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Accelerate Your Tax Savings by Paying Attention to Your Lease Terms

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Knowing Your Market

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The Succession Planning Virus - Generational Clashes

Letter from Partner

LEADERSHIPSUCCESSION

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Contents

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2 LE ADERSHIP SUCCESSIONLeadership succession: The concept sounds so simple and indeed it should be. Add the emotion that is commonly involved, and it becomes quite complicated.

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4 ACCELER ATE YOUR TA X SAV INGS BY PAY ING AT TENT ION TO YOUR LE ASE TERMSWhen negotiating lease terms for property or equipment, determining how the lease itself will impact your financial statements is unlikely to be a primary consideration...

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6 KNOWING YOUR MARKE TIn today’s consumer-driven market, it can be a struggle to maintain a successful business, let alone to expand one. To face this challenge and operate a successful business, it is important to understand your market and to use this knowledge to your advantage.

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7 THE SUCCESSION PL ANNING V IRUS — GENER AT IONAL CL ASHESWhen family business owners from the Baby Boom and WWII generations complain about the next generations, the list tends to start with entitlement, unrealistic expectations, no work ethic.

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LEADERSHIP SUCCESSIONBY DAVID KRAJANOWSKI | PARTNERdkrajanowski@singerlewak.com | 949.261.8600

Leadership succession: The con-cept sounds so simple and indeed it should be. Add the emotion that is commonly involved, and it becomes quite complicated.

It doesn’t matter whether Lead-ership Succession is defined as handing off a job to another peer or to an up-and-coming team-mate, handing off a department leadership role or handing off the running a company, the concept is the same. It is tough enough when transferring control to another person, but when the transfer is to a family member, watch out! What can be done to make the transfer easier?

First, realize why you are mak-ing the transfer. Let me give you an example. My daughter just landed a job. In the first two weeks, her supervisor has already come to her and told her the long term expectations she has for her. It started with a simple statement. “In a year, I want to move on and take on a new posi-tion. In order to do that I need to train my replacement to take over my position. Are you willing to undertake everything that is needed to accept this responsibil-

ity?” The reason you are doing it is for yourself! Maybe it is a new position in your company, maybe a chance to move on to another

position outside of your com-pany or maybe it is just a change in lifestyle that you have been wanting for a long time. Embrace what you are doing and clearly state the goal. Make it written where you can see and track it every day.

Second, come up with a plan to make it happen. A written plan is a plan for which you can hold yourself accountable. In the case of my daughter, there is a written plan, broken down by quarters, as to expectations and responsi-bilities to be transferred, home-work required on her part to learn skills that are necessary for her to take over the role, etc.

Maybe your plan can evolve over 3 months, maybe a year, or maybe it is a long term goal that will take five years or longer. Maybe you don’t have one person in mind but you have several and need time to see who will rise to the top of the list. It makes no difference. You need to start somewhere – written, expecta-tions, accountability and coach-ing. Review your plan with the people you are training. It takes both sides to be in agreement to create a successful buy-in. Hold your successor accountable for their part and give timely feed-back on their progress.

Third, as appropriate, allow new leadership in training to do things their way. Sometimes the best way to learn is to fall down a

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It is tough enough when transferring control to

another person, but when the transfer is to a family

member, watch out!

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few times. Many times, the new changes work and are for the bet-ter. Do not teach that your way is the only way to do the job. If you are still using the same processes and reporting as you did 5-10 years ago, chances are there are better ways to do things especial-ly with the new technology that is available today. In transferring leadership roles my whole career, I have learned that my way is not the only way. Sometimes I like the changes, other times I don’t, but the benefits of allowing new leadership to grow and drive the organization outweigh my per-sonal beliefs that it is my way or the highway. Pass on little things, watch for the big items that need your attention. Each of us in our companies has a new generation

of leadership that we need to embrace.

Fourth, support new leadership. Praise in public, criticize in pri-vate. Change is always unnerving and scary to people in an organi-zation. Your public support goes a long way in easing a transition. That doesn’t mean you blindly back decisions, it just means there is a time and place to coach and make adjustments. Every eye will be on you, watching for your approval of this change. Every look, every comment, will be dissected by those looking to stall change.

Conclusion, remember what goes around, comes around. For every leadership position you pass on, another awaits you. As you

train, you will be trained. Most of this is common sense. Share with your management team as a refresher on these basic concepts. The organization must be uni-form in their approach on train-ing new leadership.

If you have any questions or comments, please email me or talk to any of our partners.

DAVID KRAJANOWSKI CAN BE REACHED AT

DKRAJANOWSKI@SINGERLEWAK.COM OR 949.261.8600

ACCELERATE YOUR TAX SAVINGS BY PAYING ATTENTION TO YOUR LEASE TERMSBY LAUREN STROM | MANAGERLStrom@SingerLewak.com | 949.261.8600

When negotiating lease terms for property or equipment, deter-mining how the lease itself will impact your financial statements is unlikely to be a primary con-sideration, though some other-wise insignificant factors in your lease could have an unexpected impact on your balance sheet and bottom line.

When entering into a lease, it’s important to remember that there are two types of leases, operating and capital, which are accounted for very differently un-der generally accepted accounting principles, and provide for differ-ent tax treatment. Frequently a Company will enter into a lease

before evaluating the lease clas-sification, potentially forfeiting an opportunity for accelerated tax savings. If a lease meets one of the criteria for capital lease treatment listed below, similar to fixed assets that are purchased either outright or through debt financing, the Company is able to take a full tax deduction for the purchase price of the asset up to certain annual limits. Con-sider if any of your leases include the following, which would trig-ger capital lease accounting:

1. The lease life exceeds 75% of the life of the asset

2. There is a transfer of owner-ship to the lessee at the end of the lease term

3. There is an option to pur-chase the asset at a “bargain price” at the end of the lease term, or

4. The present value of the lease payments, discounted at an appropriate discount rate, ex-ceeds 90% of the fair market value of the asset.

If a Company finds it advanta-geous to have a lease be consid-ered a capital lease, making your-self aware of the criteria above before finalizing a lease could allow you to structure the lease in your favor with a few simple modifications.

When presenting your financial statements in accordance with generally accepted accounting principles, a commonly over-looked liability is created when a Company enters into a lease that has escalating rental payments over the course of the lease. Un-der generally accepted accounting principles, rent expense typi-cally needs to be recognized on a straight-line basis over the course

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Frequently a Company will enter into a lease

before evaluating the lease classification, potentially forfeiting an opportunity for accelerated tax savings

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of the lease term, often resulting in what is known as a deferred rent liability being recorded on the financial statements, and additional rent expense being recorded in the beginning of the lease when actual rent payments are often less than the rent ex-pense calculated on a straight-line basis. Another lease consideration that affects a Company’s balance sheet and income statement is rent incentives paid to you by your landlord for things such as building improvements, which are initially recorded on the bal-ance sheet as a deferred liability,

and recognized evenly over the term of the lease as a reduction to rent expense. Being aware of the implications of escalating rents will allow management to anticipate liabilities to be factored into financial covenant ratios and ensure that your leases are being properly reflected in your finan-cial statements.

Being aware of the implications of escalating

rents will allow management to anticipate liabilities to be factored into financial covenant ratios and ensure that your leases are being

properly reflected in your financial statements

LAUREN STROM CAN BE REACHED AT LSTROM@SINGERLEWAK.COM OR

949.261.8600

In today’s consumer-driven mar-ket, it can be a struggle to maintain a successful business, let alone to expand one. To face this challenge and operate a successful business, it is important to understand your market and to use this knowledge to your advantage.

As a fundamental concept of economics, the market is driven by supply and demand. Demand is driven by your customers, while supply is driven by your business and its competitors. In order to better understand your market, it is crucial to explore these concepts.

WHO IS YOUR CUSTOMER?

Part of knowing your market is identifying and understanding your customer as they determine whether there is demand for your product or service. Successful businesses know exactly who their customers are; whether the cus-

tomers are end users or distributors and they know the characteristics of their customers such as size, geography, etc. By understanding the specific demographics of their customers, successful businesses are able to tap into the customers’ wants and needs, and provide the products and services that address these specific demands. Further-more, detailed knowledge of the customer allows a business to mar-ket its products and services more successfully, e.g., the most effective type of advertisement and where and when to place the advertise-ments.

Without knowing who your cus-tomer is and how to take advantage of this knowledge, you may not be effectively spending your time and efforts in the development and marketing of your products and services.

WHO IS YOUR COMPETITOR?

The other important aspect of the market is your competitor. Ex-

panding a business requires you to gain market share from your com-petitors, which makes understand-ing your competitor an imperative concept to understanding the market. By evaluating the competi-tion, you can identify and develop the features that differentiate your business from theirs.

You can also leverage the successes and failures of your competition to your business to better serve your customer. If a competitor offers a new product line to the market, regardless of whether it is a success or failure, the customers’ response to the product line can provide vital information to whether your business should expand its product offering.

In the current marketplace, any characteristics that make your business unique can provide your business with a competitive edge for success.

By gaining a more meaningful un-derstanding of the players in your market, you can better focus your resources to position your business for success.

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KNOWING YOUR MARKETBY STEPHANIE KOAI | MANAGERSKoai@SingerLewak.com | 310.477.3924

STEPHANIE KOAI CAN BE REACHED AT

SKOAI@SINGERLEWAK.COM OR 310.477.3924

Part of knowing your market is identifying and understanding

your customer as they determine whether there is demand for your product

or service.

THE SUCCESSION PLANNING VIRUS — GENERATIONAL CLASHESBY TERRY WHITE | SPECIAL CONTRIBUTORtwhite@ideatransfergrid.com | 714.614.6838

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When family business owners from the Baby Boom and WWII generations complain about the next generations, the list tends to start with entitlement, unrealistic expectations, and no work ethic. Talk to their children and you hear how the older generations are smug, self-righteous, and in denial about mortgaging the future.

Over-simplifications and distor-tions—maybe. Yet, generational clashes can dismantle a succession plan. Here’s a different perspective to retrofit generational tolerance.

Consider Gutenberg as the symbol of the older generations’ linear world, where you move ahead by turning pages and starting new chapters in the book of life. Set goals, make a plan, pick the road, persevere and grasp the ring of suc-cess—live long and prosper.

The younger generations are programmed to search intui-tively—they are Googlebergs. You find your goals by clicking until something appears that is worth

drilling down. You then invest creativity and engage your passion to the exclusion of everything else. And when you finish that goal, you search for something else.

When Gutenbergs try to motivate Googlebergs with their logical linear model where all ends well, it sounds as interesting as a GPS voice. They want the freedom to search on their own and continu-ous feedback to help them recog-nize opportunities. It’s a lot to ask from Gutenbergs. Do Googlebergs have the intelligence and discipline to make it work? Maybe a brief history of computer science will answer that.

From the ‘30s to the ‘60s, teams of WWII generation scientists

developed the math and engineer-ing to create massive computer machines and establish major corporations. In the late ‘60s and ‘70s garage-based, creative, collab-orative, Baby Boomer iconoclasts put the personal computer at our fingertips and launched a new set of global tech companies. Then GenX boosted the personal com-puter’s value by applying its power to everything humans do, propel-ling waves of start-up companies with each new idea. Finally (for now) the Millennial generation has

connected everyone in the world at every moment for anything they want to think, say, or do—building virtual companies that seem to run the world from computer cubicles.

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Yet, generational clashes can dismantle a succession

plan. Here’s a different perspective to retrofit

generational tolerance.

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Who deserves the credit for creat-ing our computer world? Every generation applied its distinctive strengths, understanding they stood on the shoulders of giants before them. Isn’t a family busi-ness a microcosm of that process? Expect great things from the next generation, thank the previous ones, and worry less about your generation being right.

Terry White co-founded IdeaT-ransfer over three decades ago to perfect communication links be-tween companies and customers, advisors and clients, managers and technicians, entrepreneurs and successors, presenters and audiences.

Visit www.ideatransfergrid.com

Every generation applied its distinctive strengths,

understanding they stood on the shoulders of giants before them. Isn’t a family

business a microcosm of that process? Expect great

things from the next generation, thank the

previous ones, and worry less about your generation

being right.

TERRY WHITE CAN BE REACHED AT

TWHITE@IDEATRANSFERGRID.COM

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