What Should I Do After Acquiring A Business?

One of my favorite sayings is “the only constant is change.” This saying certainly holds true in the business realm where it seems that the mandate is also “growth and go.”

Experience seems to show that upon the purchase of a business the new owner needs to roll-up his or her sleeves and really get to work.

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The following steps, as noted by Business Daily, help to summarize a recommended agenda for a new business owner to focus on:

1. Do an audit of the existing processes and practices: "Regardless of the entrepreneur's background and the amount of due diligence conducted prior to an acquisition, the entrepreneur will never truly understand the business until he or she starts to operate it," said Michael B. Shaw, chair of Much Shelist law firm's business and finance group. "Every company is unique, and an entrepreneur needs to truly understand that business before deciding what changes to make."
2. Communicate with the existing staff members: Mark Davis, CEO of Puro Clean, said one of the biggest challenges a new owner will face after an acquisition is fear throughout all levels of the organization.
3. Study and understand the company culture: Before you try to improve or alter the company culture, stop and analyze the existing culture to understand the key factors that led to the company's success, Shaw said.  "Rather than starting over with [your] vision for the culture, those key factors should form the foundation for the culture's evolution, which should be an organic process," he added.
4. Plan your changes carefully: Making numerous, significant changes right away isn't always the best approach when you acquire a business. Shaw said that although you may be eager to make an impact, big moves like this shouldn't happen overnight. "An entrepreneur should begin implementing his or her changes in a manner that minimizes disruptions to employees and customers," Shaw said.
5. Be transparent about the changes you're making: Change can be difficult for all parties involved, and people won't always be happy with the decisions you make. The best thing you can do is to be up front and honest about any impending changes and how you arrived at them, said Matt Moss, a franchise owner of Dogtopia.

In conclusion, I think it’s fair to say that the single most important factor a new owner should give attention to is communication. Fear of the unknown can be remedied by working on eliminating things that are unknown, and good communication is a crucial part of that.

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Overlooked Tax Breaks For Individuals

With so many possible deductions and credits available to the individual taxpayer it’s no surprise that the possibilities can get easily lost in the shuffle.

This article identifies some of the tax breaks that frequently get overlooked by the individual taxpayer. The points below will help reduce the confusion of what can and cannot be deducted in your 2016 tax returns.

Kiplinger has identified 23 of the most overlooked tax deductions. Included in these 23 are the following key highlights:

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• Reinvested Dividends: this is the one that former IRS commissioner Fred Goldberg told Kiplinger millions of taxpayers miss, costing them millions in overpaid taxes. If, like most investors, you have mutual fund dividends automatically reinvested to buy extra shares, remember that each new purchase increases your tax basis in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares.
• Out-of-Pocket Charitable Contributions: It's hard to overlook the big charitable gifts you made during the year. But little things add up, too, and you can write off out-of-pocket costs incurred while doing work for a charity.
• Student Loan Interest Paid By Mom and Dad: If parents pay back a child's student loans, the IRS treats the transactions as if the money were given to the child, who then paid the debt. So as long as the child is no longer claimed as a dependent, he or she can deduct up to $2,500 of student-loan interest paid by Mom and Dad each year.
• Estate Tax on Income in Respect of a Decedent: This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax. Basically, you get an income-tax deduction for the amount of estate tax paid on the IRA assets you received.
• Refinancing Points: When you buy a house, you get to deduct in one fell swoop the points paid to get your mortgage. When you refinance, though, you have to deduct the points on the new loan over the life of that loan. In the year you pay off the loan—because you sell the house or refinance again—you get to deduct all as-yet-undeducted points. There is an exception to this rule if you refinance a refinanced loan with the same lender.
• American Opportunity Credit: If the credit exceeds your tax, it can trigger a refund.
• Don’t Unnecessarily Report a State Tax Refund: The refund is taxable (reportable) only to the extent that your deduction of state income taxes the previous year actually saved you money.

The bullet points above are some of the frequently over-looked deductions and credits identified by Kiplinger. However, for even more helpful resources, see GoBankingRatesfor a list of “50 Tax Write-Offs You Don’t Know About.”

At this point, you should be asking yourself whether you are getting all the deductions and credits you are entitled to. Of course, this is an analysis that should be done in conjunction with an experienced tax professional otherwise you might be leaving “money on the table.”

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Funding With Small Business Loans

The core problem for every entrepreneur and small business starting out is the same.

They need cash.

That holds true whether it’s a brand new business who needs cash to realize a great idea or a company who just needs to gain a competitive advantage and achieve growth.

Part of it, of course, is acquiring hard assets—equipment, real estate, office space, warehouse space, technology—and soft assets, such as regular, reliable employees and, occasionally, consultants who help guide the direction of the business.

The pressure to acquire all the needed assets to execute a great idea, especially on lone entrepreneurs, can be overwhelming. It’s especially daunting when the entrepreneur or small business sees a significant cash shortage and knows they will have to get help financing their goals.

This is where the Small Business Loan steps in.

Knowing how these loans work is critical, however. Of course, this is something we’ve covered in past articles, but today we will be revisiting those general principles with a slightly different approach on the topic as well as some new information not covered previously.

Here are a few key points to help you better understand this financing alternative:

SBA Programs

Perhaps one of the most well known funding alternatives is the financing available through the Small Business Administration (“SBA”). One of the advantages of the SBA is that it offers products specifically geared toward small businesses.

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This definition from bplans.com zeroes in on the nature of an SBA Loan:

[The loan] is not a direct loan from the SBA itself. Rather, it is a loan that has been made by a commercial lending partner, but that the SBA has guaranteed for these partners and that has been structured according to SBA requirements. This helps to minimize the risk for both partners and borrowers. Only those without reasonable access to other funding sources are eligible for such a loan.

Regular Bank Loans

The best place to get a small business loan is still a bank, says George Cloutier, CEO of American Management Services, a consultant to small businesses. Banks typically offer the lowest interest rates and many have established reputations as trustworthy lenders, though it’s not always a walk in the park for small businesses to get funding from a bank.

As NerdWallet points out:

Small businesses have a tougher time getting approved due to factors including lower sales volume and cash reserves; add to that bad personal credit or no collateral (such as real estate to secure a loan), and many small-business owners come up empty-handed. Getting funded takes longer than other options — typically two to six months — but banks are usually your lowest-APR option.

Small Business Lines of Credit

The primary difference between a line of credit and a regular loan is that with the loan it is drawn against usually once, that is, for the full-approved amount of the loan.

With the line of credit, on the other hand, it is drawn against on an as-needed basis. When the business’s cash position permits a pay-down of the line of credit’s outstanding balance, the borrower is typically permitted to do so.

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The credit line situation is potentially less expensive than the regular loan situation because the outstanding principal amount of the line of credit is only for funds that have been put to immediate productive use, and hence, the associated interest charge is for immediate productive use instead of just sitting in a bank account somewhere. However, the fees (other than the interest cost) for putting a line of credit in place are usually more expensive than a simple loan.

The bottom-line is this: a credit line helps the borrower draw against the line of credit as frequently as needed (subject to outstanding principal limitations), and repayments less than 100 percent of the outstanding principal amount can be made as frequently as it makes good business sense to do so. It is incumbent on the borrower to pay attention to sensible cash management practices because of this flexibility associated with maintaining a line of credit.

BPlan.com says this about the line of credit option:

…for startups, a line of credit can help get your business off the ground, as many new businesses have limited capital needs, and a loan can quickly eat into your profits. For businesses that are already on their feet, a credit line offers a safety net, as well as great flexibility that business owners can use creatively to their advantage.

As this report notes, finding, applying, and getting approved for small business loans can be difficult, but the more prepared you are, the better. Be attentive to the following, as discussed by NerdWallet:

• Pinpoint why you need the money. Ask yourself how this loan will help your business.

• Find the right loan. Choose a type of business loan based on your needs.
• Find the best lender for you. Compare options based on the cost and terms of each loan.
• See if you have what it takes to qualify. Gather information including your credit score and annual revenue.
• Get your documents ready and apply. Know what documents lenders will need from you ahead of time.

In summary, if you keep the principles in this article in mind and look carefully at all of the financing options, you are more likely to get the crucial funds you need that will turn your big idea into a big success.

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What are HSA Accounts?

A Health Savings Account (HAS) is a mechanism for saving money that is specifically earmarked for paying one’s medical expenses.

These accounts work similarly to other savings plans in the sense that pre-tax contributions are made that grow tax-free, and tax-free distributions are eventually made that are spent for qualified medical expenses.

Their availability is limited to individuals who have what are referred to as high deductible health care medical insurance plans. Thus, HAS savings accounts are an integral part of one’s health insurance plan.

HAS accounts are receiving notoriety as an element of President Trump’s proposed new health care plan, as noted by this report:

A health savings account is a way to save money for health costs that go above and beyond insurance coverage. This can be a very useful way to cover copayments, deductibles, and other non-covered expenses. HSAs are used in conjunction with a high-deductible health plan (HDHP) where the HSA helps patients cover the large deductible when they need expensive care.

In an interview with the site Your Health Care Simplified, Brent Ulreich, the senior financial planner at Hefren-Tillotson Inc. in Pittsburgh, Penn. said this:

“One of the major benefits of the HSA is the tax-deferred growth and tax-free distributions if proceeds are used for qualified medical expenses. Even after you leave employment, funds left in your HSA can be used to pay for medical expenses throughout retirement.”

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As reported in Market Watch, HSAs have long been favored by Republicans, in part because such plans are said to encourage smarter consumer behavior. Rather than almost all costs being covered by your insurer, you have those upfront costs to pay before the deductible kicks in. The thinking, at least in part, is that it will encourage consumers to shop around. (Though some studies suggest it encourages people to refrain from seeking care at all.)

There are many advantages to having a Health Savings Account, including, as noted by Investopedia:

• Others can contribute to your HSA. Contributions can come from various sources, including you, your employer, a relative and anyone else who wants to add to your HSA.

• Pre-tax contributions. Contributions made through payroll deposits (through your employer) are typically made with pre-tax dollars, which means they are not subject to federal income taxes. In most states, contributions are not subject to state income taxes either. Your employer can also make contributions on your behalf, and the contribution is not included in your gross income.
• Tax-deductible contributions. Contributions made with after-tax dollars can be deducted from your gross income on your tax return, which means you may owe less tax at the end of the year.
• Tax-free withdrawals. Withdrawals from your HSA are not subject to federal (or in most cases, state) income taxes if they are used for qualified medical expenses.
• Earnings are tax-fee. Any interest or other earnings on the assets in the account are tax free.
• Funds roll over. If you have money left in your HSA at the end of the year, it rolls over to the next year.
• Portable. The money in your HSA remains available for future qualified medical expenses even if you change health insurance plans, change employers or retire. Funds left in your account continue to grow tax fee.
• Convenient. Most HSAs issue a debit card, so you can pay for your prescription medication and other expenses right away. If you wait for a bill to come in the mail, you can call the billing center and make a payment over the phone using your debit card. And, you can use the card at an ATM to access cash.

HSAs also have a few disadvantages, including:

• High deductible requirement. Even though you are paying less in premiums each month, it can be difficult – even with money in an HSA – to come up with the cash to meet a high deductible.
• Unexpected healthcare costs. Your healthcare costs could exceed what you had planned for, and you may not have enough money saved in your HSA to cover expenses.
• Pressure to save. You may be reluctant to seek healthcare when you need it because you don't want to use the money in your HSA account.
• Taxes and penalties. If you withdraw funds for non-qualified expenses before you turn 65, you'll owe taxes on the money plus a 20% penalty. After age 65, you'll owe taxes but not the penalty.
• Record-keeping. You have to keep your receipts to prove that withdrawals were used for qualified health expenses.

Hundreds of health expenses qualify for payment from an HSA. They are explained in detail in IRS Publication 502, Medical and Dental Expenses.

In conclusion, when it comes to going the HSA route, it’s highly advisable to carefully consider your options. An option that satisfies the needs of one person may not necessarily be the right choice for another person.

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