Does Your Business Showcase Your Passion?

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On a visit to Mexico City last month, I saw first-hand a stunning example of the danger of focusing on style over substance. It illustrated to me an important lesson for business owners: your ability to attract the clients and customers you want is directly tied whether you connect them emotionally with your company’s vision and mission. No amount of money can overcome your failure to make this connection.

The Mexican billionaire Carlos Slim is often cited as the wealthiest man in the world. Known as the Warren Buffet of Mexico, his business holdings include telecommunications, banks, hotels, airlines, and even a significant stake in the New York Times. He has also amassed a personal art collection estimated to be worth $700 million, and recently commissioned Latin America’s largest museum in memory of his wife to showcase those works.

With its aluminum-clad exterior, the museum looks like an alien spaceship come to rest amidst the tony retailers of Neuvo Polanco, Mexico City’s Rodeo Drive. So it was with high expectations that I entered the gleaming edifice. Unfortunately, those expectations were dashed.

Rather than a celebration of art and color, the interior of the Museo Soumaya is stark and sterile. In truth, I couldn’t leave fast enough, definitely not the reaction I’d hope for or anticipated. Those who know me know of my deep passion for art, yet Slim’s creation left me feeling cold and surprisingly uninspired.

Earlier that same day, I’d visited the infinitely more modest quarters of the Museo de Arte Popular. Located in a building so unobtrusive I nearly missed it, the museum is home to the most comprehensive collection of folk art is all of Mexico.

To say I was dazzled is an understatement. Inside the humble exterior is a riot of color and fantasy that left me grinning from ear to ear. Simply stated, this place has soul, soul, and more soul. Indeed, it personifies the glorious, beating heart that is Mexico. Make no mistake: I will be back, again and again.

So what does any of this have to do with business? In a word: everything.

The reaction I had to these two different cultural experiences represents the spectrum of reaction people are having to you and your company. Ask yourself at which end of that spectrum do you reside?

Is your company all flash and dazzle on the outside, but lacking warmth and soul inside? Do your customers come away feeling uninspired, or are they thrilled at the opportunity do business with you again and again? Stated another way, do they connect to you emotionally, or does your lack of passion leave them cold?

As a business lawyer, I look counsel my clients to articulate a vision that speaks with heart and feeling. Nothing excites me more than working with businesses who excite their customers so much that they can’t wait to share their experiences. That excitement starts with an owner who has found her or his true reason for being – the “why” – and can’t wait to let the world know it. Many entrepreneurs resist making that type of emotional appeal, and yet it can – and often does – make the difference.

Ask yourself: would you rather be mediocre or extraordinary? Money has nothing to do with it.

LLC or Corporation? Licensed Contractors Beware

Many California licensed contractors are understandably interested in limiting their liability exposure by adopting a formal legal entity. The question arises whether a corporation or limited liability company best serves their needs.

Prior to 2012, licensed contractors were limited to incorporation due to restrictions in the 1994 Limited Liability Company Act. That is, contractors were permitted to seek issuance of a contractor’s license in the name of a corporation, or obtain transfer of an existing individual license, to a corporation but not to a limited liability company.

Starting in 2012, following a change in the LLC Act, the Contractors State License Board began accepting applications for LLC contractor’s licenses. So the question arises whether there are significant differences between a contractor’s license issued to a corporation vs. an LLC.  The answer is most definitely “Yes”.

  • LLC applicants or licensees are required to file a $100,000 surety bond with the Board to cover unpaid wages or other benefits owed to a contractor’s employees. Such a surety bond is not required of corporate licensees/applicants.
  • LLC licensees must maintain “errors and omissions” (also called E&O) insurance. For LLC’S with 5 or less owners, this minimum amount of insurance is $1 million. For each additional owner, the LLC must maintain an additional $100,000 of E&O insurance coverage. Again, this insurance is not required for corporate licensees.
  • If an LLC’s license is suspended because it fails to maintain its “good standing” with the Secretary of State’s office, the individual LLC owners may face personal liability of up to $1 million each for loss or injury during any period of suspension. Not so with corporations.

In light of these additional financial burdens and exposure, it will rarely make sense for licensed contractors to select the LLC form.

It must be understood that there are also restrictions and issues involved in contractor’s licenses issued or transferred to corporations, which must be reviewed and understood.

If you are a licensed general or specialty contractor currently doing business as a sole proprietor, please contact me to discuss whether incorporating would be beneficial to your company.

 

Do You Dare to be Different?

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Imagine what life would be like if everyone simply followed in the footsteps of those who preceded us. Isn’t it in fact the willingness and courage to try something new and different that personifies true entrepreneurship? As an attorney who advises business entrepreneurs, I often see my clients succumb to the impulse to “stick with what’s always worked.” Stated otherwise, they opt for the “tried and true” path rather than thinking outside the box for innovative concepts and solutions.

How different – and frankly boring – the world of art would be if artists like Picasso had been unwilling to move beyond their classical training and instruction. The image on the left above was painted by the artist as a young man. Without question, the woman portrayed is a magnificent example of classic portraiture, exhibiting Picasso’s mastery of imagery and light. And there’s little doubt he would have been a success had he just stuck to “traditional art.”

And yet something within the young Pablo compelled him to look beyond the popular conventions of late 19th century culture and visualize a world no one else had ever imagined, much less seen. In so doing, he left the comfort of what he knew he could do, and dared to blaze a new path by trying something neither he, nor any of his role models had ever tried before. As he himself wrote, “I am always doing that which I cannot do, in order that I may learn how to do it.”

Many critics of the time were aghast at the 19 year-old artist’s work. Of Picasso’s 1900 exhibition in Paris, Carl Jung wrote, ““The picture leaves one cold, or disturbs one by its paradoxical, unfeeling, and grotesque unconcern for the beholder.” The brilliant impressionist Paul Cezanne suffered similar disdain: “Mr. Cézanne merely gives the impression of being a sort of madman, painting in a state of delirium tremens.” Both artists are now universally acknowledged as groundbreaking artists whose influence continues to the present day.

Transferring these notions to the world of business, truly innovative entrepreneur must have boldness to be willing to re-imagine their industry or profession in ways not previously considered. Yes, it is important to have the solid foundation of basic business models and concepts before we launch ourselves – and our companies – into the unknown. In similar vein, no one can dispute that stepping outside the established traditions has a higher risk of failure.

Even the most daring entrepreneur should thoughtfully weigh the potential risks and benefits of whatever concept or strategy one attempts. Seeking counsel from trusted and skilled professional experts in the legal, financial or other appropriate arena is always imperative when contemplating “breaking the mold.” To do otherwise would be foolhardy rather than innovative.

Beyond the realm of art, where would we be today without Thomas Edison? Henry Ford? Steve Jobs? Oprah Winfrey? Richard Branson? A common denominator among them is their ability to use their unique vision and creativity to imagine what their predecessors could not.

Think of the person you most admire for having challenged the status quo and fundamentally changed the paradigm of the business arena in which she or he operated. And then ask yourself: Is the way I run my company, how I communicate what I do, mired in the safe, the predictable? Is it possible that by injecting a little more “right brain” creativity and passion, I could truly inspire my customers, my employees, and my community to flock to my door?

Going against the grain. Inverting business models. Doing the “impossible.” From the point of view as a business attorney, these are the kinds of client I live for, and with whom I love to work. It allows me to challenge and counsel them while at the same time being inspired to evolve and grow.

Irrespective of what you do in life, the willingness to think creatively and outside the norms gives you an edge many others will simply never have. What the leaders of innovation truly teach us, if we’re willing to listen, is that the ability to achieve genuine and lasting success is limited only by the boundaries we create for ourselves. Dare to be different.

URGENT – IRS and FTB Update Regarding Short Sales

The California Association of Realtors yesterday issued a press release stating that, as a result of recent rulings by the Internal Revenue Service and California Franchise Tax Board, mortgage debt forgiven in a California short sale is no longer taxable as income.

This is huge news, since the tax exemption for this income tax was scheduled to expire on December 31, 2013 when the Mortgage Debt Relief Act expired.  Without these rulings from IRS and FTB, California homeowners whose short sales did not close by year end were facing potentially enormous tax liability.

The IRS ruling was contained in a letter to Senator Barbara Boxer.  The FTB ruling was in a letter obtained the C.A.R. from Board of Equalization member George Runner.

The rationale for the rulings appears to be that debt forgiven in a short sale is not considered “recourse” debt under California law, thus exempting it from taxation.

The C.A.R. press release does not state whether this ruling also will apply to short sale of non-primary residences in California, or if it is limited to only certain types of mortgage debt.  I have requested my tax experts to review the actual letters and updated regulations to clarify these issues; I will provide that response immediately upon receipt.

At this point, it appears that similar protections will be extended to homeowners whose properties are foreclosed after December 31, 2013 where the debt forgiven was used to buy, build, or make substantial improvements to a primary residence.  It does not appear these protections will apply to “deed in lieu” transactions.

California homeowners with pending short sales may breathe a sigh of relief.  For these folks, it would appear that Christmas came a few weeks early this year.

Being Michelangelo: Revealing Your Business Masterpiece

What does one of history’s greatest artists teach business owners about how to succeed?

Since visiting Florence last month and viewing many of Michelangelo’s most famous works, including his monumental statue of David, I’ve been pondering the relationship between the artistic process and creating business success.

Michelangelo held an important belief about the art of sculpture.  He believed that in each block of stone there was a figure hidden inside, waiting to be revealed.  To him, the master sculptor’s job was to clear away what was not the image and reveal the masterpiece inside the stone.

I’ve realized that this same principle applies to business owners.  Finding the potential masterpiece your business can be requires clearing away all that does not belong.  As business owners, our gift lies in the place where our values, passions, and strengths meet.  Discovering that place is the first step toward sculpting the business masterpiece.

From a legal planning perspective I have found that this means having a laser-like focus on what you want to accomplish.

Six qualifying questions I typically ask prospective clients are:

  • what is the intention of the business,
  • what type of entity will best serve the business,
  • what types of clients you love and those you don’t,
  • what skills you have or lack that are essential for your business’ success,
  • what level of risk you are willing to take to achieve your goals; and
  • what potential legal liability does the business involve?

With these answers in hand, I am able to help my clients be sure that their contracts, internal policies and procedures, corporate structure, and business succession plan, all manifest the owners’ vision for the business.  Anything that does not serve or reflect that vision is stripped away like the unwanted marble on Michelangelo’s David.  What remains is the masterpiece.

What Machu Picchu Teaches About Business Success

Just as in construction, when building a business, one’s success depends on the time and energy spent establishing a solid foundation.

Those who know me are familiar with my love of international travel.  In particular, I am fascinated in understanding why certain structures have survived the tests of time whereas others are but a pile of rocks and rubble.

Recently a friend and I visited Machu Picchu, most famous of the Incan temples.  We were both amazed by how well preserved the buildings are, despite the fact the ancient city sits on a mountain top that has nearly 100 inches of annual rainfall in one of the most seismically active regions on earth.

Without question, Machu Picchu is an “engineering marvel.” The ancient builders invested as much effort into creating a stable infrastructure for Machu Picchu—underpinned by layers of topsoil, sandy gravel, and granite waste rock—as on the visible buildings. More than 700 terraces retained and channeled moisture and preserved soil, reducing erosion while providing space for agriculture.

I use this particularly vivid analogy to illustrate an important lesson: the more thought, time and planning one spends in constructing the foundation for a business, the more successful that business will be in weathering the storms and quakes of an uncertain and often volatile economic climate.

Over the 30+ years I have counseled business owners, the more passionate I have become in advocating these concepts.  Without exception, the businesses I have seen fail are those whose owners were so eager to “get out of the blocks” that they overlooked the key building blocks necessary to ensure their long-term viability and success.

When starting a business, it is essential to ask:

(1) Have we identified and evaluated all the potential risks involved in our particular type of business?

(2) Have we determined what type of business entity is best suited for our particular enterprise, and which will provide us the most legal protection and financial benefit?

(3)  Do we understand clearly the legal requirements and procedures we must follow in order to retain the financial benefits and legal protections the business entity can provide?

(4) Do we have a plan to protect the company and its owners in the event of a catastrophic event?

Certainly, there are a many other issues that must be considered.  If you’d like a list other questions you should be asking, email me at brian@brianaripley.com.

SB 30 Update

Just a quick update on the status of the California “debt forgiveness” tax measure:

As previously reported, the California Senate passed the California Association of Realtors-sponsored tax relief bill without a single “no” vote on June 20.  The bill was then referred to the state Assembly, where it continues to languish.  A hearing on the bill is scheduled before the Assembly’s Revenue and Taxation committee on August 12, 2013.

As also reported, the bill as currently drafted remains linked to Senate Bill 391, which imposes new fees for the recording of real estate documents, and which SB 30-sponsor CAR opposes.  This means SB 30 will fail unless SB 391 also passes, or unless the two bills are unlinked.  SB 391 is also scheduled for a hearing on August 12, 2013 before the Assembly’s Housing & Community Committee.

Stay tuned….

 

Why Should You Have a Business Succession Plan?

Did you know that:

  • 95% of American businesses are family-owned?
  • Family-owned American businesses generate roughly 40% of the gross national product?
  • More than one-third of the 500 largest U.S. companies are family-owned?

A respected national survey established that:

  • 79% of small business owners say that they want to retain their business within the family;
  • 70% of second generation family members share the hope of retaining the business within the family;
  • And yet only 30% of family businesses survive into the second generation.

More than 50% of business owners have more than half of their wealth tied up in their business.  With these statistics in mind, perhaps the most shocking is that nearly three-quarters of all family-owned businesses, or approximately 73%, have no succession plan whatsoever!  The all too frequent result is that businesses devolve into conflict and chaos when a business founder dies or becomes disabled.  Decades of blood, sweat and sacrifice go quickly down the drain, all for want of a simple plan.

Among my greatest passions as an attorney is to ensure that my business-owing clients don’t become a statistic.  Together, we craft a customized plan that preserves the value of the business by establishing a clear transition process while also providing the monetary resources necessary to implement the plan without jeopardizing the ongoing financial stability of the company.

If you’re interested in starting the conversation about what you can do to safeguard your business and your family’s long-term security, join me at one of my upcoming workshops on July 31 and August 6 in Danville and Oakland.  An experienced financial counselor and I will provide an overview of the “why’s” and “wherefore’s” of business succession planning.  We’ll then invite you to schedule an initial complimentary consultation to discuss whether and how you can move forward.

For more information on how to register for one of the upcoming workshops: http://brianaripley.com/business-succession-workshop


Business Succession: Planning for the What If’s Before They Happen

As Winston Churchill famously said, “He who fails to plan is planning to fail.”  The statement is particularly relevant when considering why so many businesses fail to survive following the death, disability or retirement of a company founder or owner.

79% of small business owners say that they want to retain their business within the family; 70% of second generation family members share the hope of retaining the business within the family.  Yet only 30% of family-owned businesses survive into the second generation. Some 12% are still viable in the third generation, and only about 3% operate into the fourth generation or beyond. 

The lack of a clear, formal and well-defined business succession plan is most often cited as the primary reason a majority of small businesses don’t survive the death or disability of the founder.  Helping owners understand what they can do proactively to overcome those odds is one of my great passions as a business attorney. 

If your business currently lacks a customized succession plan, I invite you to attend one of two upcoming workshops I am presenting.  At the workshop, you’ll get to know the basic types of business succession plans, how they are funded, and why they are so critical to the long-term survival of your small business.

Further information and registration may be found on the programs page of this website: http://www.brianaripley.com/business-succession-workshop/ 

SB 30 Still Mired in Legislative Limbo

Hard to believe it’s now been more than 6 months since Senator Ron Calderon introduced Senate Bill 30 on December 3, 2012.  The bill passed an important hurdle late last week following passage by the Senate (36-0), and has now been to the Assembly’s Revenue and Taxation Committee.

A  recent amendment to the bill has created significant controversy and resulted in loss of support from its initial sponsor and strongest supporter, the California Association of Realtors.

Specifically, the bill as currently drafted now requires the passage of a separate piece of legislation, Senate Bill 391, also passes: “This act shall become operative only if Senate Bill 391 of the 2013–14 Regular Session is enacted and takes effect.”

SB 391 would establish a $75 per document recording tax to fund an affordable housing trust fund.  C.A.R., according to a recent press release, is opposing SB 391 “because it unfairly adds to the cost of recording real estate documents.”

It remains to be seen whether the State Assembly will further amend SB 30, including, possibly, the removal of the SB 391 link.  Any differences between the Senate and Assembly versions will be resolved in a concurrence committee made up of members of each house. The Governor will have thirty days to sign or veto the bill.

Meanwhile, sellers of underwater properties, or owners facing foreclosure, remain uncertain whether, and to what extent, they may face state tax consequences related to the transfer of their homes.  Certainly, a prompt resolution of the legislative impasse would bring welcome and needed clarity to a currently muddied real estate market.