B2B CFO^®    (877) 4-B2B CFO

One of the questions I get most is should a buyer form an LLC or an S-Corporation?

Most of the time people form an LLC without getting adequate legal and tax advice because "someone told me that is the best way to do it."

There is no standard answer to this question. Each individual situation should be analyzed for the best choice of entity. A buyer should always seek legal counsel regarding liability and business reasons for the choice of entity.

Here are a few of the main differences between the two in layman's language.

S Corp earnings have to be allocated based on ownership percentages; LLC earnings can be allocated according to whatever formula the members agree to.

• An LLC usually has a limited life and the interests are not freely transferable. The LLC usually terminates upon death or disability of one of the members. A corporation usually continues unless legally terminated and the interests in a corporation are usually freely transferable (seek legal counsel).
• Distribution of appreciated property, such as real estate, is a taxable event at the entity level in an S Corporation and is not a taxable event at the entity level if distributed from an LLC. Simply put, you probably don't want to own real estate or other appreciating property in an S Corporation.
• An S Corporation is more formal regarding the keeping of corporate minutes and other corporate formalities; the LLC is less formal and less restrictive (seek legal counsel).
• For tax purposes, with some exceptions such as an LLC for the rental of real estate, the net income of an LLC used for an active trade or business is treated as self-employment income of the members and is subject to 15.3% self-employment tax. The net income of an S Corporation is not subject to self-employment tax but the shareholders of an S Corporation are required to pay themselves a reasonable salary.

These are just a few examples and are certainly not all-inclusive. You should advise your clients to seek adequate legal and tax advice before forming a new entity so they can make an informed and educated decision. As you can see, forming an entity based on a friend's or associate's advice is not a valid reason for choice or entity.

Please contact one of your attorneys or tax advisors for additional information regarding choice of entity.

--Greg DeFoor, CPA

Winslett & DeFoor CPAs PC

Certified Public Accountants - Management Advisors

2255 Sewell Mill Road, Suite 330 | Marietta, GA 30062

Tel: 770-579-9558 | http://www.winslettdefoorcpas.com/

Circular 230 Disclaimer: Any tax advice contained in the body of this presentation was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

The Power of the Pause: Taking a Break for Success

Don't just do something, sit there! - Dr. Edward Frost

Ever since a mid-day meal became a "power lunch" and a week off morphed into a "working vacation," we seem frantically driven to pack more into every waking, and sometimes non-waking, moment. We eat breakfast over our computers and text message over lunch. We listen to tapes while sleeping and catnap while working. We exclaim, "There aren't enough hours in a day!" and "How will I fit it all in?" In short, many of us fill our daily business with manic busy-ness and then pine for a way out, but fear and anxiety trap us in a spiral of escalating activity to be ever more successful.

The good news is yes, there is a way, but it's not what most of us think. It's not cramming even more in, nor training our brains to multi-task more efficiently. Instead, it's nothing. More accurately, it's a technique about nothing (to paraphrase "Seinfeld,") that I call "Power of the Pause." With it, I'm convinced we're able to foster even more success than our default of always doing something.

As a business coach, I discovered the "Power of the Pause" while working with hard-driving entrepreneurs. These people wring their hands over feeling they should be doing more, especially when closing a sale. When a deal starts to languish, anxiety takes over and they do what they know best - i.e., more of what they did originally to interest the buyer. They cover benefits, handle objections, and reiterate value. In short, they talk... and talk... and talk some more, hoping they'll convert the prospect, who can't get a word in edgewise, into a paying customer.

It's easy to jump into a client's anxiety boat. After all, they feel discouraged because they have tried everything to attract more clients, build their business, and make sales. It feels natural to commiserate by sharing their fear and dejection, and then to help them feel better by offering support and encouragement. However, the more enthusiastic and rah-rah we become, the more we create noise in everyone's mind, heighten anxiety, and reinforce the strategy of trying to force things to happen.

That's where the pause comes in. It's small, powerful, and takes only a moment. Simply center the body, relax the shoulders, take a few deep breaths, and say nothing... for a minute, maybe two. This is an eternity for some, but by letting stillness prevail, natural problem solving processes begin to flow.

If we replay the scene with the nervous entrepreneur about to lose a sale, the pause works two­fold. First, when the client starts down path of doom and gloom, we as coaches need only shake our heads in acknowledgement of hearing, and say nothing. Simply let the concerns be voiced and then allowed to waft to the floor. It's at this point the client can "hear" the words just spoken in full fidelity, undiluted by the usual tidal wave of sympathy. It's in these moments where clarity of thought emerges, and solutions reveal themselves to the unguarded and receptive mind.

Second, the pause will work for the business owner's interaction with a customer - for all the same reasons. When the customer starts to back-pedal and offer objections, this is a great time for the salesperson to sit back, breath, and allow a few beats of silence to fill the room. It stops the train of unbridled thinking, allowing real obstacles to be managed.

The pause works equally well in reverse, when needing to remove a client or customer who no longer is a good fit. Simply allow time to get ready, breath, and then initially review the positive aspects of the working relationship. Next comes the "scary" part. Gently convey that something you're thinking (the negative prediction) may be upsetting. In reality, the client often feels fine and not surprised at all. Then, state what needs to be done - end the professional relationship - and stop. Do not say anything and give the client time to digest and reflect. After a response, take one more breath and reflect their feeling. "I see that you're confused - or upset, ok, disappointed." Then stop again, breathe, and get centered. Feel the confidence.

A key component to the pause is breath. In yoga, participants create openness in their bodies by intentionally "sending" breath to the places that are blocked and tight, thus releasing the tension and allowing energy to flow. The pause is like a mini yoga moment. By acknowledging the tension and then giving permission to pause, transformation occurs. Both parties reflect and make conscious, thoughtful decisions - not reactive, impulsive ones. The results are immediate and often astonishing.

If the pause is so effective, why is it not taught in sales courses and seminars? The answer, I believe, is our cultural role models push us to work hard and stop only when exhausted. Slowing down is seen as weakness, even laziness. While difficult to resist this cultural message, I challenge all of us to try. Americans are the world's leading workaholics, with all the attendant dysfunction. Breaking the cycle can only help us. Harness the Power of the Pause - It will open the door for better decision-making and even greater success.

Margo Geller            http://www.margogeller.com/            margo@margogeller.com           404-321-2131

Taxpayer Wins Tax Shelter Penalty Issue

In a ruling that should give taxpayers hope, the United States Tax Court in Swanson v. Commissioner, T.C. Memo 2009-31 confirmed that the usual rules of penalty abatement law apply equally to coordinated tax shelter cases. The ruling is significant because in the past taxpayers have seldom won penalty abatement issues in coordinated tax shelter cases.

Tax shelters are financial products that are generally marketed to high income individuals to generate losses to shelter income for that individual. A tax shelter becomes the target of a coordinated IRS audit effort when the IRS learns that the transaction is being marketed and the IRS determines that a significant purpose for the transaction is the avoidance or evasion of federal income tax. A common sense test for whether a transaction is a sham is whether the taxpayer would have made the business decision to engage in the transaction absent the tax benefits. If the IRS believes the answer to that question is "no" then, on audit, the IRS will disallow the tax benefits of the transaction as a sham and impose penalties to deter the taxpayer from future similar investments.

Mr. Swanson's "tax shelter" investment was in a partnership called California Jojoba Investors. The jojoba plant produces oil that scientists touted as an alternative to petroleum back in the 90's and early 80's. In California, when Mr. Swanson's partnership was formed, public transit buses were using jojoba oil rather than petroleum. Prompted by the appeal of an alternative power source, Promoters developed partnership investments in jojoba plantations with the partnerships taking large research and development losses that then flowed through to the partners on their individual K-1's.

The jojoba transactions became the subject of a coordinated IRS audit effort in the early 80's. Because the partnerships were TEFRA partnerships, the audit of the underlying transaction was handled at the partnership level. At the conclusion of the partnership case the IRS issued notices of deficiency for the affected item adjustments to the individual partners.

Mr. Swanson received his notice of deficiency in 2005 alleging negligence penalties and filed a Tax Court petition denying he owed any negligence penalties. The Tax Court agreed with Mr. Swanson and abated penalties arising from his investment in the jojoba partnership. The Tax Court determined that penalties were inappropriate because of the taxpayer's lack of sophistication and his good faith belief in his licensed tax preparer who verified the investment with independent certified public accountants. Also important to the Court was the fact that the taxpayer was not investing in a partnership offering "too good to be true" tax benefits. Mr. Swanson's investment actually exceeded the tax dollars he saved because of the investment.

The IRS pursued multiple jojoba partnerships in the 80's and 90's with most partnerships agreeing to be bound by various test cases. Most partners paid the taxes and penalties at the conclusions of the partnership cases. Of the partners who contested the imposition of penalties only Mr. Swanson was granted relief.

Vivian Hoard of Taylor English Duma LLP successfully represented Mr. Swanson in this matter. Ms. Hoard has successfully represented investors in other coordinated tax shelter cases as well as partnerships wrongfully accused of being sham transactions. For more information on this topic, contact Vivian at 770-541-2223.

Great Job George,

I just wanted to personally thank you for your continued efforts.  This 2 Day Business Plan Boot Camp was just great, and delivered on what we originally promised.  Thank you so much for making this a real hit.

jk

George:

The 2 Day Business Plan Boot Camp was outstanding and I am inspired to take my business to another level. I am looking forward to working with everyone on the Mastermind group.

Thanks to  you, Nichelle, Eric, Steve and Fred for all your hard work and information.

Karen

Karen Trylovich
CEO and Event Coordinator
770-330-3557

Karen@aclassicalaffair.com

Event Planning and Dream Realization

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Ten Tips for Billing in a Recession - The Accounts Receivable Network

There are few guarantees in accounts receivables; the invoices sent out can be timely, accurate and delivered to their recipients with hot coffee and fresh donuts, but still you can only hope they produce cash in the bank.

Especially during an uncertain economy, the billing process must be as thorough as possible to increase your odds of getting paid. Here are a few tips:

1. Automate. If possible, all invoicing should be done through the ERP or an accounting system utilizing workflow, suggests George Bergmark, a partner with B2B CFO in Atlanta. ERP systems help organize all the documentation required for the quick approval of your invoice: purchase orders, shipping information and receipts, contracts and original pricing, and contact information for the people involved.

"If you have scanned in all the documents related to the invoice, there's no scrambling when it's time to send it," says Bergmark. "'Where are the receiving documents? Where are the POs?' It's in the system." Project managers or sales managers should continue to track and, if necessary, scan, any documents related to an invoice on a weekly basis.

Organized invoices are sent out faster and are easier for accounts payable departments to approve, which makes the money get into your account faster. Every bit helps. "You want to be the first invoice that company receives in a month, especially if that company is cash-strapped," says Bergmark.

2. Deliver invoices electronically. Whether through an electronic network, EIPP network, EDI or email - fax if you have to - but don't lose the several days it takes an invoice to travel through the mail to its destination. Also, it's easier to confirm an email address or fax number than get the correct address or PO Box number; companies can have multiple addresses and it's easier to resend an email than a paper package through the mail. And your customer will appreciate any format that saves work on their end and speeds processing.

3. Delegate invoicing responsibility to the person responsible for the work, e.g. project manager, doctor, or attorney. "My experience has been that things get delayed when invoicing is delegated to accounts receivable because they have to go back to project manager to gather documentation, and it's a back and forth thing. It can take 30 or more days to get it out. The project manager will work to get it out the door," says Bergmark.

4. Invoice as soon as work is complete, on or before the contract date --- not 30 days later. That means making sure all of the documentation is gathered and organized before the invoice is due. Since it can easily take 30 days to collect the correct information, begin work as soon as the work order is fulfilled.

5. Make sure associated reimbursable expenses are ready to go with the invoice. Reimbursable expense reports should approved through the system at least weekly, and back up documentation scanned and available in the system. When Bergmark worked for a large company in Alaska, a primary tactic for reducing DSOs was not allowing reimbursable expense accounts to hold up an invoice. Documentation for those expense accounts should be scanned weekly into an ERP or accounting system, and the reimbursable expense charges should be ready to go when the invoice is.

6. Implement a process for prompt approval. Reviewing manager should have 24 to 48 hours to approve outgoing invoices; if not done, the approval request should be escalated up the chain for immediate approval. Consistently followed, this policy not only ensures timely approvals, but spurs them from the reviewing manager (after one or two escalations). This is easy to do in an automated workflow system.

7. Offer a discount for early payments. Any amount less than one percent might not be worth the effort for payables to get it out early, but most companies are attracted enough by that one percent to take it without raising it to two percent, says Niven. However, be prepared for the folks who take the discount without making the early payment.

8. Call before the invoice goes out, especially for smaller companies. This first call is an intelligence gathering mission, says Dennis Nevin, CPA and a partner with B2B CFO in Arizona. Verify that the goods were received, discuss any problems and confirm payment terms. "Sales people will tend to make promises AR doesn't know about, like 'You don't pay until you're completely happy' - whatever that means. Flush out any objectives right away, rather than allowing problems to surface at the 60 days past due date." Also in that phone call, make sure the invoice will go to the correct person, the person who has the power to approve it and get a check cut.

"This seems to be most politically acceptable time to call," he says. "You'll hear some good things, like: 'We've changed our procedure. Make sure you send a copy to AP and the purchasing department or the receiving department, etc.' You'll hear all kinds of valuable tips with this phone call."

9. Call again, two days after the invoice was sent. Make sure it was received and not lost on someone's desk. To be the company that gets paid, especially when money is tight across the country, means developing a relationship with the customer's accounts payable folks. This second phone call is still a call offering to be helpful, rather than an aggressive collections call.

10. Call a third time the day the payment is due, especially if you have offered an early payment discount. If the company is holding onto their payables because they are having cash flow problems, reinforce your discount terms and suggest they pay discounted invoices only at that time.

Remember that the squeaky wheel gets the cash. Making a number of phone calls every month to develop relationships with people in the AP departments of your clients is a lot of work, says Niven. "This is one of the hardest things to do on continuing basis. If you consistently make these calls, you will do a tremendous job reducing DSO. You might not want to make 25-30 calls in one day, but if you get out of habit, no one knows you will be calling them and you won't get the invoices paid."

In a recession, even clients who have paid regularly for years can have cash flow problems. Companies that always paid after 30 days may start to pay at 40, then drag it out to 45 or 50. These small changes that happen as a company starts to have problems require human interventions; they are not solved by automatic systems. Companies with cash flow problems will put off every invoice they can, but usually the accounts with the relationship - "this person calls me all the time, I better pay them" - get the job done and the money in the bank … with or without the complimentary donuts.

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Intellectual Property Issues When Dealing with Layoffs

 By Robert Madayag,  Attorney - Woodcock Washburn LLP

In this perilous time, more and more companies are coming to the realization that they will need to  either cutback hiring of new workers or to lay off existing workers in order to stay afloat.  Already facing an uncertain future, and upon entering a job market that is one of the most difficult in decades, the laid off or fired ex-employee may develop a degree of animosity, anger, and fear.  These emotional issues can lead to legal issues in the employment law sphere.  Diligent companies are taking the steps to protect themselves, as best they can, from possible employment lawsuits, such as improper termination or WARN Act lawsuits

But, even the most diligent companies may overlook intellectual property issues inherent when dealing with cutbacks or layoffs.  While the immediate risk may be unknown, the potential loss of intellectual property rights can damage the company far worse than any improper termination lawsuit can, especially if the company is highly dependent upon its intellectual property to protect its source of revenue.  The loss of control of confidential intellectual property can lead to the downfall of a company.

Take for example an employee that was recently fired.  The company brings the employee into a private room and informs the employee that they will need to be let go.  Knowing that the employee may make an attempt at retribution, the company sends an escort with the employee to their office to allow them to collect their things, mindful of any attempt of the employee to either access the computer system or take anything other than personal belongings.  The company thinks it is okay, and this is the start and stop of where a lot of companies deal with intellectual property issues in employment related matters.

Now, let us continue the scenario.  The employee was a technician that, for several weeks, knew he or she was  going to be fired, or at least that there may be a good chance of being fired.  The employee, for whatever reason or intent, several weeks prior to the firing  downloaded technical documents and customer mailing lists to the ex-employee's personal computer.  All unbeknownst to the company.  The employee also was recently offered a job at a competitor.  All of a sudden, the company realizes that its customers are being contacted by the competitor and that the competitor has miraculously increased its competitive position.  Sound familiar?  This scenario happens all to often, and in today's world, may be happening with increased frequency.

So, what is a company to do?  While it is impossible to protect against theft of intellectual property in every possible instance, at the end of the day, what a company needs is an inclusive intellectual property policy that sets forth procedures, contracts, and systems to protect all their intellectual property as best possible.  But, this is a process that can take some time and money; precious resources that a company may not have.

So, prior to implementing an intellectual property policy, here are some basic steps that a company can take:

1) Ensure that all employees have signed an agreement assigning intellectual property created by the employee to the company and agreeing to maintain the confidentiality of information gained during employment. Typically, to reduce paperwork, this assignment provision is included in an employment agreement. Take a look at the records of your employees. Your human resources manager or another person familiar with the paperwork can do this. If any employee has not signed assignment paperwork, perform an investigation as to why and fix the problem.

2) Look at how your company operates to see what processes or information provides value to your company. Often, companies will only look to things traditionally known as "intellectual property" to protect, such as trade secrets and patents, but the list goes further than that. Does your company have any operating procedures, best practices, distribution agreements, partnerships, etc. that add value to your company? Anything that can add to the bottom line should be included. Next, document the intellectual property clearly and concisely and figure out ways, if possible, from letting the intellectual property leave the company. Sometimes, you will not be able to assert ownership over what you may consider your intellectual property. For example, a computer technician may have been trained by your company to perform maintenance in a certain way that you feel is the best way. These ways may be known in the community. What do you protect? While it may be difficult to keep the technician from using the same techniques in his or her new position, you may be able to protect the fact that your company uses the techniques through confidentiality provisions in their employment agreement. Again, if something adds value, protect it as best you can.

3) Identify which employees have broad access or special knowledge, "Special Employees", about the processes for information that provide value to the company. When making downsizing decisions take into account the risks associated with termination of Special Employees. Special Employees tend to be the proverbial "brain drain" that companies face when downsizing. If the Special Employee is the only one that knows where to find payroll documents, if laid off, your company could face a serious crisis merely from the loss of the specialized knowledge. When forced with the prospect of laying off an employee whose skills and/or knowledge are not fungible, companies may need to do a special kind of layoff that serve the purpose of the layoff while still maintaining, as best they can, the special knowledge. For example, the laid off employee may be offered a part-time consulting position. There are a myriad of ways that may be used.

4) When a termination decision has been made, determine the type of information that has been accessible to the employee to be terminated. Ask managers and supervisors to be diligent in maintaining control of information that their direct reports may attempt to obtain and keep. Has someone been staying later at work than normal? Has someone been working behind a closed door excessively? For transfer of information over a computer, tracking software, which can be relatively inexpensive for basic configurations, can be installed. For documentation, it may be in the company's best interest to track access to certain documents, like customer lists or operating procedures.

5) For employees that were already laid off, has the internet activity, email account(s) and computers associated with those employees been looked at to check to see if there is any unusual activity?

6) Draft a memo for your employees placing them on notice that the company considers its assets valuable and will protect them. The memo should be drafted in a way as not to sound like the company does not trust its employees. Rather, the memo should be drafted in a way that instills an understanding in the employee that the company relies upon its intellectual property for revenue and may not be able to survive if these assets are not protected.

At the end of the day, it is best to have an IP Policy in place and actively implemented. If your time and budget are limited, taking the steps above can go a long way towards protecting your intellectual property.

Robert A. Madayag, III
Associate
Woodcock Washburn LLP
1180 Peachtree Street, Suite 1800, Atlanta, Georgia 30309

Tel: 404.459.5649 
Fax: 404.459.5734

Mobile: 678.477.3468
Email: RMadayag@woodcock.com
http://www.woodcock.com/

Recently, I visited with an attorney that is setting up a new law firm.

The reason this seasoned attorney was creating the new practice was caused by internal theft at her old partnership.

 Her partner had embezzled over $1,000,000.  While she and the staff thought the partner was suffering from health problems, he had set up another company bank account using his home address and was working hard... just not for the firm...

 The receptionist had conspired with the embezzler or at least looked the other way.

A lawsuit was filed, and a judgment of over $800,000 was awarded to the cheated partner.  She may never see the money as the offending partner is now in rehab.

The loss is not only the cash to the firm, but the time and effort involved in the lawsuit as well as the process of rebuilding the trusted relationships with the client base for the new law firm.

Are you certain that your company is not open to theft from the inside?

Now is the time to review your policies and procedures to reduce the chance of internal and external theft.

December is always a busy month with a flurry of holiday and year-end activities. In the rush of events, it's easy to forget that the end of the year is also a very important time for tax planning. This year is no exception. Indeed, 2008 has been one of the busiest years for federal tax legislation. Congress not only created some new tax breaks, it also extended many others. Many of these tax incentives are temporary so if you want to take advantage of them, you need to set your plans in motion now.

For the complete Article go to Galanti & Company PC Certified Public Accountants