June 23, 2015

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What Yogi Berra Can Teach Small Business Owners About Estate Planning

According to baseball legend Yogi Berra, “If you don’t know where you are going, you will probably end up somewhere else.” Yogi’s one liners often make me laugh, but they also make me think. His quip reminds me of the importance of having a plan when engaging in any endeavor that will impact our personal situations beyond the immediate here and now. That includes the process of estate planning. Now, I will grant you that Yogi probably wasn’t thinking about estate planning when he offered this particular slice of wisdom. Nonetheless, his words are absolutely spot-on insofar as the importance of planning for that day which we will not live to see. As important as having an estate plan is for all of us, it is of even greater importance for the small business owner. I think it is no exaggeration to say that thoughtful estate planning is an essential component of every small business owner’s overall business plan.

I think of a successful small business owner as someone who recognizes an opportunity to provide a needed product or service, and then invests the time, devotion and energy to developing and implementing a plan to seize that opportunity. I admire those thoughtful risk takers who harness their vision, business acumen and moxie in order to create, nurture and guide a sustainable business venture. I have found the small business owners I counsel to be thoughtful, deliberate and attentive to detail in how they go about the work of managing their businesses; i.e., they plan for the future. However, what I have also noticed from time to time in otherwise prudent and successful small business owners is a lack of any plan for their business when they die or are otherwise unavailable to manage it.

It is easy to understand how even successful small business owners who are otherwise consummate planners might prefer to avoid estate planning as it concerns their business operation. In at least one respect, these successful business owners are a lot like most people; that is, they are not accustomed (or inclined) to ponder their own mortality. It is a subject, even if not loaded with angst, which easily lends itself to defer consideration for “another day.” Yet, the stubborn reality remains that absolutely none of us will get out of this life alive. For the small business owner, Yogi’s wise counsel merits some thought, and action.

If you are a small business owner and have yet to start the estate planning process, let me suggest some relatively easy first steps to get you started. First, locate and then review your company’s organizational and governing documents. If your business is incorporated, these would include the corporate bylaws, shareholders’ agreements and those other documents your lawyers drafted when the business was getting started. If your business is a limited liability company or partnership, you will want to look at the company’s operating agreement or partnership agreement. Review these documents with the following questions in mind:

– How will your death (or permanent incapacity) affect the company’s existence?

– How will your successor be chosen, by whom and how much say do you presently have in that decision?

– Will your death trigger a buy/sell provision by which a co-owner, or the company itself, is allowed to purchase your interest in the business, notwithstanding the wishes of your own family members?

A brief review or discussion with your lawyer of questions like these may then prompt you to begin thinking about your vision for the company’s future when you are no longer able to guide it. A next step might be to consider how you would want the business operated in the event of your temporary incapacity or unavailability. A durable power of attorney will allow you (as the “principal”) to designate someone else (the “agent”) to make business decisions during your incapacity, while allowing you to retain the ability to withdraw or revoke the POA when you are ready to resume control of the business.

The POA itself might serve as the genesis of a comprehensive succession plan, by which you map out a plan to reduce your own involvement in the business and allow others to assume greater management and decision making responsibilities. An orderly transition plan is apt to increase the company’s odds of survival when you are gone. And, such a plan may help you to “let go” of control and devote more efforts to mentoring those who will eventually run the business you created.

Ultimately, you will want to focus your planning on what you want to happen to the business when you have died. Here, a well-designed trust agreement will allow you a great deal of flexibility, both in terms of retaining a degree of control while you are alive, and identifying your intentions with respect to the business after you die. The trust agreement enables you to select those who will administer your stated intentions when you are gone. You can, for example, provide for the sale and/or dissolution of the business over time, or provide for its eventual transfer to one or more family members. A trust agreement allows the owner a great deal of flexibility and for that reason makes it an extremely helpful tool in the business owner’s estate plan.

The bottom line is that you, as the small business owner, have the ability to ensure that with careful planning the company you created will survive your passing. This is a process that can be tackled incrementally over time. Given the uncertainties of life, however, the estate planning process should become a component of your overall business plan. There is no time like the present to start this process. Don’t be lulled into putting this task off for “another day”. None of us know how much of a future we will have. Or, as Yogi puts it, “It may be getting late earlier than you thought.”

May 20, 2015

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How to Avoid Bankruptcy and Save Your Assets

Bankruptcy is not the only option for someone in severe debt there is another option which people should be aware of namely the consumer proposal.

Whereas in a bankruptcy your assets are assigned to a trustee (subject to exemptions) who then liquidates them to pay your unsecured creditors, this is not the case for a consumer proposal. The consumer proposal, under the Bankruptcy and Insolvency Act, is an offer to pay your secured creditors an agreed amount of money to extinguish your debts and thus avoid bankruptcy. This money is paid interest free over a period of up to 5 years.

When a consumer proposal is filed 3 major things happen:

Interest stops on your debts

Your assets are protected from the creditors and a stay of proceedings is in place

Creditors can no longer contact you by phone or mail or any other means

So long as you keep up the payments your assets are protected under the Act. This option is usually the preference for people with savings or equity in their house or for small business owners who need to protect their business assets to maintain an income. If three payments are missed then the proposal is annulled and you are back to where you started!

Consumer proposals do adversely affect credit and are reported to the Equifax and Transunion credit bureaus until 3 years after the proposal is paid off. One option to speed up credit building is to pay off the proposal earlier which will remove it from the credit bureau earlier.

Other advantages of the consumer proposal over bankruptcy are:

If your income increases during a proposal the payments to the creditors does not. In a bankruptcy your income is monitored and payments to creditors adjusted accordingly

Inheritances and windfalls are kept whereas in a bankruptcy these are paid to the creditors.

You can still be a director of a company whereas in a bankruptcy you cannot

You can still sponsor someone into Canada, in a bankruptcy you cannot do this until discharged.

There is the opportunity to rebuild your credit faster by paying off your proposal early

Bankruptcy is not the end of the world as some people may believe and may be seen as a good opportunity to press the reset button and start again. Even if there are assets which may be seized in a bankruptcy the debtor usually has the option to pay additional funds in lieu of the asset value.

April 14, 2015

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Building Your Business Credit Report

A business credit report can be started much the same as a consumer report commonly is, with small credit cards.

The business can be approved for small credit cards to help them build an initial credit profile.

These types of initial cards in the business world are commonly referred to as “vendor credit”.

Net 30 terms are common with most vendor credit sources. This means they will give you credit on “net 30” terms, giving you 30 days to pay the bill you owe in its entirety.

Some companies will require you buy their products while others won’t.

Some companies will have you pay for your first couple of orders, others won’t.

Some companies report your credit very quickly and it reports quickly, some don’t.

Look out for all of these things when applying with vendors.

Always apply first without using your SSN. Some vendors will request it and some will even tell you on the phone they need to have it, but submit first without it.

Most people you speak with at the credit issuers don’t even know that you can get business credit without supplying your SSN, so follow these steps I outline and don’t apply with your SSN.

When your first Net 30 account reports your “tradeline” to Dun & Bradstreet, the DUNS system will automatically activate your file if it isn’t already. This is also true for Experian and Equifax.

Some of the most popular vendor sources include: Uline, Laughlin & Associates, Quill Office Supplies and Reliable Office Supplies.

Next, start building revolving accounts…

You will need a total of five payment experiences reported to start getting revolving store credit.

Don’t apply for store credit with no payment experience, no score, and no profile, or you WILL get denied.

Most major retailers do offer revolving business credit. To get approved they will want to see that you do have established payment experiences, an established credit profile with at least one preferably two reporting agencies and positive credit scores with the reporting agencies that your credit is being reported.

Your major business credit scores are based on the timeframe you pay your bills.

So to have good scores you just need to make sure you pay your bills on time or early, the earlier the better.

So even with net 30 vendor terms, try to pay your bill as soon as you get it to have the highest possible scores.

Remember, many credit issuers have their computers approving files automatically. These computers are looking for high scores, so give them what they want.

You should have five payment experiences reported to start applying for revolving credit. Some starter revolving accounts include: Radio Shack, Lowes, Home Depot, Staples and Office Depot.

Most major stores do offer business credit even though they don’t promote that they do. So once you have followed the steps outlined here, you can start getting credit with these major retailers: BP, Chevron, Walmart and Target.

These stores also offer business credit: Amazon.com, Best Buy, Nordstrom’s, Sam’s Club, Costco, and many more.

Finally, get CASH credit…

March 12, 2015

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There Is No Shortcut to Credit Restoration

Got a Low Credit Score? Avoid Quick-fix Solutions

Claims like “We can improve your bad credit instantly, no questions asked!” “Contact us to make a new credit identity – legally” or “Credit problems? Fix them in a month” are common in TV ads, radio, flyers, emails, and online space. According to the attorneys at the Federal Trade Commission (FTC), no legitimate credit restoration company claims credit repair is a quick-fix solution.

There is no shortcut or quick fix to improve your credit. It takes time, conscious effort and following a stringent debt repayment plan. You need to know your rights before hiring a credit restoration services company. Some people say that you don’t need any help to fix your credit and it is advisable to try it yourself. However, that will involve a lot more time and effort on your part.
Your Rights

In any case, you need to be aware of your rights:

– Each of the three nationwide credit bureaus – Equifax, Transunion and Experian are obligated by law to provide a free credit report to all consumers once a year. You can order the three free credit reports at the same time or leave a gap of 3-4 months between each report. The latter is a better idea because it allows you to monitor the progress of your credit status periodically.

– You are entitled to receive a credit report for free if any organization has taken an “adverse” financial action against you. This includes denial of credit, insurance application or employment. You need to ask for the report within 60 days of receiving the notice of an adverse action. People, who are unemployed, are allowed one free credit report if they are planning to find a job within 60 days. People on welfare and whose report is inaccurate due to fraud, such as identity theft are also entitled to a free credit report.

– There is no cost associated with disputing inaccuracies in your credit report. You can raise a dispute both with the credit bureaus and the information source that provided some of your personal financial details.

What to Do When You Need a Real Solution?

If you are wondering, “How can I restore my credit now?” it may be a good idea to delegate this task to seasoned professionals with years of experience in credit restoration. Legitimate and reliable credit restoration companies would first scan through your credit report and leverage their years of experience to find items that can be disputed successfully. They not only detect inaccuracies and errors, but also verify their authenticity with the concerned parties.