Massachusetts
SPRING 2016
FAMILYBUSINESS BREWING FOR THE FAMILY Inside:
The Family That Auctions Together Sticks Together Official magazine of the
RUNNING A SUCCESSFUL FAMILY BUSINESS DOESN’T COME WITH AN INSTRUCTION MANUAL. If It Did, It Would Be As Easy As...
1.
2.
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Come Up With An Idea That You’ll Enjoy Doing For The Rest Of Your Life.
Convince A Family Member To Come Work With You.
Sit Back, Relax, And Watch The Money Start Rolling In.
WHEN: June 7- 8, 2016 WHERE: Omni Parker House
THAT’S WHY WE DESIGNED A CONFERENCE JUST FOR YOU!
REGISTER TO ATTEND Massachusetts Family Business magazine, the Family Business Association and The Warren Group are dedicated to honoring and educating family businesses throughout the region. On June 7-8, the New England Family Business Conference will be an opportunity to meet face-to-face with family business owners and managers who will gather to learn from their peers, hear from experts, study a variety of best practices and network. The program is designed for professional development and will feature high-end keynote speakers and a selection of educational breakout sessions with panels of family business owners sharing their knowledge.
VISIT WWW.NEFBC.COM TODAY FOR THE LATEST UPDATES.
Massachusetts Family Business Official magazine of the
CONTENTS
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BREWING TOGETHER Family-Owned Breweries Pop Up In Massachusetts As Craft Beer Industry Grows Increasingly Popular
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letter from the board
Supporting The Nation’s Economy
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tax tips
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Top Deductions For Family Businesses
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business profile
Second Generation Grows Up In The World Of Auctioneering At Strategic Auction Alliance
11 fresh cash
Things To Consider Before Applying For A Loan
12 breaking the business
What Happens When There’s A Divorce In The Family
14 a boon to the bottom line
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Managing Your Printing Needs Can Save A Family Business Time And Money
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Directors’ Corner
Family Businesses Will Remain Nation’s Economic Backbone in 2016 By Jeffrey S. Davis and Brian Nagle
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new year has arrived and family businesses seek a successful and prosperous 2016. The 2015 FBA Awards was a great success, and was our largest event yet. Nine awards were given to a fantastic and diverse group of family businesses. In today’s complex world, the merits and rewards of a family-owned business are as numerous as the challenges. Family members who manage and guide the family business should enjoy the business, and if they are to be successful and prosper, they must also eventually pass along the enterprise at an optimized time for both family and asset protection. Today the family owned enterprise is recognized as an important growing factor in the national economy. According to the U.S. Bureau of the Census, about 90 percent of American businesses are family-owned or controlled. Last year the world experienced terrorism, a collapse in oil prices and trouble with Russia and China, which increased global conflict and decreased economic growth. All this has led to na-
tional polls showing that a majority of Americans feel less confident. The upcoming election is dominated by social, economic and domestic issues. In many polls potential voters have expressed concerns with both parties, and say that we need to make vast improvements to ensure the way of life that so many families have worked hard to build. Under the current administration, the economy has improved as the unemployment rate has fallen to 5 percent, and job growth has been consistently strong. However, economic conditions in the U.S. remain “mixed.” The crash in oil prices and dramatic rise of the U.S. dollar is expected to continue to take a big toll on corporate America’s bottom line. Current research confirms that ongoing family control of a business offers additional potential efficiencies, as family decision-making can positively affect the structure and operations of their firms by applying long-term practical perspective to the business. This provides the business with a strategic advantage, few-
er human resources problems, creates greater enterprise value, and drives new entrepreneurial activity. However, success is never guaranteed. The complexity of family business and the skills required for successful operations continues to increase at a faster and faster pace than the individual can keep up without help. More than 30 percent of all familyowned businesses survive into the second generation. Twelve percent will still be viable into the third generation, with 3 percent of all family businesses operating at the fourth-generation level and beyond. Each family’s journey in business is its own unique reward. Family-owned businesses will continue to drive our economy and 2016 and we at the FBA continue to be dedicated on your continued success. We look forward to seeing you in 2016! ■ JEFFREY S. DAVIS IS CEO OF MAGE LLC AND A COFOUNDER OF THE FBA. BRIAN NAGLE IS MANAGING DIRECTOR AND PORTFOLIO MANAGER OF FIRST REPUBLIC INVESTMENT MANAGEMENT INC. AND A COFOUNDER OF THE FBA.
Massachusetts
FAMILYBUSINESS
Official magazine of the Family Business Association. Inc.
Editorial | Advertising | Design A Family-Owned Business Since 1872
101 Huntington Ave., Suite 500 Boston, MA 02199 fbaedu.com
DIRECTORS Jeffrey S. Davis, Mage, LLC Al DeNapoli, Tarlow, Breed, Hart & Rodgers, P.C. Brian Nagle, First Republic Private Wealth Management
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PRESIDENT Edward D. Tarlow, Tarlow, Breed, Hart & Rodgers, P.C.
VICE PRESIDENT Catherine Watson, Tarlow, Breed, Hart & Rodgers, P.C.
TREASURER Jeffery P. Foley, Gray, Gray & Gray, LLP
280 Summer Street, Boston, MA 02210 Phone 617-428-5100 Fax 617-428-5119 www.thewarrengroup.com ©2016 The Warren Group Inc. All rights reserved. The Warren Group is a trademark of The Warren Group Inc. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher.
Small Deductions, Big Savings: Top Tax Tips For Small Businesses By Bob Fineman
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ost small businesses have two simple goals during tax season: pay as little as possible if money is owed, or to increase a tax return refund. Accomplishing this requires businesses to be aware of all eligible tax deductions; however, this is easier said than done. Some everyday expenses businesses typiBOB FINEMAN cally incur are actually tax deductible, but are often overlooked. In order to be deductible expenses must be ordinary and necessary. An expense is ordinary if it is a common and accepted part of the particular business’ day-to-day activity. An expense is necessary if it is appropriate and helpful to the taxpayer’s business. This is a vital distinction because potential deductions can save significant tax dollars. Here are some examples of expenses business owners are entitled to but may be neglecting to take advantage of, or that they may be omitting altogether: Business use of auto: A business may expense mileage (57.5 cents per mile for 2015 and 54 cents per mile for 2016) or actual auto expenses (gas, repairs, insurance, auto excise tax, registration, car washes, detailing, loan interest if self-employed and any other expenses/supplies to operate your vehicle) multiplied by business use percentage (plus 100 percent of parking and tolls). Keep in mind, the IRS requires a contemporaneous log. Driving to work is considered commuting and cannot be deducted unless the employee is working out of his or her home. Meals and entertainment: Is your company providing meals for employees while traveling or entertaining a client?
These expenses are actually 50 percent deductible. Remember, the activity must be directly related to the active conduct of trade or business and meticulous records must be kept, such as receipts. Reimbursements to employees for business meals and entertainment should have a written company policy on maximum meal reimbursements and a maximum percentage for tips. It should not be unlimited. Dues: If the business belongs to a professional or public service organization, these fees are deductible. However, organizations that a company participates in for pleasure – whether it’s business, social, athletic, luncheons, sporting, airlines or hotels – cannot be claimed or deducted. Health insurance: Health insurance payments are 100 percent deductible, regardless of the type of entity under which you operate your business (self-employed, incorporated, partnership or LLC). Credit card charges: If you have credit card charges for business purposes, they are deductible when incurred, not when paid. For example, if you have credit card charges in December 2015 and they are not paid until January 2016, they are deductible in 2015. Retirement plan contributions: Contributing to a retirement plan is highly recommended for two reasons: first, it defers your tax liability, and second, it helps you save for retirement. Additionally, if you are matching or contributing to your employee’s retirement plans, these expenses are deductible. Gifts: If a company decides to give gifts to clients, candidates or referral sources these may be deducted. Be aware, however, that only one gift per recipient per year may be claimed. Section 179 depreciation: Section 179 of the Internal Revenue Code allows
a taxpayer to deduct the cost of certain types of property in the year purchased, as opposed to depreciating the asset over time. This property is generally limited to tangible, depreciable, personal property used in the active conduct of business. Operating a business from your home: If a business operates from the home of the owner, there are even more deductions for which the company may be eligible. For example, the company may qualify to claim a home office deduction. In order to qualify, the home office must be the principle place of business and the office must be a room used exclusively for business. Deductible home office expenses are calculated by taking all expenses and multiplying them by the business use percentage, which is business square footage divided by total square footage. All expenses incurred in order to operate from a home include, but are not limited, to: 1. Mortgage interest and real estate taxes if you own a house. 2. Rent if you do not own a house. 3. Homeowner’s insurance or renter’s insurance, repairs and maintenance, utilities, cleaning services, cleaning supplies, trash and snow removal, pest control, alarm monitoring services and home office furnishings. Taxes don’t have to be complicated. Business owners just need to know what deductions they should be looking for and where to find them. Thinking about taxes all year long and encouraging employees to keep careful records of expenses incurred while working will make filing quick, painless and less costly. ■ BOB FINEMAN, CPA, IS THE OWNER OF ROBERT S. FINEMAN P.C. AND A MEMBER OF THE MASSACHUSETTS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS. 5
Business Profile
GOING, GOING, GONE Auctioning Brings a Family Together
Photos courtesy of the Weitbrecht family.
A bidder at a live auction.
By Malea Ritz
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ife moves fast for the Weitbrecht family – and that’s how they like it. They have to keep their eyes wide and move fast to get the auction items out the door. Tom, president of Braintree-based Strategic Auction Alliance, runs the company with his wife, Janice, event manager, and his kids – who are both auction clerks and bid spotters – Justin, 18, a licensed auctioneer, and Kate, 15. Together, they do everything from business liquidations, sales for bankruptcy trustees, fundraising events for nonprofits, tax possessions, tax title properties and automobile auctions, to name a few. And the kids have been in the business since they were 9 years old. “I did the first one, I thought it was pretty cool, so I just kept doing them and here I am all these years later – still doing them,” Justin said. 6
“Think of a 9-year-old saying to their friends, ‘No, I can’t sleep over your house this weekend, I have work,’” Kate said. Tom started the company 10 years ago with a friend in Milton and averages 40,000 miles a year on the road, traveling to and from various auction locations and covering a wide range of territories. He’s licensed in Massachusetts, New Hampshire, Vermont, Maine, Rhode Island, Connecticut and Florida. The company employs approximately 12 people on an as-needed basis. Also a licensed real estate broker, Tom uses the brokerage in conjunction with the company’s auction sales. Similar to the popular TV shows “Storage Wars” and “Auction Hunters,” Tom also does storage auctions, averaging 30 a month. Although, he points out that “reality” shows are far from real.
After the shows increased in popularity, people began overbidding on storage units, he said, hoping to find rare valuable treasures. Those auctions have settled down to a more realistic level now, he reported. Strategic Auction Alliance has also auctioneered a police evidence auction, comprised of unclaimed items that have been seized, such as merchandise from shoplifters. The family recalls this Braintree auction in particular because it was the day of the Bruins’ championship parade and still drew 1,000 people, backing up both sides of the highway. Another of the family’s favorite auctions is for the Strike 3 Foundation, an organization created by Major League Baseball to raise awareness, mobilize support and raise funds for childhood cancer research. The family admits being a bit star-struck initially by some
Red Sox players, but appreciate working with them, and still recognize how lucky they are to have those types of opportunities, they said. ‘Controlled Chaos’ Getting the business off the ground was difficult at first, Janice said, especially with young children. “It was hard when we first got started,” she said. “This was [Tom’s] dream, and I enjoyed helping him out, and the kids were so young that we left them behind a lot of the weekends for the benefit auctions, so it was hard not seeing them. So as soon as they got old enough, they started coming with us; it just worked out really well, and now I can’t imagine not having them work with us.” “We live in controlled chaos,” Tom said. “We were initially concerned about the appearance of bringing minors to the auctions, and it turned out our clients really loved them. And if we didn’t bring them, they’d say ‘Where are the kids?’” Over the years, the Weitbrechts have compiled a lot of knowledge and advice they offer up to newcomers. Tom says the most important things are to always honor your commitments, have realistic expectations and take ownership in what you do. “It isn’t about the bid calling, it’s about solving the entire problem,” he said. Kate adds that newcomers should learn to improvise in case, and when, everything goes wrong. Tom suggests rolling with the punches, wearing a lot of different hats and always staying in control. It’s also very important to be professional, fair and honest, he added. They’ve also learned how to become really good at reading people’s body language, they said, because there’s a whole psychology behind it. They can pick up on borderline facial expressions or body gestures when someone is considering a bid – and they run with that. They make jokes and tempt them with phrases like, “Don’t sit on your hands,” “It’s only money, it’ll grow right back” and “Don’t look at her, look at me.” “You just become really good at reading people to a scary level,” Kate said. “We’ve become the masters of body language,” Tom added. Working with family doesn’t come without its challenges, however. Kate says for better or for worse, there’s no holding back. Juggling school and work can be strenuous, but Justin and Kate seem to have figured it out, according to Tom. “It’s hard to balance being in high school and having so many high-level classes that you have a lot of homework in and have to study a lot if you want to do well on the tests. It’s pretty hard sometimes when you have weekday auctions to make some time in the event to study,” Kate said. But Justin says all of the long travel and busy weekends has made them closer as a family. “I don’t think we could have envisioned what it’s become when [Tom] went away to auction school – it was a change of career for him,” Janice said. “We had no idea where it would go. [Kate] was an infant and [Justin] was a little one; so it’s like, ‘One day at a time, I guess.’ We’re lucky we’re here today.” ■
An auction visitor. Photos by Malea Ritz
From left: Justin, a staff member, Kate and Janice.
From left: Tom Weitbrecht, Father Chris Hickey, Bill Cass and Karen Cass at The Holy Mothers Collaborative auction at the Indian Pond Country Club in Kingston.
MALEA RITZ IS AN ASSOCIATE EDITOR AT THE WARREN GROUP, PUBLISHER OF FAMILY BUSINESS MAGAZINE.
Kate (left) and Janice. 7
FOR THE
BREWING FAMILY As Craft Beer Sales Rise, Family-Owned Breweries Follow Suit By Anna Sims
“People want their own local economies to be strong. They want their own communities to have things that they can be proud of and be excited about. I think craft beer is the most fun way to do that.”
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— Pete Henry, cofounder, True West Brewery
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ee Cooper had been laid off from a couple of jobs during the recession and was trying to figure out what to do next when he got the idea to open his own craft brewery. He’d been brewing his own beer for a few years, and was ready to see if he could turn the hobby into his day job. He had never owned his own business, nor had anyone in his family; still, he felt that the market might be right for him to give it a try. “I was looking for what opportunities were available and what were some things that we could do that we could start a brewery business around craft beer,” Cooper recalled. “Around that time, there was a huge excitement about craft beer.” In fact, there is still a lot of excitement in the craft beer industry. National craft beer sales have been rising for the last several years, with the craft brewers’ market volume share reaching 11 percent in 2014 – its first time hitting a double-digit percentage of the market. In the first half of 2015, American craft beer production volume increased 16 percent; approximately 12.2 million barrels of beer were sold by craft brewers that year, compared with 10.6 million barrels during the first half of 2014. In Massachusetts, craft beer sales rose 97 percent in 2013 compared with 2012, according to the Massachusetts Beverage Alliance, and the Bay State produced 372,883 barrels of craft beer in 2014, ranking 14th among all other states, according to the National Brewers Association. Between 2011 and 2014, the number of craft breweries in the Massachusetts grew from 45 to 61. Newcomers to the Business One of those breweries is Newtonbased Hopsters, which Cooper opened in 2013 and currently runs with his wife, Karen. At Hopsters, customers are able to brew their own beer – no previous experience required. “Ninety percent of customers that come in have no idea how to cook beer,” Cooper said. “They just come here and we guide them through the process.”
Another new brewery, Jack’s Abby, was founded in 2011 by brothers Jack, Eric and Sam Hendler. The Framingham-based craft brewery specializes in lagers and recently moved into a new 200,000-squarefoot Framingham facility to support the company’s production growth. The craft beer review website RateBeer in January named Jack’s Abby the best brewer taproom in Massachusetts. The brothers grew up around family business, working on weekends and breaks from school in the packaged ice business their grandfather founded. “Every family dinner at home [growing up], half of the conversation was about the family business,” Sam Hendler said. Though neither of the Hendler brothers had ever owned a brewery before, the eldest brother, Jack, had worked at breweries in New York and Boston and received an education in brewing at schools in Chicago and Munich before launching Jack’s Abby. In 2013, husband-and-wife pair JC and Esther Tetreault opened Trillium Brewing Co. in Boston’s Seaport District. They opened a new 16,000-square-foot space in Canton in December 2015. In January, Trillium received RateBeer’s recognition as one of the top 100 breweries in the world – the only Massachusettsbased brewery to make the list. Before opening Trillium, Esther Tetreault ran her own fitness business, a job that she loved. “I really enjoyed working for myself, having control over what I was doing and doing something every day that made me happy,” she said. JC Tetreault was director of medical research for a medical device company, and like Hopster’s founder Cooper, a passionate home brewer.
The couple even experimented with home-brewed and hand-bottled beer at their wedding. “As we were creating the brand for the beer [JC] started to realize, ‘That’d be so great if I could do what I loved every day, and if I could do something I was passionate about,’ and ‘Wouldn’t it be so cool if we had a brewery together someday?’” Within six months of their wedding, Esther and JC were looking at potential brewery spaces and writing a business plan. Another new face is Belkin Family Lookout Farm’s hard cider. Although the Natick-based farm has been operating for more than 350 years, only recently did current owners Joan and Steve Belkin, who purchased the farm in 2005, begin utilizing the 1.2 million pounds of fruit produced at the farm each harvest to brew their own cider. The Belkins opened a cidery and taproom in June 2015 to encourage stronger year-round business at the farm, where the busiest time is the summer months, said Jay Mofenson, hard cider manager and son-in-law of Joan and Steve. Acton’s True West Brewery, owned by brothers Josh, Pete and Matt Henry and their spouses, has broken onto Massachusetts’ family-owned brewery scene soon as its newest addition. About two years ago, True West Brewery’s head brewer Josh Henry opened 7th Settlement in Dover, New Hampshire with his business partner Dave Boynton; Josh’s brothers were investors in the business. The Henry brothers later decided they wanted to open a brewery together in their hometown of Acton. The brewery opened in February. Continued on page 10
Trillium Brewey in Canton
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Continued from page 9
Not all Massachusetts family businesses are new to the alcoholic beverage game. The history of Nantucket-based Cisco Brewers Inc., parent company of Cisco Brewers, Nantucket Vineyard and Triple 8 Distillery, began 35 years ago. Husband-and-wife Dean and Melissa Long opened their winery, Nantucket Vineyards, in 1981. Years later, the Long’s friends, Wendy and Randy Hudson, who were living above the winery, began making beer with the wine equipment. In 1994, they opened their brewery, Cisco Brewers. Soon after, college senior Jay Harmon began working at the brewery for his college thesis. “He never left. It was a perfect fit,” said Tracy Wilde-Long, general manager at Cisco Brewers Inc. Harmon became the company’s fifth partner. In 2000, the five partners opened Triple 8 Distillery. It was at this point that they put the three businesses under the Cisco Brewers Inc. umbrella, said WildeLong, making it one of the few places in the country that contains a micro-brewery, winery and distillery. Although there are technically multiple families behind this business, according to Wilde-Long, daughter of Dean and Melissa, “Everyone is considered family. I call Wendy and Jay my aunt and uncle, even though we’re not really related.” Several hundred miles away in Pottsville, Pennsylvania, the 187-year-old, family-owned D. G. Yuengling & Son is in its fifth generation as America’s oldest operating brewery. It was founded by David G. Yuengling in 1829 and is currently owned by David’s great-great-grandson, Richard L. “Dick” Yuengling Jr. Dick Yuengling is happy to report that two of his daughters are currently working in the business, so they’ll be ready to lead it into the sixth generation. Yuengling has faced some unique challenges over the years, such as figuring out how to survive during the United State’s prohibition years from 1920 to 1933. (The brewery began producing “near beer” and opened a dairy, Dick Yuengling said.) Today, it is one of the largest breweries in the country, employing more than 300 people and operating three productions facilities – two in Pennsylvania and one in Florida. The beer is distributed in 18 states, as well as Washington, D.C. Dick Yuengling believes the reasons behind the brand’s success are simple: Yuengling provides customers with consistent, quality beverages. Dick Yuengling 10
Hopsters in Newton
“[When you work with family], they’re invested and have some skin in the game. This is our only family income. My wife’s not going to not show up to work. … She’s someone I know I can always trust.” — Lee Cooper, cofounder, Hopsters also emphasized the importance of patience when growing a business and avoiding the pitfall of expanding too quickly. “We never open a market just for the sake of opening markets. … Our business model is to develop one market, and then move on to the next,” he said. Family Matters Of course, starting a new business or working with family can be challenging at times. True West Brewery’s Pete Henry said Massachusetts’ construction costs, as well as the myriad “restrictions and restraints” placed on small businesses, made it more difficult to open a brewery in the Bay State than in New Hampshire. “Every single day there are issues that pop up. Some of them are one-off issues; others are ‘oh-my-God’ problems. But big or small [when you own a business] the buck stops with you,” said Trillium’s Esther Tetreault. “It can be very challenging working for your father-in-law,” Belkin Family Lookout Farm’s Mofenson said with a laugh. “[When you work with family], they’re invested and have some skin in the game,” Hopster’s founder Cooper said. “This [brewery] is our only family income. My wife’s not going to not show up to work. … She’s someone I know I can always trust.” Staying Local Many of the breweries chalk up their success to remaining local. True West Brewery is a “Community Supported Brewery,” said Pete Henry. “It’s like a CSA [Community Supported
Agriculture], where you can buy a share, and the money from that share goes to the farmer to help buy seeds, fertilizer, whatever they need. As the farmer produces produce or meat or grains or whatever it is the CSA is targeting, you get a piece of it. We do the same thing with beer.” The brewery also has a farm-totable restaurant. Hopsters gets the ingredients for its beer from local farms, then returns the spent grain from its production process to the famers, who use it to feed their livestock. Many of the breweries also agreed that the recent surge in craft beer consumption is part of a larger trend to go local. “People want to support a local company and operation,” said Belkin Family Lookout Farm’s Mofenson. True West Brewery’s Henry agreed: “I don’t think this is exclusive to craft beer. It’s a change in the way people are thinking. In regards to food and drink and the economy, there is a move toward trying to be more local. … People want their own local economies to be strong. They want their own communities to have things that they can be proud of and be excited about. I think craft beer is the most fun way to do that.” “We certainly take advantage of [customers’ desire to support local companies], but we don’t have to do much because I think people are actively seeking it. It’s almost something that if you play up too much, you lose some authenticity,” Henzler said. “For us, we are in Framingham. We are local. There’s no need to play anything up. It’s who we are.” ■
Getting Your House in Order Things to Consider Before Applying for a Business Loan
By Chris Ward
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mall businesses create the lion’s share of the new jobs in this country and family-run businesses are the backbone of that sector. That’s why bankers are committed to providing loans for these companies – the lifeblood of Main Street America. However, before applying for a loan, there are a number of factors for a family business to consider. Besides identifying the purpose and type of loan, businesses should have strong credit. When it comes to maintaining a healthy score, there are several elements to consider: • Look to establish business credit early on and work on building up the business credit history. • Make payments on time. • Keep individual credit cards within the credit limits. • In the case of multiple credit cards, keep your balance well below 70 percent of the total credit available – the so-called credit “utilization.” • Do not apply for too much new credit over a short period of time. Businesses should also understand that derogatory information included on their business report such as late payments, suits or liens, will have a negative effect on their business score. Businesses should habitually review their credit to ensure there is no misreported information and that any satisfied liens or judgments are properly reported. Further prep work includes choosing the best bank to partner with on a loan. One of the best ways to locate the right bank would be a referral from another small business owner, or from your CPA. Additionally, a bank that is conveniently located, or has a branch presence close to the business, also provides the kind of ready-made service you’ll need to foster a strong relationship with the bank. Certainly, starting a discussion with your current bank is a solid option as it can likely avoid the costs and time requirements
of changing banks. And try to limit your credit relationships for your business. Two to three lenders is preferable, especially on the revolving credit side. Similar thinking can be applied to refinancing existing loans. Typically, the most common reasons a family-owned business may seek to refinance is to secure lower interest rates or costs, or dissatisfaction with the level of service provided by their current lender. Family businesses should consider the accessibility of a financial institution as well as the competitive loan rates and fees compared to their current situation. They may also factor in the size and abilities of a lender to support the needs of the business for the foreseeable future. Today’s small business lending offers an array of options, depending on whether you are planning a new location, launching a product, or looking to hire more help. Do some research about your options and if you are a new or growing business, ask about Small Business Administration (SBA) loans that offer more flexible terms, helping to improve cash flow. Be ready to explain your business plan, and perhaps even the story behind your business, as well. It gives you a road map and makes institutions more comfortable in partnering with you to help grow your business.
It’s also important not to bite off more than one can chew. It may be tempting to borrow a lot of money initially to grow the business as quickly as possible, but it’s better to grow it slowly and manage profitability at the same time. In addition to helping you determine the best type of loan for your business – which might include a traditional term, mortgage, line of credit or business flex for things like assets and equipment, or an SBA loan – an experienced banker will work with you to determine the right suit of tools for you. This can range from cash management to special business bank accounts, which may offer no monthly maintenance fees and no minimum account balances for small and startup businesses. Citizens Bank – and all banks – understands that financing is critical to the success of a growing business. There’s a bank out that that fits your needs, whether it’s a drop box, a refinance or a new loan. Many banks, including Citizens, have long track records of lending to family-, womenand minority-owned businesses, and have tailored borrowing solutions that can provide financing for enterprising familyowned businesses to help them conserve capital and maximize cash flow. ■ CHRIS WARD IS PRESIDENT OF BUSINESS BANKING FOR CITIZENS BANK. 11
When the Vow Breaks The Effect of Divorce on a Family Business
By Edward D. Tarlow
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amily businesses face many challenges as they strive to survive and thrive. Among the most difficult to overcome is one that is unique to a closely held business: divorce. A divorce can be financially and emotionally devastating to a family business. We have all overheard a business owner referring to his or her company as being “like a ED TARLOW child.” The custody battle for the business can be expensive, contentious and, without proper planning in advance, potentially fatal. This is particularly true if a company has been jointly owned and its growth has been a labor of love for both spouses. Even when one spouse is a non-owner who does not work actively in the business, the company is frequently a couple’s largest asset; thus 12
its value becomes a point of contention in divorce proceedings. For a family business to survive a divorce, the possibility of divorce must be anticipated and planned for well in advance. While nobody wants to imagine a time when a marriage is dissolved, it is inexcusable to ignore the possibility. The incorporation documents of every closely held business should include an agreement about ownership rights and stakeholder value in the event of an owner’s divorce. Succession planning documents should also include provisions for the dissolution of the marriage of one or more of the next generation of owners. Disposition of the business can be addressed in a premarital or post-marital agreement, carefully structured and negotiated to provide certainty in the event of a divorce. Every possible permutation of what might occur should be considered and addressed, such as spouses who are
joint owners, a non-owning spouse who acquires a share in the business as marital property, and stakeholders who are not party to the divorce but whose ownership is affected, among others. A variety of options exist to resolve the issues of ownership and control of a closely held business upon the divorce of one or more owners. It is generally in the best interests of both parties to the divorce if a business remains a viable operation, although this is not always possible. Buyout of a Spouse’s Share One solution to settle control of a business in a divorce is for one spouse to buy the other spouse’s ownership interest, or for the spouse who is an owner to compensate the non-owning spouse for the value of the owner spouse’s interest in the business. A typical hurdle is finding a valuation method and pinpointing a number on which both parties can agree. The services
of an independent certified value analyst (CVA) may be required. Transfer or Redemption of Shares If a non-owner spouse receives ownership shares in the business as part of a divorce settlement, it may be in his or her best interest to “cash in” by transferring the shares back to the company in return for cash. This may put a financial strain on the business (and the owning spouse), but can also create a clean break that leaves control of the business with the active spouse. Sell the Company If the divorcing couple does not have a binding agreement in place and cannot come to terms on how to divide their interest in the business, it may come down to selling the business to a third party. The downside is that the income stream from the business is eliminated, and the forced sale of a distressed business may lower the sale price. Continue Co-Ownership In some cases a business may be in a fi-
nancial position that precludes buying back shares, the company may not fetch an acceptable price if sold, or both spouses may simply wish to see the business continue, and therefore come to an agreement to remain co-owners. Some even keep their business partnerships in place for the sake of any children who may be employed in the family business.
According to federal statistics, the divorce rate in the U.S. is 50 percent, so it is almost inevitable that divorce will affect closely held business owners. Accepting this possibility and creating a well considered plan ahead of time can help reduce uncertainty at a time of great stress and disharmony. ■ EDWARD D. TARLOW IS A FOUNDER AND SHAREHOLDER
Divide the Business If both divorcing spouses desire to continue in the business, one option is to split the business into two separate companies, each owned by one of the divorcing spouses. This works well when a business has multiple divisions or business units that can be run separately, or when a company’s real estate assets can be split off from the operating business. All of the possible resolutions cited above carry important – often overriding – tax implications. Decisions about how shares are transferred, redeemed, purchased or otherwise shifted from one spouse to another should always be made with the goal of minimizing the tax burden for all parties.
AT TARLOW BREED HART & RODGERS, A BOSTON LAW FIRM THAT SPECIALIZES IN FAMILY BUSINESSES, AND A FOUNDER AND PRESIDENT OF THE FAMILY BUSINESS ASSOCIATION OF MASSACHUSETTS. HE CAN BE REACHED AT (617) 218-2011, OR VIA EMAIL AT ETARLOW@TBHR-LAW.COM.
Additional Resources “Divorce and the Family Business – What are the Options?” by William Long and Scott Sissel, Business Entities, March/April 2007 “Marriage, Divorce and the Family Business,” by Charles A. Redd, University of Miami Law Center’s Philip E. Heckerling Institute on Estate Planning, Volume 42, Chapter 4, “Business Succession or Business Cessation? Passing the Torch Without Dousing the Flame.”
Not all family members are alike. At Tarlow Breed Hart & Rodgers we celebrate the differences that make family businesses special. With guidance from our family business specialists, your company could bear fruit for generations to come. Isn’t it time you had a conversation with Ed Tarlow, Chairman of our Family Business Practice Group? Call Ed at (617) 218-2011.
Rise Above the Ordinary.
101 Huntington Ave., Boston 617.218.2000 | tbhr-law.com
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A Boon to the Family Business Saving Money with Managed Print Services
By Ray Belanger
J
ust like all commercial enterprises, family-owned businesses are constantly seeking ways to streamline
and increase their bottom line. Often, in businesses that have been handed down from generation to generation, there is a tendency to continue operations in much the same way as in years before. And while there is much good to say about tradition and maintaining a long-held brand, what is sometimes overlooked are the many benefits today’s technology has to offer – particularly in the area of document printing and distribution. The costs associated with document output may not seem large in the scheme of an entire operational budget, but consider this – most businesses spend up to 3 percent of annual revenue on printing and document distribution, with IT departments allocating 15 percent of time to printing and related actions, making the need to track equipment usage, reduce costs and increase efficiencies a must. The wide discrepancy between the operating costs of desktop printers, copiers and multifunctional devices to generate an individual document cannot be disregarded when balancing a business budget. It wasn’t long ago when the “big box stores” copiers, printers and fax machines were the pinnacle of document generation, but that process has been refined through the innovation of managed print services (MPS), so much so that in recent years MPS has taken the lead in document solutions – and with good reason.
MPS looks at per-page cost as the bottom line, in contrast to the final price point of office equipment. Fundamentally it considers all costs associated with leasing/owning and using printing and imaging equipment, including maintenance and ongoing support – of particular significance for businesses with multiple locations. Print management software tracks the number of copies each piece of equipment uses and produces a report, allowing for increased efficiencies. A print management program can realistically save a business up to 15 percent or more in its operational costs. A MPS system tracks documents and flags any excessive use of machines with high per-page costs. Since most office environments now use color, it’s critical that businesses have current technology that allows them to generate documents in the most efficient manner. MPS can be introduced in phases and is set in motion with an initial analysis of a company. The assessment evaluates the existing printer fleet, current costs and operational bottlenecks and, when applicable, the amount of time an IT department spends on document production. After the analysis there is a “discovery meeting” to review a formal assessment report with company owners and/or key stakeholders. The report summarizes and documents all data and operational costs of the existing equipment fleet. Potential opportunities to consolidate and standardize are then highlighted and discussed. Ultimately, print management looks at all phases of document generation, from the cost of the equipment and sup-
plies through any necessary service support. An increasingly important component of an MPS system is an in-place tracking software program that enables the provider to monitor clients’ systems remotely, alerting them to potential misfeeds or low toner, thereby averting work stoppage. Yet another critical component to MPS is security. One of the imperatives of any business is to ensure that information is secure and compliant. A managed print service program provides critical mandatory security; in fact, it can trace a document back to the device it was printed from. Also important to consider when instituting a managed print services program is the paperless office trend. Environmentally, MPS is an effective mechanism to reduce waste, recycle paper, ink and other resources. It is a “green” document solutions approach that is not only cost effective, but can also lower the carbon footprint of a business. An across-the-board print management system is also less stressful for staff, particularly if a business has multiple offices. The frustration of dealing with equipment that may vary from office to office is eliminated making it easier for people to do their jobs. In a nutshell, MPS provides an audit of document generation costs and equipment efficiency. Ultimately, this program is a necessary step toward a business’s increased efficiency. ■ RAY BELANGER IS PRESIDENT AND CEO OF ROCKLANDBASED BAY COPY, WWW.BAYCOPY.COM, A SECONDGENERATION FAMILY BUSINESS.
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FAMILY BUSINESS SERVICE GUIDE DIRECTORY
Family Business is Our Business. Offering comprehensive investment counsel, estate planning and fiduciary services to individuals, families and endowments for over 35 years.
We are attorneys who know how to address the challenges of generational differences and family member relationships.
— Please contact Mike Brown at MikeB@BFMinvest.com —
ONE WINTHROP SQUARE, BOSTON, MA 02110 617-338-8108 • www.BFMinvest.com
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Edward D. Tarlow, Esq. Chairman, Family Business Practice etarlow@tbhr-law.com 617.218.2000, x2011
TRUST AND PLANNING INVESTMENT MANAGEMENT PRIVATE BANKING FAMILY GOVERNANCE
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“The biggest challenge for your business today? Tomorrow.”
Donald P. DiCarlo Jr. M.A., J.D., LL.M. (Tax) National Director of Business Advisory Services, Senior Wealth Strategist Don helps business owners develop and implement successful business succession strategies. He forges relationships with clients while they are still actively engaged in managing the business, and offers key advice at each critical stage. He is part of a seasoned team of wealth advisory professionals who work seamlessly to provide the full spectrum of services required by clients. To learn more about our collaborative and creative approach to managing wealth, contact Mark Andersen at 617.457.2056 or mandersen@wilmingtontrust.com.
Transitioning ownership of your business will undoubtedly be one of the most significant events of your life. And one you may not be prepared to even think about right now. However, with careful planning at each stage, you’ll be ready for what’s ahead – and confident that you’ll preserve everything you’ve worked so hard to build. Growing your business. Your banker and insurance specialist will help determine which deposit, lending, cash management, and insurance solutions will best fuel the growth of your business. You’ll also want to ensure your will and other estate planning documents are in order, and that you’re taking advantage of tax-minimization strategies. Transitioning business capital to personal capital. As your business evolves, you may consider selling or transitioning to your son or daughter, or someone outside the family. We can help you explore exit strategies, secure the right buyer, and value your business. We’ll also help you determine how and where to invest your wealth, and how to manage your liquidity and cash flow needs.
Managing and transferring personal wealth. This is when all your hard work pays off. You’ll begin to implement trust and planning strategies to transfer wealth to the next generation. You may also have the freedom to donate resources to those organizations you find meaningful.
ONLY
30%
O F FA M I LY B U S I N E S S E S SURVIVE INTO THE S E C O N D G E N E R AT I O N Source: familybusinessinstitute.com
At Wilmington Trust, we can help create a plan for each stage of your business and your life. Founded by a family business leader more than a century ago, we have the experience to help guide you through times of growth and succession. Our approach focuses on both your business and personal financial needs, allowing us to make each transition in your journey a seamless one. For more insight on how to successfully prepare for what’s next, view our capital transitions video series at wilmingtontrust.com/capitaltransitions.
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This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of your professional advisor should be sought. Private Banking is the marketing name for a product and service offering. Investments: • Are NOT FDIC-Insured • Have NO Bank Guarantee • May Lose Value Wilmington Trust is a registered service mark. Wilmington Trust Corporation is a wholly owned subsidiary of M&T Bank Corporation (M&T). Investment management and fiduciary services are provided by Wilmington Trust Company, operating in Delaware only, and Wilmington Trust, N.A., a national bank. Loans, retail and business deposits, and other personal and business banking services and products are offered by M&T Bank, member FDIC. ©2016 Wilmington Trust Corporation and its affiliates. All rights reserved. 15
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