Is your business in ship-shape preparation for its next generation of management?

Have you considered all your options? While there are various ways business owners can choose to select their business successor(s), each requires its own approach:

But there are certain steps you should take when planning your business’ transition to a new management, whether it’s to family members, existing partners, key employees/managers, or an outside buyer or buyers.

Rigby Financial Group is delighted to offer you a free copy of our latest whitepaper – Succession Planning for Business Owners – Part I!

Find out more – click here to get your free copy!

We’re excited to offer this opportunity to our loyal subscribers!

If you would like to speak with one of our business consultation specialists, please click here to email us and schedule an appointment.

And stay tuned – Part II will be coming your way in December!

Until next time –

Peace,

Eric

Sometimes, an employee realizes it may be time to transition into entrepreneurship and become a business owner, rather than an employee, and it may be time for him/her to take the leap into entrepreneurship. To be a business owner, not someone else’s hireling.

That can be scary – I know, I’ve been there, I’ve taken the leap. It may not be for everyone, but I have never regretted it.

With the right mindset and the right guidance – and if you have the passion – you can get there!

And we at RFG can help you do it.

How do you get past the fear and make the transition?

Have Enough Cash on Hand

Don’t hamstring your fledgling dream by shortchanging it – or yourself!

We recommend having a minimum of 6 months’ worth of living expenses in your pocket – and we think having a year’s worth is better still.

Because, especially for those with families to support, it’s important not to get distracted by fears of not having enough money when you forgo that regular paycheck – provided by someone else – as you pursue your dreams.

Build Your Network

It’s crucial, before you start out on your own, to have solid relationships behind you – these can help provide not only support, but momentum.

Your network can include:

• Your future partners, if others in your field – now with your own employer or from another business – want to join you, and you want that, too.
• Any potential mentors – maybe the mentor you have now, perhaps someone new who’s interested in seeing you succeed.
• Your clients and potential clients.
• Potential suppliers of your new business’ needs.
• Attorneys – you will without question need legal services.
• Bankers – you may need funding for your new business.
• One or more trusted business advisors – preferably including a virtual CFO!

 

A virtual CFO is not just someone who can help you understand and navigate your business finances, risks and opportunities – a vCFO can provide invaluable guidance in getting your business off the ground and help ensure you begin on the right footing.

RFG can help you devise your:

Strategies for Launch

Some considerations when launching a business:

• Plenty of cash – your own and your partners’ (if you will have them) savings and via financing.
• Timing – you want to make sure not to launch your business at the start of a downturn in demand for your field.
• Branding – devising of logos, your business’ website, strategic use of social media, etc.
• Your clientele – do you have people/businesses willing to contract with your new firm? You should, before you launch.

 

Exit Strategy

It’s vital to develop a strategy to exit your current position which takes into account:

• Not burning bridges – you want all the goodwill you can amass/retain. Resolve to be professional and courteous throughout your exit.
• Ensuring you aren’t stymied before you begin with a non-compete contract. Notably, the Federal Trade Commission’s (FTC) new rule on non-compete clauses, published May 7, 2024, and, absent an unfavorable court decision against it, set to go into effect on September 4, 2024, would render many existing non-compete clauses unenforceable for all but “senior executives.” However, several lawsuits are pending against the FTC concerning this new rule; none has been adjudicated.
• Emphasizing to your employer all the positives about your experience there.
• Giving a fair notice before your departure is essential. The length of the notice period may vary depending on the specific business, industry, or role you fill for your current employer.
• Doing your job wholeheartedly before you leave as you did when you started.

 

You may (and probably do, if you’ve been in your job for any significant length of time) have dissatisfaction with your current employer. But you always have this choice: whether to leave a sweet or a bitter taste behind you.

How would you really like to be thought of, after you leave? As someone your employer is proud to have mentored, or as an ungrateful opportunist?

The choice is always yours. Choose wisely, plan and act accordingly.

Choice of Entity

It’s important to choose the right entity designation for your business, as this will have far-reaching effects and, potentially, tax implications.

Your business might best be designated a:

• Sole proprietorship
• Partnership
• Limited Liability Corporation (LLC)
• S Corporation
• C Corporation

 

Which designation best fits your new business depends on a number of factors – let your virtual CFO, in possession of all relevant facts, guide you on this choice.

Budget & Forecasts

Preparation of realistic 2-to-5-year budgets and financial forecasts based on all the variables relevant to your new business – e.g., your market, your ready and potential clientele, supply costs, payroll, etc. – is an essential part of preparing to launch a business.

Business Plan

A well thought-out, professionally vetted business plan is essential if you hope to obtain outside financing – and it’s best practice even if you don’t.

Your business plan should include:

• An executive summary.
• A description of your company, and an outline of its structure.
• Details of the product(s) or service(s) your business will offer.
• A market analysis.
• Your marketing and sales strategy.
• Your financial projections for the business.
• Any relevant data pertaining to licenses, patents, data security, etc.

 

A good business plan reassures your bankers, your potential clients and suppliers (and yourself!) that you’ve done your homework and aren’t flying by the seat of your pants.

Insurance Needs

Your new business will need various types of insurance – but which types?

That’s something which will depend on your business.

Consult your virtual CFO on what types of insurance are necessary immediately and which, if any, can be adopted at a later point.

Tax Planning – Business & Personal

You should ensure that your business takes advantage of every opportunity for tax savings – and there’s no need to stop there!

Obtain tax planning advice for yourself, personally, to ensure you hold onto as much of your hard-earned assets as legally possible.

In the past few years, RFG has helped employees in various fields become entrepreneurs and their own bosses – and the new businesses we’ve helped them create have all flourished within two years of start-up.

Are you ready to take the leap and become captain of your own ship? Please click here to email us directly – there’s nothing we love more than helping you achieve your goals and making your dreams your reality.

Until next Wednesday –

Peace,

Eric

There’s a growing body of research indicating that happier employees are more productive and that more productive employees are happier.

In our evermore rapidly-changing business landscape, we business owners should take note, and foster happier employees – they’re good for our team, for us to work with, and for our bottom lines.

How Do We Measure What Happy Team Members Bring to Our Business?

Studies show that happier employees are:

• More engaged with their work and its attendant tasks and projects.
• More likely to being greater creativity and innovation to the table.
• Less likely to take sick leave (they’re healthier for being happy).
• More likely to stay with their employers, boosting the bedrock of experience, loyalty and institutional memory which can be invaluable to our businesses.
• More likely to communicate and work well with others.

 

Remember this: Happiness is contagious! Happier team members lead to happier team members!

And they can save us money:

• When our team members stay with us longer, they save us recruiting and training expenses for new hires, and we don’t lose the work time such training time takes away from meeting our clients’ needs.
• When people take less sick time, those are days we don’t lose their productivity. This can also make for savings on healthcare and health insurance.

 

So, how can we cultivate happiness within our teams and leverage the business advantages of their happiness?

It Starts at the Top

Whether our business is a place fostering happiness or one with a toxic culture starts with us—the business owners. As I’ve often said, “The fish stinks from the head.”

But we can cultivate fragrant roses instead of stinking seafood.

It takes mindful leadership – and requires us to cultivate our own happiness as we foster that of our team members.

How We Can Encourage Happiness

Today’s workers expect – demand – more than prior generations did. They consider fair pay, benefits, and time off essential. They want to feel they are valued, and that their work makes a difference – that what they do is not meaningless, paper-pushing drudgery.

And they want a well-balanced life – they value what happens at work, but they also value time and energy to spend on their families, friends, hobbies and pursuits.

So, what concrete (and prudent) steps can we take to nurture their happiness?

We can:

• Make sure we are both communicating that our employees’ happiness matters to us and showing this in our actions.
• Be available (at specific times or in blocks of time on specific days) to them – let them know we value their feedback and care about their concerns. But we mustn’t let this get in the way of our own productivity.
• Offer flexible hours – some of the best talents want to work fewer than 40 hours per week. Can we handle that? Let’s not say no without at least considering it as a possibility.
• Offer flexible work arrangements – more and more employees want to be able to work remotely at least some days in the week. Remote work isn’t going to go away – it’s going to grow, and we should grow in that direction, too, since the market is doing just that. Don’t let’s get left behind the curve (or the 8-ball!).
• Create opportunities for individual growth, via continuing education and training, and make sure positions have promotability when an employee has earned it.
• Acknowledge achievements – when a team member earns a new credential, solves a client’s problem, or devises a better internal process, celebrate that – in public. Make sure the whole team knows this is something we value. Post their accomplishments to social media (this is good for us, too, as it builds awareness of our teams, and a sense that we value people – this is never a bad look for business owners!). Give them a bonus if they’ve earned the firm more money than we expected.
• Hold team-building events regularly – monthly meetings, perhaps, or a group lunch we pay for and let them talk amongst themselves. The better they come to know one another, the more trust and camaraderie they will have, and the team will function better, individually and as a whole, for it.
• Take note, when we’re hiring new talent, of which candidates give off a sense of happiness. This can be an important factor to consider – because, again, happiness is contagious.

 

What to Avoid

We’ve identified some steps we can and should take. So, what shouldn’t we do?

Above all, let’s not overdo it. We can’t insist that our people be thrilled every minute of every day. Life doesn’t work that way and employees acting as if it does will be counterproductive.

They have lives, children, spouses, and aging parents who’ll get sick.

There will be clients who make them anxious (if this is a regular matter for a given client, we can consider firing that client, as keeping a stellar team member rather than a constantly griping client is often the better part of wisdom).

Give them space to be unhappy when it’s appropriate, and they’ll be readier to be happy when the problem is dealt with.

What strategies have you found to help your team be a happier one to work in?

Please click here to email me directly – since I take my team’s happiness (and their productivity) to heart, I’m always eager to learn from you!

Until next time –

Peace,

Eric

One of the most significant risks of entrepreneurship is asset concentration. For most closely held business owners, the value of their business can represent, on average, 80% (or even more) of their total net worth.

Now, a profitable, ongoing concern can be an excellent investment – after all, we are all our greatest assets.

But, as I’m sure we are all aware, a lack of diversity among your tangible assets can become a severe financial pitfall.

For many closely held business owners, a certain degree of asset concentration in the value of your business may be unavoidable. However, there are always strategies to mitigate, to some extent, the risks involved.

And it’s never too soon or too late to start protecting yourself, your family, and, as a result, your business.

Pay Yourself First!

You wouldn’t dream of not paying your employees – and that should start with paying yourself. Who dedicates more time and more effort to your business?

Who’s created all those jobs and those paychecks?

You, the business owner – that’s who!

If you don’t pay yourself first, you won’t have the resources to invest outside your business.

Retirement Plans

Qualified retirement plans are essential to your financial planning and allow you to invest in assets outside your business.

We recommend setting up a 401(k) for your business and contributing the maximum amount possible. For 2024, that maximum contribution is $23,000 per participant, and if you are over 50, you can contribute an extra $7,500 “catch-up.” Employer contributions for 2024 can be up to $46,000 – 200% of the employee contribution before the catch-up amount.

Usually, an employer “matching” contribution is far less than 200% – most often, it will be half of the employee contribution – up to a match of 3% of the employee’s earnings if they contribute 6%.

Even if you are your business’ sole employee, you can set up a 401(k) with a federal employer identification number (EIN).

You can also open an IRA if you don’t already have one. And if you do have one, keep contributing!

The IRA contribution limit is $7,000 for 2024, plus an additional “catch-up” contribution of $1,000 allowed for those over 50.

A Roth IRA, or converting an existing IRA to a Roth account, may be a promising avenue for diversifying your assets depending on your income, IRA balance, and circumstances.

But – to contribute to these retirement plans, you must have earned income – again, pay yourself!

Non-Retirement Plan Investments

If you are paying yourself regularly, and your business is profitable enough to allow you to both comfortably maintain your household and make the maximum allowable retirement plan contributions with cash to spare:

First, congratulations!

Second, put that additional cash to work for you, in wise investments chosen with an eye to your business, personal circumstances, goals, and risk tolerance.

There’s no single “right” strategy – and at Rigby Financial Group, you won’t find a cookie-cutter approach. There is no such thing as “one size fits all.” Every business is as unique as its owner – we know and celebrate that fact and tailor specific strategies and solutions to the needs of each individual and business we serve.

For decades, we’ve assisted our clients with business, financial, and retirement planning. If you have any questions about how to mitigate your risk exposure and diversify your assets so that you have at least a little more of your net worth spread over various investment vehicles, we’re a great place to get answers.

Let our experts assist you in devising the strategy that best fits your current situation and your long-term personal and professional goals.

Please click here to email us directly – we are here to help you.

Until next time –

Peace,

Eric

Closely held businesses have had a rough four years, haven’t they? We all know the impacts of the COVID pandemic hit small businesses harder than large businesses, which were more likely to be designated “essential” during lockdowns than small ones.

And given the economic uncertainty of 2020, credit became more challenging. We all hoped that things would get easier as society returned to “normal” (whatever we thought that meant). And for a tiny while, they did.

However, since the last quarter of 2021, banks have gradually tightened credit, then more rapidly due to several factors, but they have instituted tighter lending practices principally due to rampant inflation.

Inflation = Federal Reserve Interest Rate Hikes

In response to high inflation (between 2021 and 2024, cumulative inflation for this period is just under 16%), the Federal Reserve (Fed) raised its core interest rate 11 times, jumping it from 0.25% to the current rate of approximately 5.5%.

Despite inflation recently easing somewhat (the current consensus prediction for 2024 is for inflation of 2.7%, raised from the 2.4% predicted in March of this year), the rate is still well above the 2.0% inflation the Federal Reserve considers appropriate; therefore, no relief has been given through the Fed’s last policy meeting ended May 1, 2024. However, the Fed recently telegraphed that a .25% to .50% rate cut was likely in September.

This means that money costs exponentially more for the banks that lend it, and therefore, they charge borrowers more. As of the third quarter of 2023, the average bank interest rate on an urban small business loan was 7.71% for fixed-rate loans and 8.98% for variable-rate loans.

Even the U.S. Small Business Administration (SBA) rate for a 25-year loan under the 504 program (this program provides long-term fixed-rate loans to small businesses for major fixed-asset purchases; the maximum loan amount is $5.5 million) is 6.351%.

Bank Collapses

As if inflation coupled with interest rate hikes weren’t enough to cool bank lending enthusiasm, 2023 represented a historic year for bank failures. The U.S. saw the collapse of 5 FDIC banks – including three of the most significant failures, in terms of assets held, in the nation’s history:

• First Republic Bank, representing $212 billion in assets held;
• Silicon Valley Bank, representing $209 billion in assets held; and
• Signature Bank, representing $110 billion in assets held.

 

Last year, we also saw the failures of two additional U.S. banks – Heartland Tri-State Bank and Citizens Bank of Sac City, Iowa (though these were smaller institutions with significantly fewer assets).

Understandably, these cautionary examples led banks to tighten both credit and lending requirements further to ensure they didn’t suffer a similar fate to those five banks.

For some small businesses, the result has been a severe nuisance and, for others, a nightmare.

Small Business Loan Headwinds

Here are a couple of examples of the headwinds facing small business owners seeking financing assistance:

• A business owner in Oregon, in business for 11 years and with over $1 million in annual revenues, was rejected in 2023 for a $50,000 loan at three banks, including one with whom he had a current line of credit in good standing. He ended up using personal credit cards for financing.
• A business owner in Colorado saw the interest rate on his $150,000 line of credit almost double – from 6.99% pre-COVID to nearly 14% in 2023. Equipment purchases and software upgrades have had to be postponed as a result.

 

In the first example, the business owner tapped his credit card to finance the business opportunity he wanted to pursue. While we would not recommend this as a blanket solution, it does lead to consideration of:

Alternative Business Financing

Where there’s an opportunity for a good investment and/or profit, there are always those ready to pick up the slack. The catch is that some alternative financing options for small businesses operate on predatory terms – or near to predatory.

There are genuine options for meeting small business financing needs, but be sure you pick the right one for yourself and your business.

Some alternative financing options:

• Venture capital
• Crowd-sourced financing
• Micro-lenders
• Online lenders

 

Again, be sure the source(s) you engage with are reputable – get others’ experiences before taking the plunge.

Suppose you are looking for small business financing. In that case, we invite you to consult with RFG – we can help you navigate your funding options, help vet any alternative sources you’re considering, and provide expert counsel on how your business should proceed.

At Rigby Financial Group, there is no such thing as “one size fits all.” Every business is as unique as its owner – we know and celebrate that fact, and tailor specific strategies and solutions to the needs of each individual and business we serve.

Small businesses represent 99.9% of all U.S. companies – and employ almost half the nation’s labor force.

These businesses and their owners deserve the thorough, individuated attention and strategic planning RFG is proud and pleased to offer. You and your business deserve this!

Please click here to email us directly – we are here to help you.

Until next time –

Peace,

Eric

You may think you can make a fair guess as to what your business is worth – but too many times business owners who think this find the valuations are not quite as accurate as they imagined.

And finding out you’re wrong, or at least not of the same mindset as others may be as to your business’ value, can come in forms with unpleasant consequences (think: potential buyers who won’t meet your asking price, or – worse – the IRS imposing a different value after a sale or a transfer of ownership to family members via gift(s) or inheritance) which could be costly, to you and/or your heirs.

When to Have Your Closely Held Business’ Value Appraised

When should you have your business appraised? The answer is: almost any time you want a clearer picture of your business’ value.

But you should certainly contract with an independent, credentialed business valuation specialist:

• When you start planning for a possible sale of your business (preferably 3 to 5 years before you anticipate making the sale).
• When you are selling the business – have a new appraisal done as close to the sale date as possible.
• When making succession plans for your business.
• When you are putting your succession plans into effect.
• When you are selling, or making gifts of minority ownership in the business – especially to family members, as such sales and gifts often trigger extra scrutiny by the IRS. In such circumstances, have the appraisal done as closely as possible to the date of the sale or gift.
• If you are initiating a new partnership or making changes to an existing partnership agreement. It’s a good idea to incorporate appraisals at regular intervals, or in anticipation of specific events, into your partnership agreement.
• If you are dissolving your business.
• If you are divorcing your spouse.
• If you (and potentially other family members) inherit a family-owned business at the owner’s death. An appraisal can be done, at the estate executor’s discretion, either as of the date of death, six months after the death, or as of both dates (sometimes the wisest choice). However, if the business appraisal chosen for use is as of six months after the death, this date must be used to determine all the estate’s assets.

 

We cannot recommend too strongly that you hire an experienced business valuation specialist. Such specialists can create a sound business appraisal considering the circumstance(s) which have led you to seek their services – e.g., a business appraisal with a view to selling your business may differ from an appraisal generated for the purposes of gifting a minority ownership.

How Business Valuations Are Determined

There are several ways via which your business can be valued. Often a business valuation specialist will use two, and sometimes all three of the approaches below to determine the value of your business. The various methods can verify one another, providing confidence.

The most common methods of appraisal are:

Income Based

The most common valuation methods are based on your business’ expectations as to income. Expected returns are either discounted or capitalized as appropriate to adjust for potential investor sensibilities and any risks inherent in your business.

Income-based valuations either highlight future expected cash flows or historical earnings. There are numerous methodologies available under this approach:

• Seller’s Discretionary Earnings (SDE): this is the most common valuation metric used for businesses worth less than $5 million. SDE takes the business’ pre-tax net income, and adds back the owner’s compensation (plus any excessive salaries paid to other family members), interest, depreciation, amortization, discretionary expenses, and unusual non-recurring expenses to arrive at a valuation. But bear in mind that some lenders may not accept a business valuation based entirely on SDE – some of the items, such as high-level salaries to family members, they may decline to add back for their own valuation purposes.
• Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA): this is similar to SDE, in that it takes pre-tax net income, and adds back interest, depreciation, and amortization expenses. Usually, some form of EBITDA or related methodology is used as one prong of an appraisal or evaluation of your business.
• Adjusted EBITDA: this approach is a deeper EBITDA dive, adjusting and standardizing your business’ EBITDA via removal of non-recurring, unusual, and one-time expenses and/or income entries. EBITDA may also be adjusted to account for additional staffing or other expenses which a new owner is likely to incur.
• Discounted Cash Flow (DCF): this approach is most often used for valuing a still-growing concern. The DCF Method projects the value of a business as anticipated future earnings (usually over a period of years), discounted to arrive at the current present worth of those projected earnings. It is one of the most commonly used valuation methods when a business is preparing for a sale.
• Capitalization of Earnings: this method is also widely used, especially for very small closely held businesses with measurable track records and anticipated stable growth going forward. It projects future earnings based on past growth numbers. This approach, however, is based more on judgment calls than on more technical calculations, and is therefore potentially subject to an appraiser’s personal take.

 

Market Based

Market-based valuations compare your business with publicly traded companies in your industry. These methods assume that the value of your business can be determined based on the price paid by investors for shares in similar companies on the market. Tracking stock price to the financial statements (earnings, cash flows, and other considerations) of these companies can assist in determining appropriate ratios to value your business.

However, there are so many company-specific factors (e.g., management, market share, etc.) involved in appropriate pricing for any individual concern that a market valuation is often used as a check on a valuation based on income or assets.

Asset Based

An asset-based approach to valuation can provide a bottom-line – no business, after all, can be worth less than the value of its assets minus its liabilities. Some asset-based approaches to valuation are:

• Net Asset Value Method: this is a simple approach, which assumes that the values of the assets as stated on your balance sheet represent those assets’ fair market value, and considers intangible assets such as transferrable goodwill.
• Adjusted Net Book Value Method: this involves adjusting the asset values to more accurately reflect their fair market value. This approach assumes there is no expectation of intangible values, and that there is no transferable goodwill.

 

Some factors which may have impact on a business’ value can include:

• The location(s) of your business
• What competition your business faces
• Whether your business or its location and/or competitors or lack of them makes it a unique property
• The degree of your business’ resilience in a recession
• The extent and quality of your client list
• Your marketing process
• Other intangible goodwill assets, including the length of your business’ track record and its reputation within your industry

 

Again, this is something to discuss with experts – if you are even considering a potential sale of your business, please reach out to our Transaction Advisors for guidance – we can help you through every stage of the process.

Please click here to email us directly – we are here to help you.

Until next time –

Peace,

Eric

For more on valuing your closely held business, read:

Valuations – What Is Your Business Worth?
What is Your Closely Held Businesses Worth?
Valuing Your Closely Held Business For Sale

Business agreements are too vital – and so are your business relationships – not to cement your agreements in writing.

Why a Handshake Isn’t Enough

I love handshakes! They’re real, personal, physical contact, and nothing can replace that. After all, when we deal with business, we deal with real people (that’s one of the things I love, in both my business and personal life).

And I understand, too, the feeling that “shaking on it” should be enough to seal the deal – after all, your word is your bond, and you’ll absolutely make good on it, no?

But:

So much can happen over the weeks, months, or years:

• Memories can fade, creating confusion as to what was actually agreed to.
• Relationships can become strained – often through no actual fault on either side.
• Moreover, even if you think you’ve been clear about what will be done, by when, and the cost (at least an estimate), there are too many times when people can hear the same words and understand them differently.

 

So, it’s better for everyone to get the deal in writing – and signed by all interested parties with the authority to agree to the contract.

What Does Your Business Need Written Agreements For?

I recommend – and use – written agreements for a variety of situations – a few of those you may want include:

• Operating agreements
• Client agreements
• Supplier agreements
• Employment agreements
• Partnership agreements, whether business-formative or temporary and project-related
• Business continuation agreements

 

There are more scenarios in which written agreements may be advisable, depending on your business and the individual circumstances.

What Written Agreements Can Do

Written agreements can:

• Ensure that you and your clients know what is expected from each party.
• Set forth pricing, whether estimated or firm.
• Set timelines for completion of each party’s responsibilities.
• Ensure that your employees know the terms of their employment, how compensation is determined, and how evaluations will be conducted.
• They can give all parties the chance to hash out any differences up front, make any needed amendments, and ensure that everyone is on the same page before the agreement is signed.
• In the unfortunate event of disagreements (up to and including litigation), written contracts provide clear guidance to an arbitrator, mediator, or judge. It’s a lot harder to sort out conflicting interpretations of oral agreements than written ones.

 

The Best Written Agreements . . .

. . . spell everything out, clearly and in detail.

For client agreements:

• The precise terms of the engagement – what you will do, by when, and under what governing standards, if any.
• What all parties will, and will not, be responsible for.
• What the timing needs to be – and what happens if deadlines aren’t adhered to.
• What the services or products will cost. If an estimate is appropriate, how will deviations be dealt with – I recommend that, if estimates look like being exceeded, written notification beforehand should be the minimal standard.
• What payment terms are, and any penalties for failure to comply with those terms. If you are the one being paid, you can waive application of those penalties if you choose, but it’s not a bad idea to create some sort of incentive for paying you on an agreed-upon basis.
• How any disputes which cannot be resolved among the parties will be handled (e.g., mediation, arbitration, litigation). Set forth any applicable authorities for your choice of resolution method.
• Any other engagement specifics should be included.

 
For employment agreements:

• Whether the employment is open-ended or limited to a specific project or time period.
• Whether the employment is at-will, or subject to other arrangements.
• What compensation will be, and how any increases will be determined (e.g., cost-of-living, performance-based, etc.).
• What possibilities, if any, for promotion are involved, and what the employee needs to do to be eligible for such promotion(s).
• Absolutely include any non-disclosure requirements – this is a must when your business deals with personal, confidential, and/or sensitive information.
• Any non-compete or non-solicitation clauses that are appropriate and allowable under current law.

 

Other types of written agreements can be more complex, with much depending on the individual business.

In general,

Partnership agreements should specify:

• Cash contributions expected of each partner.
• Percentage of ownership for each partner, and how that relates to cash contributions.
• Distribution of profit or loss (in most cases, this will be tied to percentage of ownership).
• Length of the partnership, whether open-ended or when any limits of time or project accomplishment will apply.
• What decision-making procedures will be, and who is to be responsible for what decisions.
• Which partners hold authority in which areas.
• What will happen if a partner leaves, whether by choice or circumstances such as illness or death.
• How any disputes will be resolved.

 

The above is, of course, only a brief overview of the importance of written business agreements, and what you may be well-advised to include in certain types of written agreements.

We cannot overstate the advisability of consulting an attorney before drawing up templates for all written business agreements, and again in the event of specific and unusual provisions to your general agreement terms, as well as to unique written agreements which may be necessary for your business under certain circumstances. If your business is itself a law firm, seek counsel on written agreements from outside your own firm, to ensure you obtain objective guidance.

We know and work with a number of exemplary, highly-seasoned business attorneys, and would be happy to provide recommendations, if you don’t have such an attorney already.

If you would like such a recommendation, or if there is any other way in which RFG can be of assistance, please click here to email us directly – helping you make the most of your business is why we’re here.

Until next time –

Peace,

Eric

Eric Rigby spent last week and the two bracketing weekends on a special holiday in Europe with his daughter, Meghan. Meghan, not born yet when Eric started what is now Rigby Financial Group, has grown up into a lovely, accomplished young lady with bachelor’s degrees in both Mathematics and Economics(!), and lives in Atlanta, Georgia.

The vacation spanned Eric’s birthday, which was July 18, and he was delighted to spend it in the company of his daughter.

Much of the trip was spent in Milan, where they toured the storied Duomo di Milano Cathedral, pictured above. Construction of the cathedral began in 1386, but was not completed until the 19th century.

The organ is especially beautiful:

The two also visited the Quadrilatero della Moda, a famous fashion district:

And how could they miss the Taylor Swift concert?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Still, they managed to hop over to France and tour vineyards in the Meursault district,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

before heading to the legendary Gevrey-Chambertin wine region.

 

 

 

 

 

 

 

 

 

 

As some of you certainly know, Eric is a lover of fine wines, and of travel in general. This was an especially priceless time, sharing his enthusiasms with Meghan.

What special memories have you made with your adult children? Sometimes it takes effort and planning, but it’s so worth doing.

Please click here to email us directly – we’d love to hear your stories!

Until next time –

Peace

Eric (by RFG)

According to the U.S. Census Bureau, family-owned companies make up almost 90% of U.S. businesses and represent between 54% and 57% of U.S. employment – they are the backbone of our nation’s economy.

People tend to trust family companies more than other similar businesses – and there are few greater advantages to any business than trust.

But family-owned businesses present special difficulties, too, both for employees and management, and these can lead to conflicts which are bad for both the business and the family itself.

Often, these difficulties center around irregularities concerning family compensation – and this can be the case whether the business employs only family members, or both family and non-family members.

Compensation Irregularities:

Compensation irregularities can arise in different forms:

• Family members may be paid more than non-family employees performing the same work.
• Family members may be paid according to their family position, rather than their contributions to the business. This family position may be based on generational differences, on the perceived need (by the family business owner) of one family member over another, or for other reasons.
• Compensation may be based on assumptions which are not discussed within the family or the business, creating misunderstandings.

 

No matter the form, compensation irregularities within a business are bad for everyone – and can be costly in money and more. They can create:

An Unhappy Team

Whatever the particular cause, irregularities in a business’ compensation program do not make for a harmonious work environment, nor for happy employees.

• Non-family employees, if they are doing their work well and adding value to the business, are more likely to move on to another position if they feel they not being adequately compensated for the same work as a family member.
• Family-member employees who contribute less to the business may feel that, by virtue of their family status, they deserve the same pay as other family members who are, in fact, making vital contributions to the business’ growth and prosperity. If a family business does, in fact, assign all family members equal pay, then the ones who contribute more may feel undervalued, and decide to take their skills and acumen where they will be better appreciated – and more fairly compensated.

 

In short, compensation irregularities are more likely to lose the family business their best workers whether these workers are family members or not.

How can we avoid this?

First:

Communicate! And Make Compensation Fair

We mentioned undiscussed assumptions – don’t let assumptions slide into the equation, and do discuss!

Make clear to the entire work team, including family members who work within the business or plan to, that all employees, whether family members or not, performing the same function within the business will receive pay based on:

• Position, and
• Performance

 

Evaluation of performance, in turn, should include whether the employee takes initiative to increase their skills, acquire new credentials, and successfully seek out new business for the company.

Fairness will pay in the long run, as will ensuring that everyone, in the family or outside it, knows what is expected of them and is incentivized to do their best for the business. This, in turn, will lead to a more stable, and more profitable business – which is definitely in your family’s best interests!

One major aid in ensuring such fairness is:

Written Compensation Policies and Procedures

Nothing beats having written policies and procedures. There’s something innately impressive, even to family, about the printed word.

And when everyone knows what those policies and procedures are, there’s no confusion. This allows all your team to make a real contribution, knowing they have incentives to do so and will be rewarded for their own and the company’s success.

These people are the team you want and need.

The result:

Buy-In and Harmony!

When you have fair, written standards, and communicate them clearly and calmly, family and non-family employees understand how the ball bounces at your business.

No special treatment, and no unrealistic expectations.

Employees will work on an even footing, as a team, to ensure the family business’ continuing success – it’s a win for everyone.

RFG has assisted many closely-held businesses, including family-owned companies, in developing policies and procedures which help ensure their fairness, security, and continuing success.

If you are the owner of a family business, and want to ensure you have a prosperous concern to benefit your loved ones, please click here to email us directly – helping you is why we’re here.

Until next time –

Peace,

Eric

The timing of the conversion of retirement assets to a Roth IRA can make a big difference to your taxes – and to your financial life.

Roth IRAs and Conversions – Background

As many, perhaps most of you, may already know:

• • Contributions to Roth IRAs, whether regularly scheduled or made via conversion, are made with after-tax dollars.
  • If you convert a traditional IRA, Simplified Employee Pension Plan (SEP), or Savings Inventive Match Plan for Employees (SIMPLE) IRAs, funded with pre-tax dollars, to a Roth IRA, you are liable for federal and state income taxes on the amount converted
  • Distributions from a Roth IRA, if taken after age 59½, providing the assets have been held for at least 5 years in that Roth account, are free from federal and state income tax liability. However, contributions made to a Roth IRA after you reach age 59½ are not subject to the 5 year holding rule.
  • The Setting Every Community Up For Retirement Enhancement (SECURE) Act of 2019 and SECURE 2.0, enacted in 2022, allow you to continue contributing to your IRA, traditional or Roth as long as you are working and earning income.
  • There are no required minimum distributions (RMDs) for the original Roth account owner; therefore, your assets can continue to grow after retirement tax free.
  • If you choose not to take any distributions from your Roth IRA, your heirs can inherit the account, and the tax-free distribution rules still apply. However, non-spouse beneficiaries of all IRAs inherited in 2020 or later must take distribution of the full amount inherited within 10 years from the original account owner’s death.
  • While there are income limits governing who can open and contribute to a Roth IRA (for 2024, single filers must earn less than $161,000, and married joint filers must earn less than $240,000), there’s no income limit concerning conversion of existing retirement assets.
  • For 2024, the amount of new contributions to any IRA, traditional or Roth, is $7,000 per individual, with a $1,000 catch-up contribution for those over age 50.
  • There’s no limit to the amount of existing retirement assets you can convert to a Roth IRA – however, we recommend you pay the income taxes due with non-retirement assets.

   

  How Does the Timing of a Roth Conversion Affect Your Taxes?

  That’s a question with more than one answer.

  • First, especially for those in their peak earning years, the tax liability on retirement assets effectively converted from pre-tax to after-tax dollars can be a heavy burden. And conversions at any point, if you convert significant assets, may push you into a higher tax bracket, if you aren’t already in the highest bracket. Or it may trigger an alternative minimum tax (AMT) liability.
  • The other side of this coin is that the distributions are free of federal or state income tax.

   

  How Do You Ensure You are Converting to a Roth IRA at the Right Time?

  The answer is, as so often, plan ahead! I’ve said it before, and it bears repeating: proper prior planning prevents poor performance (try saying that six times fast!).

  You can only start planning from where you are now, but, though it’s never too early, it’s also never too late to make the most out of the opportunities available to you.

  Roth conversions, as we see, need to be made in light of a number important factors. This is a nuanced and individuated decision which needs to be made according to IRS rules. We strongly urge you to consult with your Virtual CFO or trusted financial advisor, who understands your unique financial situation, goals, and perspective – and can tailor a conversion plan (if that’s the best idea for you) which takes into account every aspect which applies, and/or is important, to you.

  Here’s another favorite motto of mine – one size never fits all.

  If you are considering converting existing retirement assets to a Roth account, please click here to email me directly – helping you is my job – and I love doing it!

  Until next time –

  Peace,

  Eric

  For more on Roth accounts and conversions, check out:

  Roth IRAs and Income Tax Liability – How to Protect Your Assets

  SECURE 2.0 Enacted – Key Highlights

  Payout Rules for Beneficiaries of Inherited IRAs

  Roth IRAs – To Convert, or Not to Convert?

  The SECURE Act of 2019