I Want to Introduce You to a New Friend

What do you think of when I say, “The IRS?”

Does your stomach clench up a bit? Does your forehead get warm? Maybe the physiological reaction isn’t so dramatic, but I imagine that your mental associations with the Internal Revenue Service of the United States are anything but positive. Fair to say?

Maybe you got off to a rough start, but perhaps that was due more to schoolyard rumors than anything else. It’s possible, too, that you’ve hit a rough spot in your relationship. But I want you to get reacquainted with the IRS and think about the way you two could be friends.

Certainly the thoughts of being friends with someone taking anywhere from 25% to 50% of your hard-earned dough on an annual basis might seem distasteful. I don’t like the Tax Man any more than the next guy, but as long as you accept that the IRS is taking some of your money every year – and you really come to terms with the fact – you may want to get better acquainted.

There are only two business people who should be concerned by the IRS:

1. Those whose accounting is so terrible that an audit would be an unbearable nightmare, and

2. Those who are trying to cheat and break the law.

If you don’t fall into either of those categories (and a lot of my clients, I unfortunately discover, do), then consider what the IRS can do for you. Remember, the government is going to take a nice bite out of your income, but the size of the bite and the ferocity with which it’s taken might be more variable than you’d otherwise imagined, particularly if you are a business owner, CEO, president or CFO.

And I want to be very clear here that everything I am suggesting you do is 100% legal. Do NOT do anything illegal. It’s not worth it, and you will be caught. They’re always caught. Trust me. I’ve seen more fraud than you can imagine.

You might be saying right now, of course there are ways of paying taxes “better” – that’s why I have a CPA. And I bet you have a wonderful CPA, but I assure you he won’t mind you doing a little leg work yourself to figure out how to save your company some money.

An obvious way to save money is to take advantage of the Bonus Depreciation and Increased Section 179 Deduction under the American Recovery and Reinvestment Act, which allows you to fully depreciate a wide variety of assets. That’s right. No schedules this year if you don’t want them. And the IRS is happy to let you do it.

That’s just the tip of the iceberg, though, and the only way you’re going to figure out all of the ways that you could more advantageously be classifying your expenses and spending your money is if you explore www.IRS.gov. Use the search bar in the top right hand corner and start getting acquainted with the IRS. You guys could be better friends than you think.

WARNING: Obviously you shouldn’t go reorganizing your business’s books for 2011, confusing your CPA/account/bookkeeper and doing anything funny. However, since you’re bound to be meeting with your accountant again soon, you should think about all the ways you spend money – consider terms like “petty cash,” “entertainment” and “meals” for starters – and start looking them up. Go to your accountant with a list of questions, suggestions and links, and see if s/he can’t continue steering you in great directions to get, use and save more money in 2012 than you may have in 2011.

If you notice any particularly good tidbits while you’re looking around, share them with us in the comments section below. Happy hunting!

Update Your Plan: You May Need It Sooner Than You Think.

As managing partner of GGG and the Turnaround Authority, I get the pleasure of providing guest posts by our other partners. The following post is by our Partner, Vic Taglia.

My 93-year-old mother-in-law fell and broke her hip six weeks ago. Her surgery was successful, and she avoided most complications; now she is undergoing physical therapy in a rehab center in Atlanta. Until the accident my mother-in-law was mostly self-sufficient and protected her privacy, but this accident has forced my wife to get involved in my mother-in-law’s affairs.

We are now familiar with Medicare, supplemental Medicare, rehab time limits, rehab centers, assisted living facilities, skilled versus unskilled nursing homes, Veterans benefits, etc. We have discovered that my mother-in-law has 21 bank accounts at five different banks and doesn’t trust direct deposit for her Social Security check. We located what seems to be an operative will – from 1982.

Her family has had several changes in the past three decades (whose hasn’t?), and the old will doesn’t match what she has described as her current desires for at least the last decade. Fortunately, my mother-in-law has time to fix this: we have an appointment with an estate attorney next Thursday in the rehab center. Yes, I found an attorney who makes house calls.

So what does this mean for you?

Obviously, you should review your estate plan periodically: every five years is a good idea and more frequently if your life situation changes. In business, however, you have many other plans that need periodic review.

When was the last time you tested your off site computer backups? Not just to see if the data is backed up, but have you tried to use the back up data to see if it really works? I bet there are some businesses in the northeast that wish they had tested the water resistance of their backups before hurricane Irene. Really, who in Vermont would think that a hurricane would cause them a problem – and that is exactly the point.

You need to think about the unthinkable.

When did you last review your succession plan? Who could take over for you if you broke your hip and couldn’t go to your business for a month or more? What is your plan if your VP of Operations is hit by a bus? (In my It’s always the president’s fault blog, I described how this led to the firing of a company president.)

What about your financing plans? How stable is your bank? Can you rely on it for continuing financing in these tumultuous times? Will you find out one day that your bank has all the real estate/manufacturing/service business they need and they would love to see you take your business elsewhere? Nothing bad about you – they just want to move in a different direction.

What about your professional advisors? Have you met your lawyer’s partners? Your CPA’s? Your financial advisor’s? Are you comfortable with them? Do you have confidence in them? I have seen several cases in which the unexpected death of a lawyer or CPA caused significant disruptions in a client’s business.

So think about the what ifs and prepare a plan to counter the unexpected. You may not be as fortunate as my mother-in-law.

You’re Personally Guaranteed for How Much!?!? Let’s Do Something about That

Are you personally guaranteed on anything?

I bet you are. Do you have an American Express business card? Do you have a loan from a bank for your business? What agreements have you made for your business?

One thing I’ve noticed is that the older a business is, the more likely it is that the owner (who is also often the CEO or president) has personal guarantees that he’s forgotten about.

And now’s as good a time as any to review all of your paperwork, find out where you’re personally guaranteed and take steps to extricate yourself from those guarantees.

If your business is successful and profitable, not in debt and established enough to no longer need the personal guarantee of your assets, home and your wife’s car, then try to get out of it.

Why Get Out of Personal Guarantees

Personal guarantees are pretty much what they sound like. They say that if something goes south with your business, you will stake your personal assets on making sure those invested can recover their losses.

So, if you have a business that one day goes belly up – even though in my experience these aren’t “one day” situations but long periods of strong indicators that you need to turn things around – the bank or whomever you have a personal guarantee with, has a legal right to try to recover its losses by going after your personal assets. Depending on the personal guarantee that means your money, your home or whatever else you have or staked could be up for debate and taking.

And that stinks.

If your business goes under, you don’t want to lose everything you have in the meantime. I can’t tell you how many dozens of times I’ve had clients tell me that they aren’t personally guaranteed or that there’s nothing to worry about on that front. Inevitably, when we sit down with all of their paperwork and start going back to the beginning, we find personal guarantees they didn’t know they had or that they didn’t think were still in force. But they were wrong. And they were at risk.

You don’t want to be at risk personally, and that’s why you want to try to get out of your personal guarantees – and not sign them in the first place if you can help it.

In All Kinds of Places

Personal guarantees appear in all kinds of places – and in some that seem relatively innocuous. I recently had a client tell me that when he was setting up credit card processing for his business, the merchant bank wanted him to sign a personal guarantee that if he didn’t pay his bill monthly – a simple, low, regular, monthly bill, mind you – then he would personally guarantee them the recovery of what they believed was due them. And at that, the structure of the arrangement was one that already allowed the merchant bank to withdraw money at its leisure from my client’s bank account.

We’re not talking about being out a lot of money here, but if this contract had a personal guarantee then imagine what other contracts you’ve signed have them.

Personal guarantees do serve a purpose – if your business has no credit or history and is a total risk then it makes sense that someone loaning you large sums of money wants you to be responsible for that money somehow. But if your business has been around a while or we’re talking about a monthly bill or something to that effect, then you need to think long and hard before signing any personal guarantees and about getting out of ones you’re currently in.

Just imagine over the course of 25 years how many personal guarantees you could actually have signed if you weren’t paying attention or didn’t know what to look for.

Have questions about how to get out of personal guarantees? Ask me in the comments section below.

Not Keeping It in Your Pants can be Very Expensive

Here’s something stupid that CEOs, presidents and business owners do: they fail to keep it in their pants.

The biggest case in recent memory concerned the dear old president of these United States, William Jefferson Clinton – or Ol’ Willy as the stories will one day be told.

His failure to keep it locked down had to do with so many issues: his ego, his self esteem, his power, and the simple urges of simple men – or for short, men. Interestingly enough, it’s these same forces – ego, esteem, power and manly urges – that drive men to start companies and become presidents in the first place (money could be added to the list, too), but that’s no reason to get led around by your lesser brain.

If for no other reason (and when I’m talking about neglecting reasons I include things like the sanctity of marriage, practical morality, metaphysical morality, putting your family or business first, etc.) than to avoid getting caught, do not cheat on your wife or spouse while running a company.

Don’t cheat on them anyway but especially if you’re running a company it’s a bad idea. You will get caught – especially if your company is facing a crisis.

It always comes out . . . and not in the way to which you may have grown accustomed.

What’s worse is that these issues always have a way of arising when things are already headed south . . . and not in the way to which you may have grown accustomed.

I was dealing with a guy who was originally in the business of manufacturing apparel. He couldn’t keep focused on his core business, however, because he had a dream of designing the perfect yacht.

Lucky for him, he succeeded in making such a great yacht that he ended up on the cover of a major yachting magazine for his unbelievable hull design.

Unlucky for him, when he and his yacht were photographed for the cover shoot his scantily clad girlfriend, simply busting with joy and enthusiasm, ended up on the yacht in the background of the photo.

When his wife saw the cover of the magazine, she filed for divorce and took the company with her. After all, the business was started with her daddy’s money.

Another quickie, so to speak. The CEO and Chairman of the Board of a retail establishment – in the middle of his company’s bankruptcy – got caught with his kids’ babysitter. The messiness that ensued caused him to lose focus on the company’s issues, which ultimately had to be sold off in pieces.

Both of these men (and I’ve got 20 more of these stories) lost everything – businesses, money, families, and the lives they had built – because they couldn’t keep it in their pants.

Not keeping it in your pants can be very expensive.

Know anything about this and want to share a story?