back

Franchise or No?

April 24th, 2013

Itching to start your own business? Three avenues await you – start from scratch; buy an existing business; or purchase a franchise.

In a prior life for eight years I was general counsel for a franchising company that had over 600 operating stores, so I’ve got some experience.

If you are considering the franchise route, the first rule is check the franchise and the franchisor out very carefully. Early in the process, you must receive a UFOC [that’s the shorthand for Uniform Franchise Offering Circular]. Understand every bit – and get straight answers to items you nay not fully understand. [Be cautious – you likely are talking with a salesman, and he may be working on a commission!] You need to do your diligence before making this substantial investment! Include discussions with other nearby existing and former franchisees.

Here, briefly are some of the pros and cons of a franchise

Pros

· Uniformity – capitalize on a standard business format with brand recognition – if the trademarks are strong [MacDonald’s vs Bob’s Burgers].

· Training and ongoing support – critical, so be sure it will be there.

· Lower risk – A plus, if true. The UFOC will list those in the system and those who have left. Call several of each.

· Marketing prowess – are there running TV ads in your area? All has to do with brand building and awareness.

· Possible financing – it’s not unusual for the franchisor to provide access to financing which today would otherwise be impossible.

Cons

· Loss of independence – You will be expected to “toe the line.” Whatever the franchisor prescribes for the system you will be obligated to follow. If you have a strong entrepreneurial spirit you may start to bristle with these mandates, feeling more like a manager and less like a boss.

· Financial risks – Yes they do exist. Not only is the start-up cost substantial for the franchise fee itself and conforming your space to the franchisor’s requirements, there will be ongoing royalty and perhaps advertising fees [possibly with minimums!]. There is also the risk that the franchisor will go belly-up! Its financial strength is important to you, so check out that information in the UFOC!!

· No way out – Typically you’re committing to the system for 10 years, locking you in to the franchisor’s concept of the ideal. And whatever “goodwill” your unit adds to the system is not owned by you, it’s owned by the franchisor.

· Potential for “black paint spatter” – Not all publicity is good! Another unit in the system is widely reported to be unclean or something else extremely negative. Such is likely to affect your operation.

**********

Disclaimer.

Biz Law News™ postings are provided for informational purposes only – they are not presented specific to any individual’s personal circumstances; they are not legal or tax advice and should not be construed as such.. They cannot in any way create an attorney-client relationship. Opinions and biases expressed or inferred are the author’s only. Believed-reliable third party materials are frequently used. Each reader, as appropriate, should seek independent advice from a tax or legal professional.

2013 © Gordon A Carpenter

A new Form I-9 – a must for ALL Employers

March 21st, 2013

Part of the US response to the recognized immigration and terrorism problems, is to stem the tide of employers hiring illegals – undocumented workers, criminal aliens, whatever they may be called.

Employers [size doesn’t matter] since 1986 have been required by federal law to verify the employable status of every employee hired., and, of course, every new employee (and within three business days of the first work day)! The law applies to all employers — not just those which traditionally hire immigrant workers.

So, what is the mandated way to verify employable status? By using a Form I-9. This form has just been revised and issued and MUST be the form used after May 6, 2013. [If you need it, there is a 50 page Handbook for Employers available at www.uscis.gov [search box I-9]].

They are not filed with the US government, but you had better have them in your employee files [for 3 years from date of hire and 1 year after termination]. The I-9 form lists the acceptable documents (which should be photocopied and retained with the I-9 form in each employee file). The employer needs to verify both identity and eligibility. Some documents (like a U.S. passport) will do both. In other cases, you may need one to verify identity (like state driver’s license) and another for eligibility (like a U.S. birth certificate [original or certified]).

When? This gets tricky – never request the documentation before a job offer is made and accepted or you could face a discrimination claim. Accordingly your stated public policy must be that you hire qualified people with documentation, regardless of whether they are U.S. citizens. While you may not (and should not) inquire when authorization expires, it is acceptable to periodically show evidence of continued eligibility.

It is the employee’s responsibility to provide the evidence [Form I-9 spells this out.] that they are legitimately employable. The document choices must be the employee’s, not the employer’s. If they can’t, then good-bye! And this must be the result for every existing and new employee.

If you’ve overlooked this new requirement, do it NOW.

Compliance failures are significant — record keeping violations alone can run from $125 to $1,250 each. There are other civil and criminal penalties including knowingly employing an unauthorized alien that can range to $12,500 per violation. This is a serious exposure – don’t hurt your business – COMPLY!!

**********

Disclaimer.

Biz Law News™ postings are provided for informational purposes only – they are not presented specific to any individual’s personal circumstances; they are not legal or tax advice and should not be construed as such.. They cannot in any way create an attorney-client relationship. Opinions and biases expressed or inferred are the author’s only. Believed-reliable third party materials are frequently used. Each reader, as appropriate, should seek independent advice from a tax or legal professional.

2013 © Gordon A Carpenter

Reduce your IRS audit target profile.

March 6th, 2013

For obvious reasons the IRS does not publish its internal guidelines for choosing business tax return audits.

Nevertheless, observers note frequencies of items attracting IRS attention.

Small business owners [me included] know that various decisions and estimates are made in preparing your tax returns.

Here are some suggestions which should reduce your exposure to the unpleasantness of an IRS audit.

1. Don’t be greedy. Example — If you your business vehicle is also used for personal reasons, and a fair estimate is 50-50, don’t claim personal use is only 7%. The IRS has supercomputers matching all your numbers with what it has determined is the “norm.”

2. The IRS is very interested in worker misclassifications – you know, where you claim a worker is an independent contractor and not an employee. Your benefit is no tax or social security withholding, no matching the social security portion. You also avoid the various similar state requirements. Even if you properly issue a Form 1099 to the worker, somehow that never gets reported by the worker to the IRS. The result – fewer revenues to the government. Of course, if you are a Massachusetts business, you certainly should be aware that the state has the toughest law in the US prohibiting such misclassifications.

3. If you report your results as an S Corporation, the IRS will check whether you purposely lower your “salary” and then take gobs as a “dividend” and thus avoid the 15.3% self-employment tax.

Those are but a few of the risks. I would urge each reader to ask the chosen tax preparer whether any choices have been made that might put the tax return at risk for an audit.

Of course, you may simply get caught in a random IRS audit. If that happens don’t panic. It is recommended that you have the tax preparer respond, whether in writing or at a face-to-face meeting, not you.

**********

Disclaimer.

Biz Law News™ postings are provided for informational purposes only – they are not presented specific to any individual’s personal circumstances; they are not legal or tax advice and should not be construed as such.. They cannot in any way create an attorney-client relationship. Opinions and biases expressed or inferred are the author’s only. Believed-reliable third party materials are frequently used. Each reader, as appropriate, should seek independent advice from a tax or legal professional.

2013 © Gordon A Carpenter

Identity theft – Some tips to avoid – and to reduce the damage!

February 6th, 2013

Here are several useful tips to reduce the risks of identity theft.

· DO NOT sign the back of your credit or debit cards. Instead put “PHOTO ID REQUIRED”

· When writing checks to pay on your credit accounts, in the memo field DO NOT put your full account number. Credit card companies only need the last four numbers. This prevents all those handling the checks from getting your full account information.

· On your checks, put your work phone number and address, NOT your home number and address. NEVER have your SSN printed on your checks.

· Take all documents in your wallet and scan or photocopy them – front and back! If you have a passport do the same. [Of course, keep the results in a safe place!] If the wallet or passport is lost or stolen you have the essential information and who to contact.

So what to do if the worst happens – your wallet is lost or stolen?

ü Cancel the credit cards immediately. Numbers are on the back of the cards [which you have copied].

ü Submit a report of the loss or theft to the police local to where it occurred. Evidence that you took a reasonable diligent step.

ü Call the three credit reporting agencies to place a fraud alert on your name.

     o Equifax 800-522-6285

     o Experian 888-397-3742

     o TransUnion 800-680-7289

ü Call the Social Security Administration fraud line – 800269-0271

These actions have been shown to truly limit the damage, both financial and otherwise, that could be done.

Social security and retirement. The bad; the good.

January 30th, 2013

First the bad – For those of you who have enjoyed financial success and either have significant self-employment income or are receiving a good salary, you should be aware that the maximum amount of earnings subject to self-employment taxes or social security tax is increasing to $113,700 for 2013, up from $110,100. This does not affect the Medicare tax which of course never stops. Many small business owners are aware of techniques to avoid hitting this max. If in doubt, contact your tax advisor.

Now the good, or at least the better,

For those approaching or having reached retirement age, Social Security benefits have increased from 2012 levels by 1.7% for 2013. The law requires this COLA.

Concurrently, the IRS announced the changes to dollar limits for contributions to the various qualified retirement plans for 2013. For example, for the typical profit sharing plan, the maximum has increased $1,000 to $51,000. You should talk to your tax advisor if any of these limits could affect your 2013 budgeting.

Small business characteristics. Are they yours?

January 10th, 2013

I am a member of a small local group of business owners who meet weekly to share marketing ideas, referrals and testimonials. The group is diverse – an electrician, a carpet cleaner, a plumber, a real estate broker, a jewelry shop owner, a permitting consultant, and so on. And of course me, a business attorney.

At a recent meeting, our leader asked each to explain what gave each member an edge over the business competition.

I listened intently as each took a turn. I was struck by the observation that notwithstanding how different each business was, yet there were innumerable common characteristics expressed as to how the owners maintained their perceived competitive edge!

It might be useful to share some of these with you. If you do the same, HURRAY. If you don’t, perhaps you should rethink the way your business operates.

· Answer your phone – A customer or potential customer wants to talk to you! Even if you know it will be unpleasant, “take your medicine early – it won’t get better.”

· Same goes for e-mails – And do it as soon as possible. Customers want timely response!! Indeed, several members said they never shut down for the day until every phone call and every e-mail has been responded to! A great rule!

· Listen carefully and be respectful – Customers/clients may have difficulty explaining their needs. They don’t always use the right words or lingo familiar to you. Take the time to be sure you have an agreement on the customer’s objective. And never smirk or belittle the customer’s efforts to explain! And it’s never bad to offer suggestions if it might enhance the customer’s objective.

· Be courteous – If a customer comes into your store be prompt in your greeting. Treat his purchases and property she may leave with you with the care you give your own things. If a credit card is used, notice the name and upon closing the transaction, say “Thank you, Mr/Ms XXX. People like to be somebody – not another nobody.

If your business takes you to a customer’s residence or work, be careful not to make a mess and clean up after yourself!!

· And finally [although there are others as well] if your customer has a dog or a cat, love the animal. The pet is always regarded as a member of the family, and if you love the pet, the family will love you! One business owner travels with “doggie treats” for just such reason.

Holiday Parties – Good or Bad?

December 11th, 2012

The year-end holidays are a time of good fellowship and cheer. Many business owners understandably are attractive to the idea that a get-together with employees, and perhaps including significant others, will bring good will to all and enhance the start of a new year.

All that can be true. But without some cautions, such an event can result in liability disasters. And I’m not thinking about the potential for the resulting harassment claims, though those too exist.

Speaking of truth, in an earlier life I was an executive of a large company. And the founding family proudly hosted wonderful a Holiday Party every year. Tragedy struck one year during my tenure, when an employee was tragically run down by an auto and killed while crossing the street to the party venue! I don’t remember the fallout, but I do remember the liability concerns expressed because there was some implied “requirement” that the employee attend.

So can the liability risks be reduced? Yes. Here are some things I urge you to follow!

· In the invitation be crystal clear that while all are welcome to attend, there is no compulsion, overt or otherwise to do so.

· Do NOT have an open bar. Permit each attendee [and only those of legal drinking age] to have two drink tickets and no more. And do not permit bartenders to supplement for cash purchases. [It is, then, incumbent upon the employer to tip the bar staff appropriately.]

· Provide free alternative transportation home, again without any consequences to the attendee.

· Be watchful for inappropriate behavior by anyone – sexual or otherwise – and intercede as necessary.

· While the above assures an out-of-home venue, the same guidelines apply to all parties.

· Check with your own insurer to be sure there are no special “social host” or “liquor liability” policies or riders you should consider.

An employer hosting a holiday function can be a positive experience for all. But be thoughtful in your planning. And the business owners or managers attending are expected that their behavior will be above reproach!!

Happy Holidays!

**********

Disclaimer.

Biz Law News™ postings are provided for informational purposes only – they are not presented specific to any individual’s personal circumstances; they are not legal or tax advice and should not be construed as such.. They cannot in any way create an attorney-client relationship. Opinions and biases expressed or inferred are the author’s only. Believed-reliable third party materials are frequently used. Each reader, as appropriate, should seek independent advice from a tax or legal professional.

2012 © Gordon A Carpenter

Year-end tax planning

November 27th, 2012

Although the 2012 election dust has begun to settle, the likely 2013 tax environment is still murky as ever. What will our President propose for his tax “reform.” Will the “Bush tax cuts” really be allowed to expire? Will our Senators and Representatives really begin to accomplish things cooperatively? Those answers elude me likely as much as you.

So in this current environment with the tax mysteries of 2013 in the future, all I can suggest in the way of year-end tax planning is that we do know the rules for 2012 and there are some tried and true methods to minimize Uncle Sam’s tax time demands come April 2013.

1. Managing Your Standard Deduction. If 2012 itemized deductions are close to your standard deduction, it may be possible to manage whether your standard deduction of itemized deductions will be the 2012 rule. Example – defer paying that mortgage at the end of the year and pay it in early January. Or going the other way, prepay your real property taxes. Why these examples? Because they are the usual Big ticket items in deductions.

2. Check your taxable investment assets. Have losses? Sell them to create offset for long term and short term capital gains! Have long term gains? We do know the maximum tax rate on long term gains for 2012 is 15%! Oh, and there’s nothing wrong with creating tax losses you might not use this year – any excess will be carried forward to 2013 and beyond.

3. Defer income or accelerate deductions. If you are a cash-basis business owner, send out invoices late in December. Likely the cash payments won’t be received until 2013. And if you project 2013 to be a banner year, then don’t pay those various accounts payable until early January.

Since I am committed to keeping Biz Law News simple and clear, I must stop. The essential points are (a) most business owners to one degree or another do engage in year-end tax planning and (b) others, like your tax advisor, will be familiar with your person circumstances and can better guide you through the range of possibilities!

The “fiscal cliff”

November 20th, 2012

As a responsible business person you are undoubtedly aware of the “fiscal cliff” being discussed in all the media. But you may not be aware of the details. Perhaps this Biz Law News will help.

Put directly, as of January 1, 2013 lots of tax law changes occur automatically unless Congress and the President can otherwise agree. These changes include

· All income tax brackets go up from the current range of 10% – 35% to 15% – 39.6%.

· Long term capital gain rates will increase from 15% to 20%.

· Dividends will be taxed as ordinary income, not the current long term capital gain rate.

· The 2% reduction in the Social Security portion of FICA goes away.

· Itemized deductions and dependent exemptions will be phased out for high AGI individuals.

· Various tax credits will return to former lower levels and stricter availability rules.

· Student loan interest will lose its deductibility.

· AMT thresholds will be reduced.

· A 0.9% increase in the Medicare tax on high income wage earners

· A new 3.9% Medicare contribution on unearned income of high-income individuals.

And as for federal spending, again the automatic sequestration of $500 billion+ in each of defense spending and domestic programs must begin in 2013, although Social Security, Medicaid and Medicare are exempt.

The non-partisan and well regarded Congressional Budget Office [CBO] in a May 2012 report concluded that all this would likely lead to a recession in the first half of 2013.

In my simple judgment this is a MESS. What can each of us do? Communicate with your President, your Senator, your Congressman or Congresswoman, and anyone else you think can contribute to a solution and impress upon them that it is not only their responsibility but their duty to do the People’s business and stop the partisan gridlock. There are solutions if smart people are committed to finding them.

**********

Disclaimer.

Biz Law News™ postings are provided for informational purposes only – they are not presented specific to any individual’s personal circumstances; they are not legal or tax advice and should not be construed as such.. They cannot in any way create an attorney-client relationship. Opinions and biases expressed or inferred are the author’s only. Believed-reliable third party materials are frequently used. Each reader, as appropriate, should seek independent advice from a tax or legal professional.

2012 © Gordon A Carpenter

“Biz Law News” Who should read it?

November 14th, 2012

You, if you own a business [and size doesn’t matter!], dream about having your own business or just want to be your own boss.

Do I have your interest yet?

After 17+ years of having my own “small business,” and being successful, I know there are things happening around you that you should pay attention to – but life is so busy you never seem to get to them.

What’s this about?

Biz Law News will be short [I promise], easy to read and understand – snippets of subjects of concern to small business owners, people like you – and me. Things perhaps overlooked. Subjects you promised to “get around to it” but haven’t yet. Some items will be time sensitive, some will be timely, some will be timeless. And not all will be applicable to your situation – but each may make you a smarter and better small business owner.

*********

Disclaimer.

Biz Law News™ blogs are provided for informational purposes only – they are not presented specific to any individual’s personal circumstances; they are not specific legal or tax advice and should not be construed as such.. They cannot in any way create an attorney-client relationship. Opinions and biases expressed or inferred are the author’s only. Believed-reliable third party materials are frequently used. Each reader, as appropriate, should seek independent advice from a tax or legal professional.

2012 © Gordon A Carpenter