multiple products so you do not want the company name tied to any one product. Second, it is possible that someday another company buys one of your products but not your company. You will want the ability to separate the two.

When you name your product, consider focusing on something descriptive, something that denotes the solution you provide. Think about a sales call where you will introduce your new product. You have just introduced yourself and your company. If you are a new company, they will not have any point of reference. If you are an existing company, it is likely they will have a certain level of trust based on your reputation. With that, you need to introduce them to your product. Focus on the problem you solve so that when the potential customer hears the name, they can envision the problem solved. It will also naturally move the conversation along. Here is an example:

“Hi, I am Mike from Standard Software. We have a new product called Connection Monitor. This product is targeted at small businesses that are higly dependent on their internet connections. The user of our product can keep up-to-date on the status of their connections and program alerts....." Upon hearing this, the customer will most likely respond with questions, how, where, to what extent, who etc.

By choosing a name that denotes the solution, you will lead the conversation to the next logical step. While the name may not seem thrilling or bold to you, it will help your customer understand what you are providing. 

Mike Colwell

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What the tax changes in Obamacare mean for entrepreneurs in 2013

20120629-1While the political future of the Affordable Care Act is unknowable, it has survived its courtroom challenge. That means many entrepreneurs will need to deal with important new tax provisions starting next year.

There are two important new ACA taxes taking effect in 2013:

  • A new .9% payroll tax on single taxpayers with salaries exceeding $200,000, or joint filers with combined salaries exceeding $250,000.
  • A new 3.8% tax on "unearned" income (a despicable description, by the way). It applies to income earned as interest, dividends, rents and capital gains. It also applies to income that is "passive" under the "passive loss" rules received on K-1s from S corproations, partnerships and trusts.

These taxes apply without regards to the insurance plans or coverage of either the employer or the employee; they are just taxes.

The payroll tax will require additional withholding on income that exceeds these numbers, but because the employer won't know an employee's spouse's salary, it will also require a new schedule on Form 1040. 

These taxes will motivate more taxpayers to operate as S corporations with salaries below the thresholds covered by this tax. They will take more of their income as distributions of K-1 income rather than salary, because S corporation K-1 income isn't subject to this tax.

The .9% surtax will make some taxpayers operating in LLCs taxable as partnerships consider the S corporation format. Generally entrepreneurs who are active in an LLC pay self-employment tax on all of their earnings from their LLC K-1s.  This will include the .9% surtax if their income is high enough, as well as the current 2.9% Medicare tax. By switching to the S corporation format and taking out a salary under the $200,000/$250,000 limits, they could save both the Medicare tax and the surtax.

The IRS may not take this sort of thing lying down. They recently forced an Iowa accountant to increase his reported wage income from $24,000 to over $90,000 annually to make him pay more medicare tax on his S corporation earnings. Still, there is a wide range of salaries that can be considered "reasonable" for this purpose, and the IRS has yet to show that they can force taxpayers to the $200,000 salary level.

The tax on "passive" income also makes it important for taxpayers, especially part-timers, to document how much time they spend working in the business in 2013.  The most common test for whether a taxpayer is "passive" is whether they spend 500 hours working in the business. Taxpayers may want to get in the habid of keeping a time diary if their participation might be otherwise hard to document.

It's time for entrepreneurs to start pondering these issues for next year. Involvement of a qualified tax professional is important.

-Joe Kristan

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