20+10

ESOP offers way out
for CEOs who missed sale

by Beth Ewen

MANY BUSINESS OWNERS are singing the blues right now because they didn’t sell their businesses a couple of years ago for a high valuation.  Now that times are tougher, owners can’t get their price – and many baby boomers are unable to retire as planned.

A change of tune is possible by considering an employee stock ownership plan (ESOP) as an option to selling outright. This is an opportunity for owners to take the first step toward a transition out of the business by selling at least 30 percent of their company to employees. The resulting cash can allow them to start making lifestyle changes toward retirement or shifting into another venture.    

Put people first in tough times

Here’s my first tip for navigating in challenging times: keep your people busy and generate a sense of constructive urgency. Get them working on something with achievable near-term goals. If business is slow, consider bartering with other companies so your people can work on a project that benefits your barter partner and your company receives something valuable in return.

Another way to keep employees energized and improving their skill sets is through training and continued focus on research and development efforts.

Shortsighted companies sometimes cut training or R&D budgets during slow periods, but that leaves them in a one-down competitive position as things improve.

Keeping employees pumped also involves recognizing their efforts and celebrating their big wins. But don’t stop there. Even small victories or milestones, such as employment anniversaries, should be acknowledged as you seek to keep morale high and people focused. Handwritten thank you notes (on actual paper!) sent to the employee’s home sends a much more powerful note than a casual e-mail at the office.

Put people first in tough times

Here’s my first tip for navigating in challenging times: keep your people busy and generate a sense of constructive urgency. Get them working on something with achievable near-term goals. If business is slow, consider bartering with other companies so your people can work on a project that benefits your barter partner and your company receives something valuable in return.

Another way to keep employees energized and improving their skill sets is through training and continued focus on research and development efforts.

Shortsighted companies sometimes cut training or R&D budgets during slow periods, but that leaves them in a one-down competitive position as things improve.

Keeping employees pumped also involves recognizing their efforts and celebrating their big wins. But don’t stop there. Even small victories or milestones, such as employment anniversaries, should be acknowledged as you seek to keep morale high and people focused. Handwritten thank you notes (on actual paper!) sent to the employee’s home sends a much more powerful note than a casual e-mail at the office.

How to collect
money that’s due

If your business is burdened by delinquent accounts, take steps tocollect the debt. Informal collection should start when the account is30 days past term as the likelihood of success is dramaticallyincreased the sooner you take action.

First, identify the debt and debtor. A business owner should reviewany sales documentation to determine whether there are provisions thataffect collection efforts. While the debtor is typically identified inthe sales documentation, other parties may be liable for theoutstanding account.

For example, although a partnership is a distinct entity, allpartners of a partnership are generally liable for the obligations ofthat partnership. But shareholders and officers of corporations arerarely personally liable for corporate debt. An owner may personallyguarantee payment. Accordingly, it is important for a business tocorrectly identify the debtor and what remedies may exist against thatdebtor and others to evaluate collectability.

Then, start in-house collection activities. Start by sending pastdue reminders or calling your accounts directly. Payment demand lettersmay also be used. Keep in mind the sooner you take informal collectionaction the more likely you are to bring the money home withoutincurring the expenses of formal collection.

Turn company’s bad
fortune into cash

Because of the unusually tight credit markets we now face, the greatestopportunity for many small businesses to generate cash soon may be witha refund application to the Internal Revenue Service. The federalgovernment’s American Recovery Act will allow many taxpayers fargreater loss recoveries than otherwise would have been available.

A net operating loss is generally the excess of business deductionsover gross income for a particular tax year. Most losses can be carriedback two years to be offset against income from two years ago with anyremaining loss carried forward up to 20 years from the loss year untilfully used. An election can be made to only carry forward the loss.Only an income tax-paying entity such as an individual or a Ccorporation (and in some cases an estate or trust) reports netoperating losses and makes any needed net operating loss elections.

Pass-through entities such as S corporations, partnerships andlimited liability companies taxed like partnerships cannot have netoperating losses but their taxpaying shareholders, partners and memberscan. The act allows eligible small businesses the opportunity to electto carry back a net operating loss three, four or five years. Theelection is available to eligible small businesses that have netoperating losses arising in tax years ending in 2008, or if thetaxpayer elects, tax years beginning in 2008.