CREATIVE CUSTOM HOMES
THOSE WHO DARED TO FLY TOO CLOSE TO THE SUN
San Antonio | February 2020
Passion, Integrity, Thoroughness Guy Floyd Brings it Home for Each Client A Homebuilding Industry Publication
HOW SALES TAXES AFFECT YOUR BIDS
Building Savvy
Building Savvy
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Building Savvy
Building Savvy
SAVVY’S A-LIST Air Conditioning Classic Services AC 830.358.1499 www.classicairconditioningandheating.com Architectural Photographer Jason Roberts and Associates 210.789.2033 www.jasonroberts.biz Building Materials BMC 512.977.7400  www.buildwithbmc.com Guido Companies 210.344.8321 www.guidoconstruction.com
Custom Stone and Granite Sublime Custom Stone 210.495.1053 www.sublimecustomstone.com
Fireplace Installations Integrity Fireplace Installations 210.294.1383 Garage Doors Hollywood-Crawford 210.494.3434 www.hollywoodcrawford.com
Doors The Front Door Company 210.340.3141 www.thefrontdoorco.com
Home Warranties Centricity 727.385.7599
Electrician  MSF Electric 210.781.4112 www.msfelectric.com
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[from the publisher]
IS IT TIME FOR FOLLOW UP ON
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First, I hope that what you read here in Building Savvy will get you thinking and implementing better ways to construct homes. Savvy builders will agree that as with most material choices and best practices, the elimination of problems means less cost – both from the perspective of bottom line and reputation. Our February Focus Section explores how building science has advanced the common principles of framing design, structural integrity and energy efficiency significantly over the past couple of decades. But too much of a good thing can cause other problems – tight is good, impermeable is not. Finding the right balance is a topic we will continue to explore in the publication as well as in some of the Lunch and Learn events we have in the works for this year.
Last but not least, make sure you and your team are fully vested in the goals they set and create a follow-up system to track the attainment of those goals. As Paul Evans reminds us in his “Sales Savvy” column, “Inspect what you expect.” Now may be the perfect time for the first follow-up check to see how you are doing at meeting your business and personal success goals. Let’s make 2020 a great one!
Second, we also aspire to bring news that will help you to be on point when it comes to home designs and amenities that today’s buyers are seeking. Are you up on the expectations of the next generation of home buyers? Does your design team understand their preferences? Does your sales team know how to speak their language? Savvy Special Report offers some interesting insights on “Trophies, On-Lines and Generation App.”
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Building Savvy
Building Savvy
[focus section] Thicker floor panels are recommended for a more solid floor structure. OSB or plywood subfloors are typically a 3/4-inch tongue and groove panel nailed or, preferably, screwed down. The glues and processes used to make both OSB and plywood, however, make panels prone to soaking up moisture when it rains. Up-and-down floor movement is caused when edges swell, leaving gaps beneath the floor underlayment, leading to a squeaky floor callback. Plywood and OSB manufacturers attempt to improve this issue by sealing panel edges, but the sealant, whether wax or paint, tends to get scuffed off. Higher-density, more water-resistant OSB products, like AdvanTech® panels, are made specifically to address this problem. AdvanTech® uses an advanced liquid coating to ensure panels are thoroughly protected.
By Beverly Smirnis
The Evolution of Wall, Floor & Roof Structure The stats remain steady: 93% of new homes in the U.S. are wood-framed; concrete homes make up about 7%; and steel-framed homes comprise less than half a percent of the market share, according to NAHB’s analysis of Census Bureau data tracked over the past five years.
Despite the challenges wood framing has faced — declining quality of lumber, tariffs on lumber, threat of moisture in wall systems, potential for termite infestation, VOC emission liabilities — many builders and their subs are knowledgeable and comfortable with wood-stud construction, which makes them less likely to use other building methods. However, what used to be considered advanced framing techniques have been adapted as mainstream due to increasingly stringent energy and structural building code requirements. Advanced Framing for Walls Becoming the Norm Wall frames provide the most op-
portunity for material savings when advanced framing techniques are used instead of conventional framing methods. Advanced framing uses fewer materials yet boosts structural strength and energy efficiency, lessens environmental impact, and lowers labor costs. Building walls with 2x6 wood studs spaced 24 inches on center is now widely accepted. Sheathing them with oriented strand board (OSB) or plywood allows compression and tension loads to be directly transferred to the vertical framing members under the roof trusses or rafters. Wood structural panels allow for greater architectural flexibility in the number and location of door and window openings, and the fact that sheathing serves as a base for fastener attachment between studs supports the cost-effective use of virtually any siding product. Single top plates and headers insulating two- or three-stud corner junctions, minimal use of jack studs and cripples, elimination of redundant studs and unnecessary blocking and bridging,
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and ladder junctions at interior wall intersections are other advanced framing techniques, all of which reduce the potential for insulation voids and create more space for cavity insulation. Prefabricated insulated structural components that simplify construction, such as insulated headers and insulated corners, are becoming commonly available. The Tstud™ is a new engineered building product that uses two lumber members, an internal truss system, and a frothed-in-place closed-cell foam. Floor Framing: More Than Just Initial Material Costs to Consider For floor systems, APA – The Engineered Wood Association recommends wood floor joists (such as I-joists), structural composite lumber (SCL), and/or glulam at 24 inches on center, and encourages engineers to maximize member spans between supports. Specifying I-joist floor systems between finished floors typically allows for the installation of plumbing, electrical, and mechanical services within the floor frame cavity, eliminating the need for dropped ceilings.
Roofs and Related Codes Become More Complex As roof designs have become more complicated, with valleys, dormers, and other features, code requirements for stick-frame roofs have become more convoluted over the years, too. Truss roofs, constructed at a factory and delivered to the site, outnumber stick-frame roofs two to one by some estimates. But in some regions of the country, builders still prefer stick-frame roofing to allow for customization — for example, when a large attic space or high, vaulted, or cathedral ceilings are desired. To meet current IRC roof-framing requirements, the bottom of each roof triangle (ceiling joists) must be fastened securely to rafters on each end and must continue across the entire width of the ceiling such that they keep the rafters’ ends from spreading out when loaded. On vaulted ceilings, where there is no tie at the bottom, rafters must be supported at their upper end to prevent rafter thrust at the lower end. Half the load is supported by a load-carrying
ridge beam designed to bridge the span between the supports, which carry the vertical load to the ground. If the vaulted roof is constructed as a hip roof, the ridge beam, as well as the top ends of the hips, must also be supported, and rafters must have a secure connection to the hips. Simpson Strong-Tie recently developed three products to provide strong, simple connections at these three required points. What Building Science Has Taught Us About Advancements Versus Structural Integrity Modern practices and principles still forecast that our industry will be constructing with wood well into the foreseeable future. But what else is involved in building a sound structure? Once upon a time, we built walls with generally uninsulated wood board sheathing. Plywood walls insulated with fiberglass batts became the norm in the 1950s. The wood surfaces breathed when moisture content was introduced, as did the “kraft paper facing” traditionally found attached to the interior side of fiberglass batt cavity insulation. Most facing materials also had breathability as a natural characteristic, which means a wall built of plywood insulated with a kraft-faced batt was able to dry outward in the winter and inward in the summer. Fast forward to the late 20th century, when OSB, plastic housewraps, foam, and other new types of insulation helped us build a tighter home than ever before, which got us into a whole new problem — walls with little to no breathability at all. Building science has taught us we need an air gap between the cladding and housewrap/OSB interface. Weather protection barrier manufacturers introduced products designed to act as an air and moisture barrier while allowing moisture vapor to escape the wall cavity to the outside. Building
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When creating their latest roof hangers, Simpson Strong-Tie’s goal was to help installers and designers meet new load path requirements.
regulations required roofs to be ventilated by soffit or ridge vents, allowing for breathability along with superior insulation. But we still had installation to consider. Factors such as improper fastening, incomplete coverage, and poor flashing, caulking, or taping can all affect energy efficiency and indoor air quality. Installers learned a housewrap should cover completely and be properly lapped in order to shed water. Also, material compatibility with sealants can be an issue. Many water-resistant barriers, sealants, and building tapes used to keep water out of wall and roof assemblies have the potential to react badly together. Checking which product a window or housewrap manufacturer has tested and approved for its products is now mandatory. The Bottom Line Savvy builders will agree the elimination of problems means lower cost — both in bottom line and reputation. Building science has advanced common principles of framing design, structural integrity, and energy efficiency significantly over the past couple of decades. But take care: Tight is good, but impermeable is not. Plastics and chemicals have their place in modern building products, but beware of pairing products from different manufacturers unless they have been approved for contact with each other. Overall, our industry continues to take major leaps in attention to detail, execution, and building science. Beverly Smirnis is the co-founder of Building Savvy magazine and publishes its flagship Dallas/Fort Worth edition. She and her business partner and husband, Steve Smirnis, have served as judges for the International Builders’ Show Best of IBS Awards, the Greater Houston Builders Association Prism Awards, the Greater Orlando Builders Association Parade of Homes, and the Building Industry Association of Okaloosa-Walton Counties’ Parade of Homes.
Building Savvy
[industry news]
Those Who Dared to Fly Too Close to the Sun The business community in Texas had been caught fully unprepared for a coordinated attempt to pass similar ordinances in Austin, San Antonio and Dallas. In red-blooded, right-to-work Texas, this audacious action by organized labor was poisonous from the start.
By Trevor Whitney
The Drama of San Antonio’s Doomed Mandatory Sick Leave Ordinance
If passed, the nascent San Antonio sick-leave ordinance seemed destined to face certain doom at the hands of the Texas Legislature or the courts. Alternatively, City Council could have put it on the ballot for the November 2018 general election, which already contained three controversial ballot initiatives that originated out of the City’s contract dispute with the firefighter union. The Mayor and City Council were under siege from all sides and had to make a judgement call.
In Greek mythology, Icarus escapes prison on wings made of feathers held together with wax. His father, Daedalus, warns him not to fly too close to the sun or the wax will melt – sending him plummeting back to Earth. Icarus didn’t listen. Neither did San Antonio City Council. In May of 2018, labor unions and left-wing political activist groups collected over 144,000 signatures of voters in the Alamo City in support of the creation of a mandatory, paid sick-leave ordinance. San Antonio City Council had to act.
Faced with these options, San Antonio City Council decided to pass the ordinance. Remember that “flying too close to the sun” thing? Well, it was high noon, and the City Council had decided to point their wings directly into the flames. Even the boisterous Councilman Manny Pelaez (SA8) warned his colleagues that this probably wasn’t the best idea in the world, in spite of his own personal support for the measure. State legislators instantly vowed to block the ordinances, pointing to the State Constitution’s provisions on who sets the minimum wages in the state (the state legislature). After quite the hefty share of tongue lashings from state leaders, Texas cities found themselves locked in a pitched battle over local control and who governs business. But the budding local level politicos failed to heed the warnings of their more experienced brethren who inhabit the Pink Dome in Austin. They had flown too high. Almost immediately, Austin’s version of the paid sick leave ordinance was struck down in the courts. After some back and forth, the Texas Legislature failed to take action and vowed to monitor the issue as it played out in the courts. San Antonio saw the formation of a committee of community stakeholders brought together to ‘improve’ the ordinance as it stood. This feeble attempt to assuage the business community was never taken seriously by anyone other than the hapless City Attorney Andy Segovia, whose office was tasked with creating an end-run that would somehow survive the inevitable court challenge, and activist groups who thought they could push for more concessions. When the new and improved (and renamed) “Safe and Sick Time” ordinance emerged from this citizens’ working group in October of 2019, a lot had transpired since the original ordinance was passed. City leaders had failed to scare voters on the proposed firefighter ballot initiatives, and two out of the three passed. This stunning 10
Building Savvy defeat of Mayor Nirenberg’s coalition of short-sighted development community members, big business and the political donor class in San Antonio left a trail of damage in its wake — including the head of City Manager Sheryl Sculley, whose 13 year tenure had previously been thought to be untouchable. After nearly losing his own job in June of 2019, Mayor Nirenberg pushed through the new version ordinance, setting up yet another legal battle. Groups such as the Associated Builders and Contractors of South Texas and related industry groups immediately filed lawsuits seeking a delay of enforcement. So what exactly was in the finalized ordinance that caused such pushback? The new ordinance required that all companies and nonprofits that did any business in the city of San Antonio, regardless of their size or total revenues, provide 56 hours’ worth of earned paid sick time per year for every employee.
offer. In a largely blue collar, small- business friendly town, these new rules seemed to unfairly burden the little guy. On November 22, 2019, State District Judge Peter Sakai agreed and granted an injunction on the ordinance, effectively putting enforcement on ice while the two sides went to court and argued the merits. The ordinance is set for trial in late 2020, but is unlikely to be litigated. Remember that State Constitution thing? Well, it has been the sun in our story all along. San Antonio leadership instantly fractured. The outspoken Mr. Pelaez, who as a lawyer has seen the cost of lengthy litigation and can read the tea leaves, questioned the wisdom of spending more taxpayer resources to defend an ultimately doomed ordinance. Councilwoman Ana Sandoval (SA-7), with intimate connections to the left wing activist groups who originated the paid sick leave push, such as the Texas Organizing Project, took another approach and vowed to sidestep the court ruling and launch an effort to modify the ordinance to apply to city contracts only.
Large corporations and government entities had no problem with these demands, as many large organizations already provided this benefit. But the small, two-guys-and-a-truck businesses that populate much of the blue collar skilled trades world would now be saddled with compliance and reporting requirements that they would struggle to handle. Not every business has a large accounting or HR department to ensure they follow a patchwork quilt of ordinances that various neighboring cities may pass.
So much for learning after getting burned. The Texas Supreme Court likely will address the legality of the Austin paid sick time ordinance in early 2020, which will have implications for the Dallas and San Antonio ordinances. But whether the court strikes down the law or not, the saga of the paid sick leave ordinance has scorched the wings of the San Antonio City Council and damaged its reputation for being nonpartisan and level-headed. Will it now come back to Earth, or continue its quest to fly into the flames?
Sick leave itself is not a bad thing, business groups argued, but allowing politicians to define the ‘appropriate’ level of compensation was not wise. Many questioned how City Council representatives, many of whom have never run a business of any scale, could possibly know what is the ‘right’ amount of benefits that a company should
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Building Savvy
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[savvy special report] By Beverly Smirnis
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Technology and the recession are significant variables dividing the millennial generation. In fact, Rebecca Lindland, founder and consultant at rebeccadrives.com, spoke on the topic to a group of auto dealers at a recent auto show I attended while wearing my other hat — that of an auto journalist. I’m always fascinated by the similarities between the automotive and homebuilding industries, particularly when it comes to demographics and buying habits. For example, Lindland noted that car buyers are concerned about affordability, and more shoppers are being pushed toward used inventory. She said consumers are doing more research online and visiting fewer dealers in person. Does any of this sound familiar? And here’s an interesting note: 61 percent of buyers who recently purchased or leased a vehicle said their most recent purchase experience was the same or worse as previous purchases. Could auto dealers be guilty of putting focus on enticing them online but faltering in simplifying in-person processes and experiences? On their list of top annoyances: filling out paperwork/ contracts, negotiating price, dealing with a salesperson, searching invento-
ry, valuing their trade-in, and applying for financing. So, what did Lindland have to say about those millennial minds we are all trying to understand? She started by defining the “Trophy Generation,” born between 1978 and 1988. The oldest among this group was 8 years old when the internet became available to the public. “Trophies” were hugely impacted by 9/11 and the 2008 Great Recession, which hit when they were 20 to 30 years old. As parents, Trophies seem to be more like their own parents, the Boomers. Trophies: • Were coddled and protected by “helicopter parents.” • Seek experiences rather than possessions (live for the moment). • Include their children in major life decisions. • Are image-conscious, motivated, and optimistic. • Expect instant gratification. • Embrace diversity. • Are not responsible for failures. (Everybody gets a trophy!) • Are environmentally conscious. • Are tech-savvy. When it comes to vehicles, according to Lindland, Trophies seek an “aspira-
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tional” brand but are open to brand resurgence and new brands. They value “in-your-face,” statement-making design and technology. In their teens and young adult years, Trophies wanted premium Hummers and Audis. Today, they still want Audis and have added Tesla and Land Rover to their list of favorites. Delivery and service experiences are critical to loyalty; the vehicle must be “responsible for itself.” The homebuilder take on the Trophy Generation: • Focus on the sales and delivery experiences. • Staging and merchandising are important; sell the life experience. • They’ll look for killer home designs with high-tech bells and whistles — things that impress and make life more convenient. (Life is not supposed to be difficult!) • Low maintenance is a must; they’ll expect someone to remind them and perform it for them. (Sell or refer maintenance services.) • Wow the kids; remember, they’re part of the decision-making process. • Build your brand. Younger millennials in the “Online Generation,” as Lindland calls it, were born between 1989 and 1999. While they
Building Savvy
Building Savvy
Total U.S. Population by Age and Generation (as of December 2015 per Viz of the Day by Tableau Public)
ONLINES
5M
TROPHIES
PERSONS
4M 3M 2M 1M OM GEN-Z 73.61M Born in: 2015 Age In 2020: 6
MILLENNIALS 789.41M 1999 21
share many characteristics with the Trophy Generation, the post-recession years during their young adulthood had a more lasting effect on them. Many grew up in comfortable lifestyles that were abruptly halted by the Great Recession and its aftermath. They are confident yet cautious, with an eye toward authenticity; they are willing to put off a full-time career for life experiences and stamps in their passport. The Online Generation is ambivalent about vehicles and is the first generation not defined by car ownership. Technology is their ticket to freedom; Uber and Lyft are a way of life. They are quick to adopt shared mobility models and ready to embrace autonomous vehicle technology, with Tesla reigning supreme as their favorite brand. The homebuilder take on the Online Generation: • If your marketing is not online, get ready to retire. Don’t rest on brand longevity, either; the new guy has an
GEN-X 65.72M 1981 39
•
•
• •
•
BABY BOOMERS 75.52M 1965 55
equal chance. Remember that buying a house isn’t at the top of their priority list; talk up the investment upside/resale value. These are not emotional buyers. Don’t try to push them toward the highest end or most amenities — they will fear getting in over their heads. If they don’t have children, don’t assume they want to. Don’t expect them to embrace today’s mainstream housing product; for one, they may not want a garage. They may embrace mid-century modern because this generation spent more time with their grandparents, Lindland says.
What’s Next? Like the Onlines, Generation App (aka Gen Z), born after 1999, has a combination of baby boomers and Gen Xers as parents. While Gen Xers treat kids like friends and indulge their every whim, Boomers are more strict and traditional parents, which makes this
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1946 74
SILENT GEN 28.32M 1928 92
generation difficult to generalize. This generation is causing the most disruption and angst for marketers because their mindsets are diverse, splintered by the broad age range of their parents and influenced by technology now adopted in months and years instead of years and decades. Generation App has no recollection of life before smartphones, the internet, social media, and Uber/Lyft. Steve Jobs is a historical figure to them — the oldest in this group was 12 when he died in 2011. What will we build for them? Rebecca Lindland’s demographics expertise and Beverly Smirnis’ veteran homebuilding industry experience are a powerful combination! Contact us about training your sales and design teams to understand and anticipate the buying habits of today’s and tomorrow’s homebuyers by emailing thesavvylist@gmail.com.
210-340-3141 www.TheFrontDoorCo.com
12402 West Ave San Antonio, TX 78216 15
Building Savvy
[savvy builder]
Building Savvy
Guy Floyd is Your Hands-On Builder Guy Floyd won’t ever win any awards for building the most homes in South Texas, and he’s quite okay with that. His objective is quality, not quantity, and, above all, giving each homeowner the experience of a lifetime in seeing their dreams come to reality.
CREATIVE CUSTOM
HOMES
Floyd began his career in the construction industry over 30 years ago. In addition to homebuilding, during that time he has also been involved in residential remodeling, subdivision and land development, and at one time held his realtor’s license. Guy graduated from the University of Texas in 1985 with a degree in Business Management. In 2003 he formed Creative Custom Builders to focus solely on building custom, one-ofa-kind residential homes. He is a licensed contractor with the City of San Antonio, a member of the Greater San Antonio Builders Association, the Texas Association of Builders, the National Association of Home Builders, as well as the Better Business Bureau. “I started in the building industry as a teenager working with my uncles who owned a building/remodeling company,” says Floyd. “For someone thinking about this as a career, I’d suggest visiting as many job sites as possible and study the different phases of construction. Learn from everyone, and ask questions. There’s no better construction education than on-the-job training.” Creative Custom Builders has long-standing relationships with most of their subcontractors, suppliers and partners, as Guy places a premium on consistency and dependability. For design flexibility Floyd uses two well-known designers, each with different styles, David Herrera and Gustavo Arredondo. He also relies heavily upon interior design veteran Lorrie Curtis, whom he’s worked with for nearly 20 years. “Our client’s complete satisfaction throughout the entire home-building process is always our one and only goal,” adds Floyd. “I work directly with each client throughout the entire process … from the very first planning meeting, to design, construction, and finish out selections, to changes or issues that arise, and to budget concerns. Every step of the way I’m present to the home buyer. I really want to make sure that not only do my clients love their house, but that they actually enjoy the process and the journey to see it come to life.”
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Organization and thorough communication with each client are keys to the success Creative Custom Builders has come to enjoy. Floyd meets with his clients to get a feel for how they currently live and what they envision their new home to be like. Priorities are set, and initial designs and renderings begin. “This part of the process usually involves several revisions until the customer is completely satisfied with what the end product will look
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like both inside and out,” Floyd continues. “Once this first phase of the design process is complete, we’ll turn our attention to details. We’ll look at style, placement and function for things like ceiling treatments, arched openings, niches, windows and doors, fireplace materials, cabinet design and placement, appliance needs, and anything else that might affect the floor plan or elevation layouts.” Guy feels strongly about providing the client with more details and functionality insights than most homebuyers would even ask about, spending as much time as it takes to help each client thoroughly think everything through before construction even begins. “Some builders would prefer that their clients not be very involved in the building process, and if a customer of mine prefers it this way, that’s fine. But I really enjoy someone who wants to frequently visit the job site while the building process is taking place. I don’t mind answering as many questions as they may have. To me it’s all part of the excitement for them to actually see the home going up and to be curious about what’s coming next. The best part, however, is when the home is finished, and I get to hand my client their new set of keys and see the smile on their face, knowing that the experience for them was a great one and that the end result was even better than they dreamed.
Building Savvy
Building Savvy
Your customer wants a home built for the world of today – and tomorrow.
As mentioned earlier, Floyd has multiple long-standing relationships with subs, suppliers and various partners. Here’s what a few of them have to say about their experience with Creative Custom Builders: “Guy doesn’t ever take on too much, and, in fact, his best attribute is that he’s always there on site, hands on.” – Brian Moon, B&T Glass “Guy is always on top of scheduling; he’s very respectful to his subs when snags come up. And he’s very accommodating to meet up with us when we have questions or concerns.” – Trey Hellums, Dominion Design and Integration “He’s very meticulous, detailed-oriented … a perfectionist. Guy is a great communicator and is very good with his customers.” – Patty de los Santos, AMS (Magnolia Doors)
“I’ve known Guy for quite a while. He’s a man of his word, pays his bills, and he’s fair. One thing that stands out with Guy is that many homebuyers aren’t very anxious to meet with their builder … but with him, his clients always look forward to getting together with him. He builds long-standing relationships with people.” – Lorrie Curtis, Finelines Flooring “Guy is at every meeting with his clients, and his attention to detail is superb. I never hear of any of his customers ever getting frustrated as the job unfolds and develops. He’s definitely old school and takes nothing for granted. And Guy is very cognizant about all of the trades; he’s very well-versed in this business.” – Monica Benitez, Delta Granite
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Building Savvy
Building Savvy
[savvy finance]
How Sales Taxes Affect Your Bids
Loans Between Loved Ones
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Loaning money to family and friends is tricky business for many reasons. Taxes are among them. Funds received as proceeds of a loan aren’t taxable if the borrower is expected to pay it back.
However, the moment some or all of the debt is forgiven (doesn’t need to be paid back), the IRS will want its cut. This is true for loans from banks and other business entities — including foreclosures, repossessions, voluntary transfers of property to lenders, property abandonment, and mortgage modifications — as well as good-faith loans between family and friends. Don’t be caught off-guard by unexpected income taxes when this happens. Instead, keep the following tips in mind, both as a potential lender or a borrower.
LOC ATE D I N S A N A NTO NI O , P RO V I D I NG FO R AL L S U R RO U N D I N G AR E A S WI N N E R OF TH E 2011 - 2017 A NG I E 'S L I ST S U P E R S E RV I C E A W ARD
PAY ATTENTION TO YOUR MAIL. An indication of a canceled debt larger than $600 would be the arrival of Form 1099-C. Any institution or creditor that forgives a debt of that size is required to submit the form to both the borrower and the IRS. If the borrower disagrees with what the form states, it’s essential to work with the lender to correct it before tax time.
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Also, keep in mind that entities may send the form to the IRS but overlook sending the borrower a copy. Just because a borrower didn’t receive notification doesn’t mean the IRS wasn’t informed.
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STRUCTURE THE LOAN CAREFULLY. Sometimes the IRS won’t wait for a cancellation of debt (COD) to determine a loan is taxable. This can happen when a loan more closely resembles a tax-sheltered sale or gift. A sale, for instance, can easily be triggered when property passes between interrelated businesses. A sale is also triggered when property is seized to help satisfy a debt.
By Steven Bankler, CPA
When it comes to gifts, the IRS is quick to scrutinize family “loans” that are loosely structured. For family loans to pass the tax-free test, they should be well documented with a promissory note and a fixed repayment schedule that includes interest and/or principal and no pre-arranged schedule for forgiveness (or pay-back-when-you-can). They should also be valued at market rate, which means the rate should be set at or above the Applicable Federal Rate (AFR) that was in effect when the loan originated. CONSIDER YOUR OPTIONS. Loans between family members are a great tool to help loved ones get ahead. Don’t be afraid to consider them, but also be smart about them. It’s important to work with a tax professional to ensure any nontraditional loans you consider are 1) necessary and 2) structured appropriately to avoid excessive taxes. For instance, you might find that the constraints of a loan can be avoided if the inter-family money exchange falls below the annual gift tax threshold. Other tax-free exclusions can be made for canceled debts that involve the borrower’s main home or mortgage, particularly for those who had their mortgage debt canceled in 2016. Additional exclusions might apply to loans associated with second homes, rental or business property, credit card debt, or car loans. For instance, if the taxpayer is insolvent both before and after the debt forgiveness, then the debt will not be taxable. However, it’s usually up to you — the taxpayer — to prove these circumstances should cancel your debt. Don’t assume the IRS will turn a blind eye when a loan is forgiven and also don’t assume the IRS will consider these exclusions without your persistence. Steven Bankler has more than 42 years of experience in the accounting industry. Steven’s expertise lies in consulting, planning, tax, and asset protection as well as exit strategy services for closely held businesses. He also provides litigation support (both as a testifying expert witness and a consulting expert), business negotiations and estate planning. Visit www.bankler.com for additional tax strategy tips and to learn more about Steven Bankler, CPA, Ltd.
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Building Savvy
[sales savvy]
Building Savvy
Once you have a framework in place for recording and tracking goals and have benchmarks set, then you are ready for the discussion phase, which is where most companies fall apart. They don’t have the first discussion phase at all, and if they do, they don’t follow up throughout the year. Many managers are guilty of setting goals for their salespeople without any buy-in from them. Numbers are just numbers. Start by having a face-to-face meeting with each salesperson.
If You Take Care of Your People, PROCESS & PERFORMANCE Will Fall Into Place
• Discuss goals they have for their personal life this year and over the next three years. • Discuss goals they have related to the business: sales, leadership aspirations, new products, etc. • Determine whether the goals are attainable and aligned with the company’s expectations. If yes, then you have a starting point for this year’s goals. If not, work to determine where they head this next year. • Review the prior year’s performance (good and bad). • Fine-tune goals for the coming year, aligning them with company expectations. Make it a buy-in process for both of you – this is critical to move forward. • Explain clearly the way you’re going to track these goals (monetarily and otherwise), making sure they understand it.
Typically, numbers are what drive most salespeople every day. At the beginning of the year, they have a number in their heads they need to By Paul Evans reach to maintain the lifestyle level they want. Now, some salespeople will tell you they are in sales because they like their job and its freedom or they love the customer service aspect. While that may be true, companies and most salespeople still assess themselves based on a revenue number.
Follow-up is another place most companies fail. Set up a follow-up system you both agree on, which may include a combination of face-to-face meetings, phone calls, and ride-alongs. Arrange it so that the salesperson gets tracking reports consistently, whether weekly or monthly. Follow-up meetings should provide a road map for the salesperson’s goals. • If they have fallen short: What can they do to change their approach? How can you help them get better? What tools are they lacking and what training can you provide? • If they have exceeded their goals: How did they achieve this? Can it be duplicated in other segments for this salesperson? Can this be reproduced in others? • Set a time, a place, and completed action items needed for the next meeting.
If you are a sales manager, you are driven by these same things, but you must also understand what motivates the five, 10, or 20 sales professionals for whom you are responsible. What makes them get up every morning and hit the road running to achieve their personal and business goals? Are those goals aligned? Some things a sales manager should keep in mind when determining how to ensure team members can accomplish goals set for them and ones they set for themselves include money, customers, family, self-reliance, freedom, and competition. Here’s the plan of action:
As the sayings go, “Complete and repeat” and “Inspect what you expect.” Both are very important to the sales manager’s success. There are three pillars in business: people, process, and performance. If you take care of the people, the process and performance will fall into place.
• Determine what the company’s expectations are for you. • Determine the company’s expectations for each salesperson you manage. • Establish what business and personal goals each salesperson has for themselves and a way of tracking them. • Set monthly and quarterly benchmarks as a reference point.
Paul Evans is a graduate of Lamar University’s School of Engineering and the national VP of millwork for BMC. His book, Life’s Lost Art, offers practical advice for how to turn satisfied customers into loyal customers by listening and responding to their needs. For more than 10 years, he has been an instructor for the NAHB, University of Housing, and Home Builders Institute, teaching customer service, negotiating, and sales.
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TX_San Antonio Building Savvy
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