I’m a big believer in playing to our strengths – I don’t think that’s news to anyone who knows me. When we work from a place of strength, a place of confidence and interest, we enjoy what we’re doing. We lose track of time as we delve into our subject; we take pride in our achievement. We feel we’ve accomplished something worthwhile.

When we’re tackling a subject which is less in tune with our natural abilities, we don’t enjoy ourselves nearly as much. Time drags on, and the result is perhaps better than we might have managed a year ago, but it’s not our best work and doesn’t provide the same level of satisfaction in ourselves and our accomplishments.

But, as a business owner, I must realize that playing to my strengths can be taken too far – and that’s a pitfall we all encounter, no matter what our strengths are or how many we have.

For example, decisiveness in leadership is a great and necessary asset. But it can lead us to want to decide now, shutting down our teams’ input and feedback – with the result that we may not have all the necessary facts on which to base our decision, and our team members will not feel heard or respected.

The drive to achieve is core and key to the entrepreneurial mind. We love taking on challenges, overcoming obstacles, inspiring those around us to do the same. But we can, as a result, go into overdrive ourselves in this area, leading to burnout and depletion of our inner resources. We can push our team members too hard, leading to the same depletion and burnout in them.

The converse can happen when we truly desire to foster and support our teams, encourage them in their own strengths, listen to everyone’s ideas. Because we risk letting that supportive attitude tip over into lax discipline, lost productivity as they “find their footing.” Listening to every single idea from every single team member can lead to long, meandering meetings which waste time and hamper decision-making.

Those who are driven to achieve, while wanting to be decisive and supportive as well, can snap between the extremes of each of those strengths – we decide we’ve been driving our people too hard, and ease back too far. When we become impatient with the resulting drops in productivity and focus among our team, we may return to over-driving them.

This is far from conducive to our best interests as business owners. Our teams need reliable and consistent leadership, they need us to make firm decisions, to inspire and encourage them, to demand their best and give them space to achieve that best, to listen to them, but to always keep the reins in our own hands, reading our teams so that we can ease them back when they’ve pushed themselves a little too far (or we have), and pushing them again if they mistake compassionate management for indulgence.

But if we are going to be the leaders we want and need to be, we first must understand ourselves, how we operate as individuals, what our strengths are, and how we let them stray into weaknesses.

Some tips I’ve found helpful on this path:

• Schedule solitary time on a regular basis. Take a walk, meditate, pray, etc. – whatever works to calm and focus our minds. Then, we think about our day, what situations we encountered, and how we responded – or did we react? Which is intentional and mindful; reaction is a reflex – which do we want to govern our actions? Mindfulness, or knee-jerks? Mindfulness and intentional actions will serve us far better – certainly in our business, but also in our personal lives. Because being mindful gives us more real control – and we have the most control over our own selves. We can improve the way we handle our realities.

 

 

• Ask for feedback from our team on how they perceive us. Make the questions specific, serious – and compose them mindfully with an eye to making our business a better place for ourselves and our clients as well as for our teams. This feedback should be anonymous, which will allow our teams to be honest with us.
• Ask our friends, ask our spouses (they will almost certainly have some suggestions!), ask our children, maybe, what they think we do and handle well, and what we could be doing better.

 

Sometimes we must embrace a little discomfort – that’s just life. We have to do the hard thing – whether it’s the release of an employee who, try as they may, just can’t measure up to what we need, disengaging with a client whose demands are unreasonable and who makes you and your team anxious and unhappy, or improving the way we work with our people – clients and team members alike (and our families, too!).

It’s about finding balance. We’ve each been given a unique combination of strengths, and we should celebrate and use them – but mindfully and with measure. So that they remain strengths, rather than flipping into weakness.

Yes, all of this is our job, if we want our team to be its most productive, our business its most profitable and enjoyable for everyone, and ourselves the best version of who we are.

Impossible? Very likely it is – but we can strive toward that goal, even if we won’t perfectly attain it. Perfection is not in our reach, but improvement always is.

After all, we’re entrepreneurs – we do love a challenge! And there are Robert Browning’s words of wisdom:

“Ah, but a man’s reach should exceed his grasp, Or what’s a heaven for?”

How do you balance your strengths to ensure you use them rightly, and don’t push them into weaknesses? Please click here to email me directly – I’d love to hear your strategies!

Until next time –

Peace,

Eric

Estate planning is vital for anyone with significant assets – most of you already know this. But it comes with a variety of considerations and often involves a multi-pronged approach to ensure every aspect of your estate plan furthers your goals for your family and your business and is aligned with your core values.

This can be especially true for real estate investors. Estate planning which encompasses a considerable real estate portfolio has its own unique aspects – and pitfalls.

Avoiding those pitfalls while devising a comprehensive estate plan will require the input of expert professionals – you will want to consult:

• Your virtual CFO, CPA, or other trusted financial advisor,
• Your estate attorney, and
• Your real estate attorney

 

Together, these advisors can guide you toward the best way – for you and your family – to protect your heirs and your assets as you would like them to be.

One significant potential pitfall you’ll want to ensure your heirs won’t have to deal with if your assets are over-concentrated in real estate holdings is:

Ensuring Liquidity

Please don’t leave your heirs with a potential tax bill they can’t pay with the cash they have on hand, either from their own assets or your estate.

Ensure your assets have sufficient diversification and your estate plan is arranged to avoid this situation.

Arrange liquidity protection for your family now, before they, amid their grief, have the unwelcome surprise of receiving a whopping tax bill on an estate with high-value assets but insufficient cash to pay the tax liabilities.

LLCs – Protection for Yourself, Your Assets, and Your Heirs

We strongly recommend that real estate investors place each separate property within a dedicated LLC. This provides protection for your other assets against potential liability claims brought against any given property in your portfolio.

When you pass the LLCs to your heirs, that same protection goes along with them, ensuring their other assets remain safe from such potential claims.

Basic Components of Estate Planning

Any good estate plan will be comprised of certain non-variables.

As a real estate investor, you will likely need:

• A will
• Powers of attorney (POAs), both durable (usually for your spouse, but you can choose someone else you trust), and medical (ditto)
• A trust, or more than one – you may already have a real estate investment trust set up but ask your vCFO and your estate and real estate attorneys whether using an irrevocable grantor trust would be a good idea

 

Trusts

An essential feature of trusts is that, in most cases, the assets they hold do not have to go through the probate process before passing to the trust’s designated beneficiaries, unlike assets inherited through your will. This saves your heirs time and money, which can be a real benefit to grieving families.

However, it’s essential to understand that in most cases, trust-held assets, unlike assets inherited via your will, receive no step-up in basis – this means that potential tax liabilities to your heirs and beneficiaries would be based upon the assets’ value at the time they are placed in the trust, not their value at the time of your death. Assets left to your heirs via your will do receive the step-up in basis; therefore, there is the potential to avoid paying tax on significant capital gains.

One potentially mitigating factor is that with an irrevocable trust, you can retain the right to swap assets in and out of the trust so long as they are of equivalent current value. That means you can remove a long-held asset that has appreciated significantly over time from the trust and replace it with an asset of equivalent value that has appreciated less.

Consult with your advisors to ensure that the choices you make will best benefit your family and protect the value of your assets on their behalf.

Other Considerations

At RFG, we strongly recommend that if your estate’s value is more than ~$14 million, you take advantage of the estate and gift tax exemptions at their current level, as provided for in the 2017 Tax Cuts and Jobs Act (TJCA). While the exemption level for 2025 has yet to be announced, for 2024, it is $13.61 million per individual and $26.22 million for married joint filers.

This provision of the TCJA expires on December 31, 2025, absent Congressional action to extend it, which remains an open question. As of January 1, 2026, the exemption will revert to its pre-TCJA level, adjusted for inflation, and is expected to be ~$7 million for individuals and ~$14 million for married joint filers.

You can gift portions of your assets tax-free during your lifetime, removing them from your taxable estate. The IRS has confirmed that gifts made up to the highest amount of the exclusion (which will likely be increasing in 2025) – there will be no tax consequences since the exclusion level used will be the law when the gifts are made.

Of concern for real estate investors, too, is the potential use, when making gifts to your heirs, of the IRS’ allowable valuation discounts on assets gifted for “lack of control” and “lack of marketability.” These should be discussed in depth with your advisors, as the discounts can be as much as 30% to 40% of the assets’ value and can provide your heirs with significant tax savings – if they are correctly applied and the gifts appropriately structured to take advantage of them.

We cannot recommend highly enough that you take advantage of your trusted advisors — your virtual CFO and your estate and real estate attorneys.

Your virtual CFO or other trusted financial and estate advisor knows you, your assets, your family, and your financial situation. She can help you determine the best plan for you.

Because your family and your goals, your situation, and your dreams for your legacy are as unique as you are, the virtual CFOs at RFG don’t just know this – we celebrate it! Our solutions are bespoke and tailored to fit your needs, goals, dreams, and your family’s welfare.

We are experts and experienced advisors for real estate investors. If you have any questions about how to plan for the disposition of your real estate to your heirs, we invite you to consult with us.

Please click here to email us directly – at RFG, helping you is what we are all about!

Until next Wednesday –

Peace,

Eric

Well, for us in Louisiana, another year – and another hurricane! A Category 2 Hurricane when she made landfall on Wednesday, September 11, 2024, Francine has left a lot of damage in her wake.

On Friday, September 13, 2024, the Internal Revenue Service (IRS) announced the measures it will implement in order to provide some tax filing relief to those who’ve been impacted across the entirety of Louisiana – and the IRS will assume that includes every resident and business in the state.

Tax Filings and Payments

Principally, the IRS will postpone filing and payment deadlines for Louisianians which would have been effective from September 10, 2024, through the end of the year until February 3, 2025.

This will include postponements for:

• The filing of business and individual tax returns for 2023, for those who have filed valid extensions. This particular relief item has no applicability to the payment of federal income tax liabilities pertaining to 2023, as such payments were due at the time of the filing of the extensions, prior to Francine’s landfall on September 10, 2024.
• The filing and payment of quarterly estimated income tax payments which would have been due on September 16, 2024 and January 15, 2025.
• The filing of payroll and excise tax returns which would have been due on October 31, 2024 and January 31, 2025. Penalties for failing to make payroll and excise tax payments due during the period September 10, 2024 through September 24, 2024 will be waived if payment is made by September 25, 2024.

 

These reliefs will be applied automatically for every individual and business with an address of record in Louisiana on file with the IRS. No action on the part of residents or businesses will be required.

The IRS will also work with individuals and businesses who have recently relocated their residence and/or business to Louisiana from an area unaffected by Francine. If this is true of your household or business, you may receive a late filing or penalty notice, but any penalty and/or interest will be abated if you take the proper actions with the IRS.

Some taxpayers living outside Louisiana may still qualify for tax relief. Some who will be eligible are those who work assisting relief activities within Louisiana, if they are affiliated with a recognized government or philanthropic organization.

Uninsured or Unreimbursed Disaster-Related Losses

Individuals and businesses located in Louisiana who suffer disaster-related losses which are either uninsured against or are unreimbursed have the option of claiming these losses on either their 2023 or 2024 federal tax returns.

There is a six-month window to choose which year’s tax return will claim such losses following the due date of the income tax return for the disaster year (2024), without consideration of any extensions filed. This means that businesses have until September 15, 2025, and individuals until October 15, 2025, to make their choices. Please be sure to write the applicable Federal Emergency Management Administration (FEMA) declaration number, 3614-EM, on any return claiming such losses.

We Louisianians have been here before, and will likely see more disasters, if we’re lucky enough to stick around for them. And Rigby Financial Group has assisted businesses and individuals deal with the fallout from such disasters for many, many years – we know all the drills.

We invite you to consult with us – having expert assistance – from those with decades of experience in dealing with disasters for our clients (and for ourselves, too – we’re not immune by any stretch of the imagination!) can bring assurance and comfort to uncertainty.

Please click here to let us know how we can help you.

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)