Adventures with Lyrical: Buying a Business (REPOST)

Shonuff

Shonuff

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BrutulTM_sl said:
You need a jingle for the radio or some sort of earworm inducing way of putting out your phone number. There are commercials that I heard on the radio 10 years ago that I can still sing off the top of my head.

Dial one eight hundred five eight eight, two three hundred, EMPIRE.

I don't even know WTF empire is but I know their phone number.
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What's funny is that my NPR sponsorship is dry, yet brings me 4-6k a month in sales. Since it is government owned, there are rules. All I can say on NPR is what my company does. I can trace more sales to NPR than to any other radio station, where I'm allowed to have more leeway and a call to action (and music, etc.). I don't know why, but my NPR customers hear me loud and clear.
 
Tarrant

Tarrant

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Whatever you do, don't have one of those commercials where all they do is say the phone number 732 times during the commercial. Yeah, I remember the number....but fuck you every company that does that, I'll never call you.
 
Cutlery

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BrutulTM_sl said:
You need a jingle for the radio or some sort of earworm inducing way of putting out your phone number. There are commercials that I heard on the radio 10 years ago that I can still sing off the top of my head.

Dial one eight hundred five eight eight, two three hundred, EMPIRE.

I don't even know WTF empire is but I know their phone number.
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They do flooring. Their commercials are still on here. Same jingle.

Lyrical_sl said:
What's funny is that my NPR sponsorship is dry, yet brings me 4-6k a month in sales. Since it is government owned, there are rules. All I can say on NPR is what my company does. I can trace more sales to NPR than to any other radio station, where I'm allowed to have more leeway and a call to action (and music, etc.). I don't know why, but my NPR customers hear me loud and clear.
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I dunno if you listen to NPR or not, but you're probably the only ad they play. It's not exactly an ad intensive network, and certainly not the type of station where you say "Ah shit, 3 minutes of commercials now, lets see what they're playing on the X."

NPR is the only station I listen to where I won't change during "ads."
 
Shonuff

Shonuff

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Cutlery_sl said:
I dunno if you listen to NPR or not, but you're probably the only ad they play. It's not exactly an ad intensive network, and certainly not the type of station where you say "Ah shit, 3 minutes of commercials now, lets see what they're playing on the X."

NPR is the only station I listen to where I won't change during "ads."
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When we are on, there are usually four or five other sponsors. But you are right, the sponsorships are limited in time, and they go quick. It almost makes the NPR spots more valuable. The HHI of this customer is like 90k a year average, so it's wanted. All I know is that, in terms of measurable results, NPR is the hands down winner for radio. And we've never pulled up to a customer's house on an estimate where the house was under 300k.

What I've wanted to do is to expand on other stations, and find other sweet spots. The jury is still out. Probably 30 days from now I'll know, and I'm not married to radio, I'm married to results.
 
Shonuff

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Cad_sl said:
The major thing between C and S corps is the number of investors/owners you can have. I think the number is very high (100?) so a business like lyrical's should be an s-corp without question. Right now, the income on the business is being taxed and then he has to pay personal income tax on whatever he draws as well, so its being double-taxed. With an S-Corp you get pass through taxation so it would only be taxed once.

Whoever set that up as a C-Corp was retarded.
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So here is the answer I got back from my CPA on switching, and I said, it's more complicated than one would think.

CPA_sl said:
If you do decide to switch, we need to do some serious examining of the IRS laws relating to the 401k owning the company and how that transitions into the S corp. S corp rules do not allow an owner of S corp to be anyone other than a human. An S corp cannot be owned by an IRA, 401k, trust, estate, etc. In my thinking, your 401k would have to sell the interest in the company to you personally in order for you to become the owner and then switch to an S corp.

We might need to include someone who has dealt with the 401k ownership rules to discuss what the tax ramifications would be.
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Trading my 401k was the only way I could have come up with the down myself, so it had to be done. When we did it, my lawyer and another CPA were able to put my 401k in a trust and thus not have the huge tax penalties inherent with this.

As I understand it now, if the value of the company goes up, there is a huge tax bill, when doing this.
 
Tmac

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Lyrical_sl said:
As I understand it now, if the value of the company goes up, there is a huge tax bill, when doing this.
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In other words, the tax burden is large enough to warrant not growing? Genuine question. It makes sense.
 
OneofOne

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Lyrical_sl said:
So here is the answer I got back from my CPA on switching, and I said, it's more complicated than one would think.



Trading my 401k was the only way I could have come up with the down myself, so it had to be done. When we did it, my lawyer and another CPA were able to put my 401k in a trust and thus not have the huge tax penalties inherent with this.

As I understand it now, if the value of the company goes up, there is a huge tax bill, when doing this.
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The information provided by your CPA is factually incorrect. Whether this is because he knows the details of your trust, knows it doesn't qualify, and doesn't wish to have to burden you (or himself) with unnecessary explanations, or simply because he's wrong, I can't say. You know how I usually say when it comes to taxes there are exceptions to everything, including the exceptions? That's true here as well. There are in fact several types of trusts that can own shares in an S corp.

You may wish to google a bit (since you know the details of your trust) and see if this is something worth bringing up to your CPA.
 
Shonuff

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Tmac47_sl said:
In other words, the tax burden is large enough to warrant not growing? Genuine question. It makes sense.
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Yes, but I never make decisions based on a tax burden. Like Robert Kiyosaki says, make your money and then worry about paying the taxes later. But, based on how things have been going in the last year, and how much stronger Winter is for us, with all of the new advertising iniatives I have going on (targeting new geographies of untapped customers), I need to get this fixed soon. We've been growing at a 15% annual rate the last three years, this year, it could be 30-40%, which means I need to get this changed. The only thing that stopped us from growing faster last year was finding qualified employees, we missed out on 10% of sales in jobs that we couldn't get to in time. Since Winter is going pretty good, I'm hiring guys earlier in the season (before the competition grabs them).

OneofOne_sl said:
The information provided by your CPA is factually incorrect. Whether this is because he knows the details of your trust, knows it doesn't qualify, and doesn't wish to have to burden you (or himself) with unnecessary explanations, or simply because he's wrong, I can't say. You know how I usually say when it comes to taxes there are exceptions to everything, including the exceptions? That's true here as well. There are in fact several types of trusts that can own shares in an S corp.

You may wish to google a bit (since you know the details of your trust) and see if this is something worth bringing up to your CPA.
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Thanks, I'll look it up.
 
Shonuff

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Tarrant_sl said:
As great as that guy is, Amway/Quickstar reps have ruined his advice for me.
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What? I missed that.

Doing my research, I see he likes Amway. I never looked at Rich Dad/Poor Dad as a direct system to make money, it was more of a way of thinking. I've not read anything past the first book, that was enough of a starting point for me. I took it from there, when he started preaching about looking at the world as a bunch of opportunities. I still drive around looking at business and opportunities, I did so this morning.

Don't throw the baby out with the bath water.
 
S

splorge

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Please don't tell me you listen to Kiyosaki. That guy is a total idiot, a liar, and fraud.
 
Shonuff

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splorge_sl said:
Please don't tell me you listen to Kiyosaki. That guy is a total idiot, a liar, and fraud.
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I learned a lot from his original book, things that influenced me to go out on my own.

1- The biggest being the picture of being in the rat race versus leaving it

2- Living below your means to be able to get where you want. Eventually, while working for someone else, we saved 55% of our income, which allowed us to go into business

3- Constantly look at the world as opportunities

4- Once you have your business, don't take out more debt, just make more money. If you want a luxury item, go earn it

These were all good lessons that I took to heart. Are they generic advice that someone else could have given? Yup. But I have zero entrepeneurs in my family, I had to read on it to convince myself to stop working for someone else.
 
C

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When I read marketing books etc. All the information is generally stuff we all know. All the books are really doing is hopefully explaining it in a way that connects with the reader. So whoever is the one that cracks your brain is the winner. Doesn't matter who is writing it as long as it connects. Everyone picks the person they've connected with and the rest are quacks. In reality, it doesn't matter who writes if it changes YOUR habits. That's worth millions. So if it takes 5 books on the same subject and finally the 5th one connects with YOU. All the books were worth it. The problem with business and money is we all know we need more of it and to spend less of it. If you aren't ready to change, everything you read will be a "well duh" moment in these books.
 
Shonuff

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Corndog_sl said:
When I read marketing books etc. All the information is generally stuff we all know. All the books are really doing is hopefully explaining it in a way that connects with the reader. So whoever is the one that cracks your brain is the winner. Doesn't matter who is writing it as long as it connects. Everyone picks the person they've connected with and the rest are quacks. In reality, it doesn't matter who writes if it changes YOUR habits. That's worth millions. So if it takes 5 books on the same subject and finally the 5th one connects with YOU. All the books were worth it. The problem with business and money is we all know we need more of it and to spend less of it. If you aren't ready to change, everything you read will be a "well duh" moment in these books.
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Like I said, I came up with my own down, and this book influenced me to save 55% of my HHI so I could do my own thing. Take the book at face value for being good advice, but don't buy anything else from the guy. Like any business owner, he's trying to capitalize on the book to sell you other things.
 
Shonuff

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I'm absolutely pumped that we are having our best December and January on record (for non-emergency work). These are usually the worst months of the year in my business. Other than divine favor, I attribute it to my increased advertising budget, wider marketing mix, and increased emphasis on sales. I spend a lot of time doing sales training, and it's helping.

I wish I had done a lot of this stuff when I first started out, because I lost a lot of money in the Winter back then. I had Winters where I lost 100k, because I don't lay off if a guy is working hard, and I was guaranteeing the guys 35 hours a week, whether they worked or not. It's funny when you take that guarantee away, how much more work you pick up. It's almost an incentive for them to sit at home and drink beer all day. Now, since we are more focused towards not giving up in the offseason, I have conversations with my Manager asking if we really need to work them 60 hours this week. And the answer I got back from him is that since work can be dicey before March, we better work 60 hours while we can. So we'll work Monday through Saturday this week.

$7k in new sign ups today!
 
Eomer

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So, over the past year or two a couple of our more senior or key employees have come forward wanting profit sharing or outright ownership in the company. To make a very long story short, one guy in particular has always been extremely demanding not just in that regard, but also for his base salary. His salary increases since he came off the tools as a service plumber and became a project manager in 2005 have averaged about 8-9% a year. That's actually not too ridiculous, given the economy here, but we feel that we've been more than fair with his salary.

A couple years ago we negotiated with him a deferred bonus program through a life insurance scheme that some insurance salesman had talked us in to. Basically we overpay in to the policy, and the employee can choose where the money gets invested, and if all goes well and he sticks around for 3 years he gets the money back out hopefully with interest. There's a contract and such.

Since then a couple other guys came forward that they are interested in ownership, if not immediately then down the line somewhere. Over the past year the bro and I kicked it around, and a week or two ago proposed to the troublesome project manager, another less demanding project manager, our purchaser and two of our main foreman a profit sharing scheme that would commence January 1st 2013. Basically they'd all get, a month or two after our financial year end, 2% of the company's net profits (before taxes and the like). If the company makes a million, they get 20k. One of the site foreman decided instead that he wanted a change of pace, as he was sick of working on a particular jobsite (that had just started) where the general contractor's site foreman and project manager are both incompetent assholes. He was also disappointed that he wasn't able to buy in to the company immediately, but it was a combination of factors. He let us know he'd be gone at the end of the month.

We explained to all 5 guys that outright ownership in the company was difficult at the moment because the company's balance sheet is still fairly bunged up from a number of things, from the last share "freeze" we did in 2006 to get me in to the company and get my dad out, a couple projects that went sideways and we're owed big money on, several mediocre years profits wise, and some remaining bonuses owed to my bro and I from our 2009 and 2010 year ends. Even if we did let them buy in now, they'd have to go come up with six figures to pay for the shares, and they'd probably have to wait 2-3 years before they'd even start getting bonuses out to pay down their investment, let alone pocket any of it. We felt that going with a profit sharing, non-equity plan for the time being would allow us to put their bonuses in front of all the other bullshit on our balance sheet, and they'd start getting money in their pockets next year with no investment. We proposed a 2 year term on this deal, and we'd revisit it after and quite likely at that point provided we had a couple decent years which we expect to, the balance sheet would be in better shape and things would make a lot more sense to buy in at that point. One of the four guys is about 60 and isn't even likely interested in buying in as he's likely to retire in less than 5 years.

So after we proposed that on the weekend, the 4 remaining guys got together to discuss amongst themselves and sat down with my bro and I yesterday. They had some questions about the exact mechanics of how it would work, what we thought it would be worth to them (no guarantees, as it's based on profits) and so on. They all seemed happy with the deal, including the pain in the ass PM.

When we had originally negotiated the deferred "loyalty reward program" with the whiny PM a couple years ago, we told him that if we did go forward in the future with any other bonus structure or equity share, that the loyalty reward would be rescinded (he'd get to keep the 2011 and 2012 portions of the loyalty program, but not 2013). He immediately got his hackles up, saying that he should get that too on top of anything else he gets. My bro and I immediately got pissed off and more or less said "we own the fucking company, we get our salary and our share of profits, why in the fuck should you get salary, profit sharing, AND another bonus on top of it?" We also pointed out that his fucking salary had been higher than OURS for a couple years now, and his gross income from the company for 2011 and 2012 was higher than ours. He didn't really have much to say and backed down and accepted the terms.

We'd sat down and did his annual review back in September and more or less came to an agreement on his salary, vacation time etc. He got an extra week of vacation, and we agreed to give him roughly 2.5% increases in 2012 and 2013 (we'd give him retroactive pay back to the beginning of 2012). We'd told him back in 2011 that his salary was "topped out" as far as we were concerned, and that from here on in he'd get cost of living or inflation increases, no more. Back in September he was all cranky about that, he seems to think inflation is 5% or more, and on top of that he gave me a completely incorrect summary of his salary since he came in to the office that tried to make it look like his increases had already only average 2.5%. It was laughable. The reality was that in the 8 years he's been in the office, up to and including his 2013 salary, it averaged 8.2%. Shit got busy and we didn't finalize things, but the PM had come in to my office with the signed agreement and said all grudgingly that he guessed it was acceptable.

So today we sit down to finalize it. My bro starts off by saying that nothing much was different than we'd originally discussed, I interrupt and say that the one thing that would change is that the final year of the loyalty program would be rescinded in lieu of the much larger profit sharing. Immediately jackass's face starts turning red and shaking side to side. Immediately my brother says "I can tell already that you've got a problem with this." PM nods and starts trying to talk, bro cuts him off. "Well then we have a problem too. How can you not comprehend that you don't get two bonuses? This meeting is over. I suggest you give some serious thought to your future with the company in the next 24 hours."

I'm hoping the big fucking baby quits, because otherwise, we're going to have to fire him and pay severance.

I dunno what the point of this post was, guess I just wanted to vent.
 
Eomer

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Oh, I also forgot to mention that our third, minority partner in the company who's been a shareholder since me and my bro were kids and is our lead foreman can't fucking stand the whiny PM, and only agreed to go along with him getting profit sharing or equity because we asked him to. The other PM, the purchaser, and the two site supervisors that were also included have all privately expressed large concerns with him in the past as well, he doesn't get along with anyone, although in recent months he'd been doing a lot better and a couple people had said so, because back in September we told him that virtually everyone in the company had complained to us about him at some point.

So if anything, most people in the company would likely be glad to see him go, although in the short term it would make life a bit harder.
 
Shonuff

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Eomer_sl said:
Oh, I also forgot to mention that our third, minority partner in the company who's been a shareholder since me and my bro were kids and is our lead foreman can't fucking stand the whiny PM, and only agreed to go along with him getting profit sharing or equity because we asked him to. The other PM, the purchaser, and the two site supervisors that were also included have all privately expressed large concerns with him in the past as well, he doesn't get along with anyone, although in recent months he'd been doing a lot better and a couple people had said so, because back in September we told him that virtually everyone in the company had complained to us about him at some point.

So if anything, most people in the company would likely be glad to see him go, although in the short term it would make life a bit harder.
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Let me share something with you that a Chairman of the Board and board member of at least five major corporations shared with me in B-school. He had signed on as a board member of a new company. They were supposed to be meeting on strategy with the CEO, yet every strategy meeting of the board and the CEO involved one thing - his bonus structure. After eight months of meetings where this was the only thing they talked about, he resigned. An employee of the company can never be allowed to think that he's the sole reason it exists. Because the logical conclusion (to them anyway) is that they expect to be paid more than you are.

This guy needs to be smacked down to midcard status, he's getting a huge ego. He's not carrying any of the risk, but wants ownership. I bet he doesn't walk. He needs an attitude adjustment.

I have the same situation, in that I need a highly skilled Manager at all times (preferably two at one time), that can relate to customers, give accurate price estimates and keep the workers motivated. At times, I've had to fire Managers that want to treat me like I'm an employee. I usually have to find someone out there that was a laborer, and train them to be a Manager, and profits take a hit for six months. Most people just can't become a great Manager over night. But every time, when they treat me like I'm the help, they get the door. With me, it's different, because when they start acting like your PM does is when they start bidding jobs against me and doing them on the weekend. I can tell who is going to rob me by what comes out of their mouths.

It is always better to pay people bonuses on profit sharing, rather than dole out percentages of the company. As you'd read in economic texts dating back over a century, employee interests need to be aligned to the company's goals, and bonuses based on profits are essentially the same thing as ownership, but without the hassle. You wouldn't want to give ownership to an employee in the U.S., given the laws. Minority partners are given the same rights as majority ones. So a guy with just a few percent in the company, in some cases, will have just as much say in the company's direction as you would. And what happens to his share if he gets divorced, dies or gets strung out on crack and decides he's just going to smoke crack the rest of his life and stop working?

P.S. I'd start working on a new PM right now. Regardless of whether or not he quits in the next 24 hours, it's a good idea. When the company revolves around one person (other than the owner), that's never good for the owner. It just means you lose power.

P.P.S. You should be very concerned that you have that many guys coming to you for ownership at once, if you let them collectively bargain against you successfully, expect to lose. I tell my people if they want a raise, come talk to me on an individual basis, make a good business case for why you deserve a raise. It can very quickly turn into the mob turning against you and telling you they better get what they want, or they'll quit. I did have to fire everyone once to show them they weren't going to screw with me, when they decided they all want a 30% increase in pay, when they were already being paid 20-50% over market. And this was at an offpeak time (it was December, I lost 20k that month) and everyone else was laying off. Literally, in the Winter, there are dozens of skilled workers out there that have been laid off and would do their jobs for half of what I was paying my guys at the time.
 
Tmac

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Your cranky PM sounds like the epitome of the 20/80 rule. I agree with Lyrical. Start the hiring search now and keep your eyes open for a top notch replacement with an appetite to learn and a good attitude.

Hire slow, fire fast.
 
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